A Guide to Oil Reserves and Resources

Terms of Reference

Introduction

Oil Reserves; Proven, Probable and Possible + Assessed and Identified

Additions to Reserves

Ultimate Conventional Oil Resources

Non-Conventional Oil Resources

Concluding Remarks on Oil Reserves/Resources Issues

Onshore and Offshore Oil Reserves/Resources

References

Terms of Reference

1. To provide a guide to oil reserves and resources dealing with the following concepts:
   1. Reserves: proven, probable and possible.
   2. Reserves appreciation over time through field extensions and improved recovery.
   3. Inferred reserves in basins/provinces under active exploitation.
   4. Potentially petroliferous regions.
   5. Estimates of ultimately recoverable resources.
   6. Past and contemporary controversy over the issues.

   And to give an approximate breakdown between onshore/offshore reserves/resources.

2. The additional requirements specified were:
   1. To include a general reference to and comment on unconventional reserves.
   2. To include mention of the definition of Atlantic Frontier reserves.
   3. To specify references.

3. It was further specified that the study should be in a format that can be used publicly: and that it be submitted on disk and with three hard copies.

Introduction

In a world of limited knowledge, evolving technology, restricted investment funds and political constraints on where extractive industries can be undertaken, it is hardly surprising that there is so much uncertainty concerning the world's actual and potential oil wealth. The only near-certainty is in respect of the production (and use) of oil to date, viz. a little short of 800 billion barrels with a present annual rate of use of about 25 billion barrels and an annual rate of growth in use over the past 10 years (1987-1996) of 1.25%. Worldwide - by national, state and private companies as well as by the 100+ companies which operate at an international level - there is an explicit acceptance of the inevitability of the continued growth of oil demand and of their opportunity and responsibility to ensure that sufficient reserves of oil are located and exploited to enable this rising demand to be met.

In a world of limited knowledge, evolving technology, restricted investment funds and political constraints on where extractive industries can be undertaken, it is hardly surprising that there is so much uncertainty concerning the world's actual and potential oil wealth. The only near-certainty is in respect of the production (and use) of oil to date, viz. a little short of 800 billion barrels with a present annual rate of use of about 25 billion barrels and an annual rate of growth in use over the past 10 years (1987-1996) of 1.25%. Worldwide - by national, state and private companies as well as by the 100+ companies which operate at an international level - there is an explicit acceptance of the inevitability of the continued growth of oil demand and of their opportunity and responsibility to ensure that sufficient reserves of oil are located and exploited to enable this rising demand to be met.

Oil Reserves; Proven, Probable and Possible + Assessed and Identified

b. The production process itself, however, produces a continuing flow of information which enables regular - or even frequent - re-evaluations of the recoverable reserves of a field to be made. Though some fields' reserves are downgraded, as a result of production experience, upward evaluation of reserves over time is more usual. This process often leads to a situation in which the declarations of the proven reserves of oil in a field trend upwards over time, in spite of the on-going extraction of oil in the production process. How long this phenomenon continues will be the net result of the rate of extraction on the one hand and, on the other, the 'conversion' of the field's original 'probable' or 'possible' reserves to the category of 'proven'. In many cases, moreover, new information arising from the production process will show that the physical size of the reservoir is greater than first indicated - through extensions to the boundaries of the area of the reservoir which can be exploited - so leading to a re-evaluation of the volumes of reserves in all categories.

c. These geological/engineering based changes in the reserves' estimates will, moreover, also be modified by changes in the economic environment: either in terms of costs or prices, whereby the profitability of investment in a reservoir's development will be affected. Lower prices and/or higher costs will undermine the validity of earlier declarations of the reserves, as exploitation to the degree hitherto assumed will no longer be profitable. Higher prices and/or lower costs will, on the other hand, stimulate additional interest in the reservoir's exploitation and enhance the level of recoverable reserves.

