Russian Reserve Growth

On the one hand, news comes out that Russia's reserve estimates have jumped.

But there's one place -- Russia -- where reserve estimates just seem to go up and up. In its annual statistical survey of world energy, BP PLC (BP ) has recently revised its estimates of Russia's total proven oil reserves to 69.1 billion barrels, 6% of the world's total, up from 45 billion bbl. in 2001. But according to auditors with a worm's-eye view of what's actually going on in the depths of Siberia, such estimates may just scratch the surface of Russia's real potential. According to a recent study by Dallas-based energy reserve auditors DeGolyer & MacNaughton, whose clients include leading Russian energy companies such as Gazprom and Yukos, Russia's true recoverable reserves are between 150 billion bbl. and 200 billion bbl. That's up from industry estimates of 100 billion bbl. a few years ago.

Why such a big gap in the estimates? Because it's one thing to be sitting on oil reserves, another to be able to exploit them commercially. In Russia's main oil-producing region in western Siberia, proven reserves represent just 18% to 24% of all oil in the ground, in contrast to about 45% in Western oil-producing regions such as Alaska and the North Sea. But as Russian oil companies adopt technologies, such as horizontal wells and computerized reservoir management systems, the estimated recovery rates are being revised. Thanks to new techniques, which make it possible to obtain oil even from apparently depleted fields, Russian oil companies already have managed to boost their output by 50% since 1998. "The biggest thing is the [new] technology being deployed in western Siberia. The results are beginning to show," says Martin Wiewiorowski, senior vice-president of DeGolyer & MacNaughton in Moscow.

But USGS geologists had stated it rather differently as of a few years ago:

As part of the assessment of reserve growth, Verma and others (2000) evaluated field growth in the Volga-Ural province of Russia. In their ongoing study, they also noted similar reserve growth in the West Siberian province of Russia. The Volga-Ural province has shown cumulative reserve (field) growth factors of 3-5 during the first 30 years since discovery of the oil fields. Because of the time required in Russia to develop a field, defining field growth is more complex than in the U.S. For the study on the Volga-Ural province, the field's effective discovery years is redefined as either the year of first significant reserve reporting or the year of first production.

Volga-Ural and West Siberia provinces show most of their reserve growth in the first 5-7 years after discovery and little or no growth thereafter. It is difficult to compare the growth in Russian fields with those of the U.S. fields where growth continues even after 90 years, because in Russia oil fields are first evaluated over
a 5-7 year period before being produced whereas in the U.S. both the evaluation and production of fields start shortly after their discovery. To further complicate the comparison, proved reserves in Russia generally include only primary and secondary (water flood) recoveries, although in the U.S. the reserves are revised regularly and include water flood and EOR recoveries. Other factors such as the Russian oil industry's lack of infrastructure, operational and economic problems in maintaining and developing fields, reporting requirements and documentation, and changes in the political system may have contributed to the difference in reserve growth.

What appeared mature in 2000, now appears growing? According to the recent news, yes:

The growth in Russia's proven reserves is mainly happening at existing fields in western Siberia, a supposedly "mature" region where production had been declining until recently. DeGolyer & MacNaughton predicts that western Siberia could boost its output to 10 million bbl. a day by 2012, up from less than 6 million at present, and keep production at that level for at least 10 years. The use of even newer technologies available by then means that western Siberian oil production may not decline for decades to come. Russia's reserve potential is vaster still when undeveloped regions, such as the Arctic, the Caspian, and in particular eastern Siberia, are factored in.

It almost looks like the Russians want to emulate the USA's 10X reserve growth heuristic, even though they grew only at most half of what the USA did for its own first 30 years. And this includes the fact that the Russians wait until they start pumping before they label it a discovery and therefore have a much better estimate to begin with. The USGS really should do a follow-up to their original western Siberia findings as I see a number of inconsistencies cropping up. If we have to re-backdate the FSU/Russian discovery curves, then a second peak will clearly reveal itself in the coming years.

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On a related matter, BushCo also continues to have his own issues surrounding frequent revisions. First, his odd revisions concerning reduction of imports from the middle east, and now his downward revision of funding for alternative energy. What he essentially promised at Tuesday's SOTU has turned, only a few days later, into a cut in support for the National Renewable Energy Laboratory.

I could sum it up as follows: We basically lack a reserve supply in global truth.