Changes in Major Crude Oil Reserves, 2001-2006

The geographical imbalance in oil reserves is similar to the one of production. On a long-term perspective, OPEC account for the bulk of oil reserves. Saudi Arabia alone had about 25% of all the world's oil reserves until recently, but a recent changes in the evaluation of oil reserves has tremendously increased the share of Canadian reserves. Mainly due to an increase in oil prices and improved extraction technologies, Canadian tar sands have become economically recoverable, thus to be counted as official reserves. Under such circumstances, Canadian oil reserves surged from 5.6 billion barrels in 2001 to 173 billion barrels in 2006. Questions remains about to what extent these reserves are economically recoverable and if a cost effective way is set, this will go a long way to extend the availability of petroleum on global markets. Furthermore, it may take a long time at the current consumption level for OPEC to run out of oil reserves. The United States, in spite of important reserves, have only about 10 years of oil reserves considering their reserve-to-production ratio. No European country, except Norway, has significant oil reserves. It is thus likely that reliance on sources outside developed countries will increase over the next decade.

There is however some controversy concerning the true extent of oil reserves, especially in the Middle East. OPEC countries may have vastly overstated their reserves, mainly because production quotas are based upon estimated reserves. This means that the larger its reserves, the more an OPEC country can export oil. Kuwait is a good example of this issue as it reported a gradual decline of its reserves in the early 1980s. This was expected since the Kuwaiti oil industry can be considered as mature. However, in 1985 the country reported a 50% increase in its reserves without any new discovery, a strategy solely designed to increase its export quotas. Kuwait was not alone in the process of increasing its reserves for quota reasons. In 1988, Dubai, Iran and Iraq all significantly increased their reported reserves for the same reasons. Even Saudi Arabia followed and reported a massive increase in its reserves in 1990. However, as the world demand gradually increased quota issues became of less relevance. As the above figure underline, existing reserves of many oil producing countries has substantially increased between 2001 and 2006 (e.g. Iran, UAE, Venezuela) in spite of no significant discovery of oil fields.

There are serious concerns about the high level of concentration of reserves in Saudi Arabia and the "creative accounting" estimates of oil reserves. 95% of the Saudi oil comes from six major field discovered between 1940 and 1967. The Ghawar field alone produces 60% of this total. It was discovered in 1948 and put into production in 1951. By 2004, it produced 4.5 million barrels per day, but large amounts of water needs to be injected to maintain the output of the field. As such, this field is likely to be at the end of its production cycle and its output may decline substantially in the next few years. If this is the case, oil exports from Saudi Arabia may start the decline while the world was expecting it to provide for the expected additional demand. The outcome would be a serious oil shock.