d. Finally, there are often institutional and/or political factors which encourage or inhibit reserves' declarations. These relate to companies and states' interests respectively. Companies may, for example, wish to 'play-down' the reserves discovered so as to minimise competing companies' interests in possible new concessions in the vicinity of a field, while countries, on the other hand, are sometimes tempted to exaggerate reserves' declarations so as to enhance national borrowing opportunities from international and/or foreign banks for which the oil in the ground can provide the collateral for loans. Au contraire, companies are sometimes motivated to 'talk-up' the potential of their discoveries in order to help their stock-market status, while some countries may 'under-play' oil finds so as to curb premature pressures from politicians and others for expansionary economic policies.

e. Thus, even for a single reservoir, the declaration of reserves is, by no means, always an objective exercise and, as already emphasised above, any declaration is valid only for the specific circumstances of the time at which it is made. When such data for individual occurrences are summed to the national and, eventually, to the regional or the international level some of the 'noise' in the estimating system is removed - as offsets occur as a result of different companies' contrasting attitudes to reserves declarations and contrasts between different countries' approaches to the reserves question. In addition, it should be noted that the simple arithmetical addition of a large number of independent values each representing the 90% probability of a specified volume of recoverable reserves in an individual reservoir produces a higher joint probability for the total. Thus, national totals, in most cases except for countries with very few fields and, even more so, the regional and the global totals of proven represent the near-certainty (rather than a 90% probability) of proven reserves of at least that amount of oil. Collective statements of volumes of proven reserves of a large set of reservoirs (assuming the criteria for defining them are met) represent minimum expectations of the availability of oil for any given set of economic parameters .

f. The two most recent sets of estimates of proven reserves are those presented in World Oil in August 1996 and Oil and Gas Journal in December 1996. These sources both claim to show proven reserves (based on unspecified national and independent data). The figures of these two industry journals are updated annually and are widely accepted within the industry as reasonable indicators of the reserves situation as it evolves from year to year. As seen in Table 1 there is a relatively small difference (of 9.8%) between the two sources for the global total of reserves with both sets showing proven reserves in excess of 1000 billion barrels (giving a ratio of reserves to current annual production of over 40 years). The regional breakdown, on the other hand, shows very significant differences between the two sources for reserves estimates for the Former Soviet Union (FSU) and for the Middle East. World Oil shows FSU reserves (of 191 billion barrels) at a level which is over three times higher than the Oil and Gas Journal's data (59 billion barrels). By contrast, the latter shows Middle East reserves to be about 12% (= 70 billion barrels) greater than the former. In both cases the differences between the sources reflect contrasting views over the validity of the national reporting of proven reserves. The Russian system of classification is different from that in the west, so that the much higher figure for its reserves includes some that would be designated as probable or possible, using western terminology. For the Middle East, the lower World Oil data reflects scepticism over the validity of the characterisation of proven reserves by Iran, Abu Dhabi and other countries in the region. It has been suggested this exaggeration is related to issues within OPEC which, in part, determined allowable production quotas in relation to reserves . For the rest of the world, however, the two sets of estimates are reasonably close. Each source indicates a total of about 300 billion barrels for non-Middle East/non-FSU reserves.

g. The other two columns in Table 1 are included to show contrasting views. Column 3 shows a non-publicly available set of reserves data - defined as 'assessed' reserves (which are defined as including 50% of probable reserves). This data has been collated by PetroConsultants (from which it is available for $32,000 but only on the condition that it is used "exclusively" by the purchaser!). This study further downgrades the reserves of the Middle East (by 200 billion barrels from the level indicated by the Oil and Gas Journal) and it also reports a relatively low figure for the FSU. For the rest of the world, however, its figures are not dramatically different from those of the other two sources.

h. Finally, column 4 in the Table is based on the published documentation of the 1994 World Petroleum Congress (WPC). At that Congress identified reserves in 1993 were reported by the United States Geological Service (USGS). As listed in the Table the figures given at the WPC have been reduced by the amount of oil used in 1994 and 1995 and a conservative assumption has been made that no additional reserves have been discovered in the meantime. The USGS reserves, totalling 1056 billion barrels, are designated as 'identified' reserves defined as "unused discovered reserves that are adequately physically defined and have accepted economics of recovery". This - as adjusted to an end 1995 value for purposes for comparison - is exactly midway between the Oil and Gas Journal and the World Oil specifications of proven reserves.

i. This similarity - for a calculation based on different criteria - would appear to confirm the USGS's view that proven reserves are impossible to quantify accurately at the international level: especially in a situation in which the reserves are now so large as to make it impossible and, indeed, unnecessary for most of the reserves to be "made ready for exploitation": as required under the strict definition of proven reserves. On the other hand, the USGS figures confirm an availability of remaining discovered reserves which are capable of being produced with present technology and at present prices which is basically the same as the oil journals' data sets of proven reserves. PetroConsultants data is an 'outlier' from this concensus for reasons which are impossible to evaluate, given the private and inaccessible nature of the study and, indeed, of the organisation itself.

Additions to Reserves

a. Given the large volume of contemporary oil reserves, in relation to an annual use of 25 billion barrels of oil, the specific size of the estimates is essentially unimportant; in terms, that is, of the industry's over-potential for continuing production from the + 1000 billion barrels of known oil. Globally, too many reserves have been discovered, suggesting some misuse of financial resources in exploration and development activities. This, however, is not true if one discounts the very large reserves of the Middle East (600 billion barrels) and the large reserves of the FSU (120 billion barrels). Political and other risks affect the production potential of these reserves, so that the search for and development of reserves in the rest of the world (with + 300 billion barrels of presently known reserves to serve about 15 billion barrels of annual use) remains a requirement for the industry and, of course, also a requirement for the maintenance of contemporary economic and political systems of most of the world's nations.

b. Table 2 shows the year by year gross and net change in reserves since 1973. Over this 24 year period approximately two barrels of oil were added to reserves for every one which was used. There were only three years (all prior to 1980) in which reserves use exceeded reserves additions. In each of the other 21 years the industry succeeded in more-than-replenishing the stock with which it started the year. Reserves discoveries and re-evaluations do not, however, follow a smooth curve. Instead, they tend to be highly variable because of the uncertainties of the discovery process and the intermittent nature of declarations on reserves re-evaluation by most countries. Thus, the annual reserves additions process back to 1950 is smoothed by means of a five year running mean of the data and is contrasted with the industry's production history. This re-emphasises the high degree of success of the industry, even through a period of great disturbances in its organisation, structure and commercial fortunes, in maintaining and generally increasing the shelf-stock of reserves at a more than adequate level over a very long period.

Table 2
Proven reserves, reserves/production ratio, oil production and net growth/decline in reserves over the 23 year period from 1973
Proven reserves at the beginning of year (R/P ratio in brackets - in years) Production of oil in year Gross additions to reserves in year Net growth (+) or decline (-) in reserves in year
(in barrels x109)
1973	577 (29.9)	21.2	35	+14
4	591 (27.9)	21.2	32	+11
5	602 (28.4)	20.2	31	+11
6	613 (30.3)	21.9	4	- 18
7	595 (27.2)	22.6	16	- 7
8	588 (26.0)	22.9	45	+22
9	610 (26.6)	23.7	22	- 2
1980	608 (25.7)	22.8	34	+11
1	619 (27.1)	21.3	67	+46
2	665 (31.2)	20.1	30	+10
3	675 (33.6)	20.0	21	+ 1
4	676 (33.8)	21.1	44	+23
5	699 (33.1)	20.5	30	+ 9
6	708 (34.5)	21.4	67	+45
7	753 (35.2)	21.9	129	+107
8	860 (39.3)	22.8	83	+60
9	920 (40.3)	23.5	87	+63
1990	983 (41.8)	23.8	26	+ 2
1	985 (41.4)	23.7	65	+41
2	1026 (43.3)	23.9	46	+22
3	1048 (43.9)	23.7	27	+ 3
4	1051 (43.8)	24.3	26	+ 2
5	1053 (43.3)	24.7	34	+ 9
6	1062 (43.0)
	Totals 1973-95	513	1001	+488
Sources: Reserves' developments based on data from the annual survey of world oil reserves in the Oil and Gas Journal, 1973-95 ; from World Oil, 1974-95 and from De Golyer and MacNaughton's Annual Survey of the Oil Industry, 1975-83. Annual production data from the B.P. Statistical Review of World Oil/Energy 1974-1996 PRO, August 1995 (revised October 1996)

c. From 1945 to the end of the 1960s the main element in the process of increasing reserves was the average annual discovery rate from new fields of over 35 billion barrels (see Fig.3): most notably as a result of the highly successful exploration efforts in the Middle East. The low cost of the massive discoveries of new Middle East oil was reflected in the declining real price of oil over that period (the price fell by almost two-thirds between 1950 and 1970, to reach its lowest ever price by the latter date). These Middle East discoveries, however, also undermined the economics of exploration activities elsewhere in the world and inhibited investment in the more intensive development of already producing fields from which the average recovery rate (of the oil in place in a reservoir) remained at only a little over 30%. Even so, reserves' additions from old fields' extensions and re-evaluations were not insignificant: for example, the 100 billion barrels of reserves discovered (but unused) by 1950 were recalculated in 1970 as having been 380 billion barrels: the 280 billion barrels of reserves' appreciation over this period easily exceeded the total use of oil over the 20 years (about 190 billion barrels). In effect, therefore, all new discoveries from 1950 to 1970 constituted a gross addition to the world oil reserves base.

d. Post-1970, both economic and political changes in the world oil system have led to a significant change in the relative contribution of reserves from new discoveries and those from the appreciation of previously discovered fields. The nationalisation of the foreign private companies' operations in most Middle Eastern (and other OPEC) countries and the reduced demand for OPEC oil since 1979 greatly reduced the ability and motivation of the largely state-owned and operated industry in these countries to search for new fields. Over this period the international oil companies' interests switched to the search for oil elsewhere in the world. Much oil has, as a result, been found, but, given the contrasting geological circumstances, the results of the exploration efforts have generally been less productive in the higher cost areas. Thus, over the last 25 years the contribution of newly discovered oil (an average of just over 20 billion barrels per year) to total reserves growth (which totalled 1000 billion barrels - see Table 1) has been only about 50%. In recent years its share has fallen to as little as 25% of the total oil added to reserves.

e. On the other hand, the much higher price of oil since 1973 and the industry's loss of opportunity to explore for oil in the lowest cost and most prolific areas have jointly motivated the industry to research and develop the means of enhancing the reserves of existing fields. A comparison of reserves data for 1970 and 1995 indicates that this has been highly successful. It has led to a further 40 billion barrels' appreciation of reserves (Fig.1) even from the set of fields discovered as long ago as pre-1950, while over 300 billion barrels have been added to reserves declared for those fields which had been discovered by 1970.

f. Apart from the volumetric significance of this phenomenon of reserves' appreciation, equally noteworthy is the length of time - of up to 50 years - over which the process continues. Science and technology continue to offer prospects for the further enhancement of previously discovered reserves - through, for example, increased rates of recovery of oil in place and by new drilling technologies, such as horizontal wells which extend the areas of reservoirs which can be economically depleted. The impact of the new technologies etc still has much of its course to run, so it is thus highly likely that upwards of another 400 billion barrels will, in the fullness of time, be added to the volume of ultimately recoverable oil from presently known fields. This will take the presently indicated 1800 billion barrels of initial recoverable reserves in already discovered fields to 2200-2300 billion barrels by 2020. Over the period 1996-2020 the cumulative global use of oil can be expected to be about 750 billion barrels, so still leaving, by that time, as much as 700 billion barrels of oil in the fields that had already been discovered by 1995. Oil use in 2020 seems likely to be about 35 billion barrels: in order to sustain an annual production rate rising to that level, the continuation of the successful exploration for new oil fields (at least the rate of discovery achieved in recent decades) will be essential to ensure the future of the industry.

Ultimate Conventional Oil Resources

a. These consist of the initial ultimately recoverable reserves in discovered fields (see above) plus the recoverable oil from fields yet to be discovered. The usual estimates of the world's ultimate reserves are derived from the still generally accepted hypothesis for the origin of oil, viz. from organic materials which accumulated on the sea-bottom, were rapidly buried by the deposition of fine grained material such as mud and lime and then converted to petroleum by subsequent processes involving heat and pressure. The resultant oil (and associated gases) has thus, it is believed, had its origin in sedimentary rocks through which it then migrated to form 'reservoirs' in locations where conditions were favourable for such accumulations.

b Fig.5 shows the relationship between the extent of the potentially petroliferous areas for various countries and regions and the numbers of wells drilled within each. The clear contrast revealed between the intensive drilling within the US, on the one hand, and the limited amount of activity elsewhere in the world reflects both the much longer history of oil exploitation in the United States and the fact that the country has a peculiar legal system for the production of hydrocarbons (with individual ownership rights which extend to the sub-surface wealth, compared with the public ownership of such wealth in almost everywhere else in the world). For various reasons this system has encouraged the amount of drilling such that about 80% of all the world's oil wells drilled to date have been located in the United States: even in 1995 the US was still the location for 40% of all wells drilled. Canada is also intensively drilled. In 1996 over 20% of the world's wells were drilled in that country, largely reflecting the impact of a US-style organisation of the industry (albeit under a different legal regime) and the stimulus of the US market. One cannot, however, extrapolate from this North American experience to the rest of the world's hydrocarbon areas to judge the scale of the remaining prospects for drilling and reserves' discovery elsewhere. One can, nevertheless, conclude that the rest of the world has still been relatively little touched by oil exploration activities (including even the Middle East). The industry claims that most remaining basins have already been evaluated from the geological standpoint and that most do not appear to be interesting enough to justify exploration costs. For the rest which offer interesting potential, they are generally frontier regions within the Tethyan (equatorial) and Boreal (rest of the northern hemisphere) geological realms. These mostly have noteworthy physical (and, hence, cost) problems, necessitating large potential reserves to make their exploitation for oil economically worthwhile. The East Atlantic Margin stretching in waters to a depth of 2500 metres, from Ireland to the Faroes/UK and Norway is an example of such a region. Others lie in the interior of the Eurasian land-mass, under Arctic waters of both North America and Russia and in deeper waters of south-east Asia etc. By contrast, the South Gondwana realm (South America, Africa south of the Sahara and the India sub-continent) and the Pacific Realm are believed to have relatively low prospectivity for oil occurrence.

c. Given these limiting factors, the most widely presented view (viz. that of the US Geological Service) of the volume of undiscovered oil is conservative: its latest estimates have a mean value of about 600 billion barrels. This, volume, added to the 2200-2300 billion barrels of the initial reserves of already discovered fields (see section 3e. above) indicates a total world oil resource base of about 2850 billion barrels. The conservatism of this estimate is demonstrated in the fact that it is only a little above the lower end of the range of 2750-3250 billion barrels estimated by Shell for the ultimate conventional oil resources and is well below the conclusion of a study by the International Institute for Applied Systems Analysis that the ultimate resources of conventional oil will be "4000, 5000 or even 6000 billion barrels, depending on the price which consumers can afford to pay". This, in turn, is only half of the resource base which Russian Academician Styrikovich suggested almost 20 years ago, viz. an oil resource base that could be as high as 11,000 billion barrels.

d. This last mentioned Russian estimate must, however, be seen in the context of the acceptance by the oil industry of that country (and in other parts of the former Soviet Union) of an alternative view of the origins of oil. This alternative view of oil's origin and habitats was already clearly expressed over 40 years ago by the then Senior Petroleum Geologist for the Ministry of Geology of the USSR, Academician Professor V Porfiryev, viz. "the overwhelming preponderance of geological evidence compels the conclusion that crude oil and natural gas have no intrinsic connection with biological matter originating near the surface of the earth. They are primordial material which has been erupted from great depth." Under this alternative theory of the occurrence of hydrocarbons (which remains largely unaccepted in the 'west'), the supposed limits both of quantity and of habitat of oil and gas disappear. The world's oil resources would, in essence, be unlimited in relation to any conceivable evolution of demand.

Non-Conventional Oil Resources

a. Within the context of the Russian theory of oil formation, with its explicit elimination of the restrictions on its geological habitats and in the characteristics of its CH composition, there is, by definition, no need for a division between so-called conventional and non-conventional oil. Such a division is, however, necessary under the western hypothesis for oil's occurrence involving limited geological habitats. Thus, all the preceding descriptions and data on reserves and on ultimate resources relate to conventional oil in deep underground reservoirs from which extraction is achieved through well-based production systems whereby the liquid oil is brought to the surface - either under its own pressure, or by means of secondary recovery methods which involve re-pressuring the reservoirs or a reduction in the viscosity of the liquid. Over and above this 'conventional' oil, the west's petroleum industry recognises - and, to a small extent, particularly in Canada and Venezuela, produces - so-called 'non-conventional' oil, the occurrence of which involves different habitats and/or the production of which requires different technologies.

b. Non-conventional oil occurs very extensively. It includes the oil in the tar-sands of Athabasca in Western Canada, the heavy oil belt of the Orinoco region of Venezuela and oil shales in the United States, Brazil, Zaire, Madagascar, India and many other countries. There has not yet, however, been any systematic evaluation of the locations and distribution of its occurrence, nor other than very generalised estimates of its volumes on a world-wide scale extending up to figures as high as 40,000 billion barrels. In any case, most of this potential resource still has necessarily to be discounted as the costs of its recovery - given, to date, only a limited development of suitable technology for its production and treatment - are too high to enable it to compete in the market at contemporary or expected price levels.

c. Production and marketing possibilities both for orimulsion from Venezuela's Orinoco oil belt and for oil derived from the processing of the Athabasca tar sands are now, however, emerging quite positively, so that some part of these resources, at least, may now be designated as reserves. The evolving technologies which have made these initial developments possible will, of course, diffuse to enable other occurrences to be exploited; but, for sometime yet, only under the limiting conditions of low extraction costs and favourable locations relative to potential markets. In essence, non-conventional oil reserves (in the economic sense) will be generated by demand, while, in the global oil market, products from such oil will, first, complement the still rising output of conventional oil and, later (possibly in the late 2020s) will come in to supplement a possible declining production potential of conventional oil, as it can no longer sustain the global demand rising growth curve. A modest 3000 billion barrels reserve of non-conventional oil (out of an ultimate resource base more than an order of magnitude bigger) could then sustain a continued increase in world oil use beyond the middle of the 21st century - as shown in Fig.6 - on the basis of an assumption of a 2% per annum growth in demand. Under this scenario the world oil industry in the mid-21st century would be approximately three times its present size.

Concluding Remarks on the Oil Reserves/Resources Issues

a. The scenario for the future of oil for the long-term, as set out above, was first evolved in the early 1980s: at a time when there were major fears over the ability of oil resources to meet even relatively near-future demands. We then judged the supply prospects defined in the scenario to represent a high-probability outlook, even in the context of an anticipated growth rate in oil use of over 2% per annum. This showed that world oil production need not peak until post-2050 at which time reserves availability might finally constrain the expansion of oil use. (Though only if the exploitation of non-conventional oil was restricted to less than 10% of the resource base.)

b. Subsequent developments have now made this prospect much less likely. This is, first, because increased efficiency in oil use and increased competition from other energy sources (initially, natural gas and later, renewables) will continue to constrain the rate of increase in the demand for oil. Under an average 1.25% growth rate in use (as over the past decade), the peaks of oil production (conventional and non-conventional) would be delayed by 20 or more years beyond those shown in Fig.6. Second, and of even more importance in reappraising the scenario, is the prospect for the imposition of environmentally generated constraints on the use of oil before the potential for conventional oil production reaches its peak. Given this combination of developments, the prospects for oil thus become demand, rather than supply, constrained well before the adequacy of oil resources becomes a relevant issue. In this emerging context most of the controversy over the ultimately recoverable reserves of conventional oil is eliminated: while the still uncalculated reserves of recoverable non-conventional oil become unimportant to know.

Onshore and Offshore Oil Reserves/Resources

b. To date, almost 400 billion barrels of offshore oil have been discovered of which some 50 billion have been used. The remaining offshore reserves of some 350 billion barrels presently account for about 33% of the world total (see Fig.7 for the regional breakdown in 1993) and account for about the same percentage of world production. As already shown above (see Section 3.e), proven (or identified) reserves of oil in discovered fields seem likely to expand by about 50% over the next 30 years. As the slate of offshore fields is significantly younger than the onshore fields and, therefore, less fully evaluated than those onshore, a relatively greater percentage of the additional reserves expected from field extensions and re-evaluations will come from the offshore set. This positive aspect for the relatively greater appreciation of the offshore fields will, however, be partially offset by the greater scope onshore for securing improved rates of recovery from the oil in place. This is because the more recent development plans for exploiting the offshore fields have generally been structured so as to achieve higher recovery rates than the present global average.

c. On balance, therefore, after taking these various factors into account, we would expect the percentage of oil reserves in contemporary offshore fields to account for about 40% of the total appreciation of reserves which can be expected. This will, moreover, be accompanied by the offshore fields' slowly rising share of total production from the present global slate of discovered fields. In the hypothetical absence of any further oil discoveries, the contribution of offshore oil to both total world reserves and to annual production would thus grow - except in the case of radically changed OPEC policies whereby its members countries offered more oil at lower prices from their mainly onshore reserves (80% of their total reserves). Given such enhanced competition, some offshore producing fields would reduce - or even cease - production and so such a structural change in the international oil industry would place a limit on the appreciation of the currently known offshore reserves.

d. In reality, of course, new fields will continue to be discovered, both onshore and offshore: to create, as shown above (in section 4.c), an additional + 600 billion barrels of reserves. Given the continuity of the present structure and organisation of the international oil industry, progress in achieving such reserves additions through discoveries will be orientated somewhat more heavily to the offshore than the present 33% contribution, providing that the transition to deeper waters' development (as in the East Atlantic margin) can be successfully made. The deeper waters related to many of today's most active offshore developments generally offer the more attractive development prospects for the companies. They see such deeper water oil discovery and exploitation as the next 'frontier' for the industry. Apart from the Atlantic Margin, such prospects also occur in the deeper waters of the Gulf of Mexico, in the south Atlantic, off the coasts of West and Southern Africa, in the Timor Sea and the South China Sea. If and when the technological breakthrough to successful deeper water production is achieved in the Atlantic Margin to the West of the Shetlands and offshore Texas/Louisiana, then the industry can be expected to use its knowledge and expertise in the other areas noted above - plus others which will become prospective following more advanced seismic work elsewhere in the world.

e. On the other hand, as with the possible cutbacks even in shallower water offshore following a radical change in the international structure of the oil industry, similarly with deep-water new fields' prospects. Indeed, given the inherently higher costs involved in exploiting this frontier oil, the impact of structural change in the international oil industry, leading to the development and use of more of the world's much lower cost reserves of the Middle East (and of Venezuela and, possibly, Russia and Kazakhstan) would compromise the companies' abilities to tackle the deep-water frontier. Hence, the discovery of deep water reserves would be slowed down - or even stopped - and offshore production would go into retreat from the status it has already achieved. Note, however, that this development would re-enhance the presently somewhat lower dependence of the world on oil from politically uncertain areas and thus raise major strategic questions. This fear adds yet another reason for US policy actions to regain its hegemony over the international oil industry, in general, and, in particular, to ensure that the price of oil does not collapse. The size and speed of reserves' discoveries in the deep water oil frontier, in particular, depend on the success of the international oil policy of the United States in maintaining contemporary international oil price levels.

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