Sunday, January 30, 2011

OPEC Quotas and Reserves Revisions

OPEC production, quota, and reserves data; quite the trove. Now, the official line has always been that the 80s reserves wars were all about beefing up individual nations' quotas; is there any evidence of causality there? I'll try and pin down when the countries actually announced their reserves upgrades, and see if there was an attendant jump in quota - kinda doubt it, but it will be fun/instructive. BTW the official line isn't quite correct; apparently OPEC were ruminating over a quota system based wholly on reserves, but that was as far as it went, although that seemed more than far enough, given the results - and now we're in Quota Wars II: The Numbers are Complete Rubbish.

We start with the handy table for OPEC countries in the Wiki article on reserves, with highlighted revisions in red.

First at bat was Iraq in 1982, jumping from 32 to 59 bbo; and I can find nary a peep about this event in a Google News Archive Search. So much for that!

Next was Kuwait in 1984; they claimed to discover massive finds that would boost reserves to 90-100 bbo, as reported on September 1, 1984, in the The Calgary Herald. BTW, I notice that events aren't always published in the papers precisely when they occurred, but it's close enough for our purposes.

1985 saw Venezuela go from 28 to 54.5 bbo, where I'm not sure, the pages of the O&GJ it seems, since on Feb 1 1986 the Reading Eagle was still reporting them at 25.8 bbo - lower than what the Wiki lists. They also have Iraq at 44.5 bbo, Iran at 48.6 bbo, Abu Dhabi at 30.5 bbo, and Libya at 21.1 bbo. Only this last is anywhere close to the BP Stat Review figures used in the Wiki...hmmm.

On April 26, 1987, the Bend Oregon paper The Bulletin reported a jump to 55 bbo - not 54.5 - with ample commentary for once. They picked up and expanded on an LA Times article.

Though Venezuela has long been known to contain enormous amounts of unique, "extra-heavy" oil, the geologists say that successful experimental work and the the updated seismic information now indicate that far more of the tarlike substance can be produced and transported easily and economically than was earlier believed. The most conservative numbers advanced by the Venezuelans - the amount of oil recoverable at current oil prices, with today's technology, from wells already in drilled — show an increase to 55 billion barrels from the year-earlier estimate of 29 billion barrels.

That 26 billion-barrel increase in proven reserves is like introducing three oil fields the size of this country's largest, Prudhoe Bay in Alaska, to a place half the distance to most U.S. oil markets.

In addition to those 55 billion barrels, the Venezuelans now say that another 267 billion barrels of oil — most of it extra-heavy Orinoco oil — fall within the reach of today's technology and economic requirements.

The U.S. Geological Survey, while using slightly different numbers and categories of oil, says it has no quarrel with the Venezuelan statistics.

They also quote Charlie Masters of the USGS, who from all accounts was a sound researcher; the implication seemed to be that he considered the upgrade bona fide.

For 1986 it's Iran, 59 to 92.9 bbo, and also the UAE from 33 to 97.2 bbo. Ah, now we're cooking with condensate! As mentioned above these two countries were still being reported in Feb with the old numbers, and this was still the case on June 27th, as reported in the Leader-Post, picking up an AP story. By now Kuwait is listed at 90 bbo.

The NYT seemed quite taken by surprise to report on January 17, 1989 that Six in OPEC Have 70% of Oil.

NICOSIA, Cyprus, Jan. 16 — Six members of the Organization of Petroleum Exporting Countries now have 70.5 percent of the world's proven oil reserves, the Middle East Economic Survey reported today.

The respected oil industry newsletter said that according to revised estimates, reserves for the ''big six'' in the last five years had risen from 308 billion barrels to 699 billion.

It listed Saudi Arabia's reserves at 255 billion barrels; Iraq, 100 billion; the United Arab Emirates, 98 billion; Kuwait, 95 billion; Iran, 93 billion, and Venezuela, 58 billion.

The five Persian Gulf states alone account for nearly two-thirds of the world's proven reserves.

Saudi Arabia last week upgraded its estimate of its reserves by 85 billion barrels after a six-year study. Describing the Saudi revision as ''a staggering increase,'' the Nicosia-based survey noted, ''The reassessment of reserves in Saudi Arabia represents the latest stage of a truly massive upward revision of proven oil reserves by the major OPEC countries in recent years.''

Revised over the last five years, or just now? At least we can pin down when KSA made the leap. Even that doesn't correspond with BP data, which lists this event for 1988.

Iraq went to 100 bbo in '87, again, this didn't hit the news until later; from May 26, 1988, again in the NYT: Iraq Seeking To Expand Oil Output.

For many years the country had shunned Western contacts.

''There was a one-time premium on secrecy,'' said Dr. Laurie A. Mylroie, a Harvard professor who is an expert on Iraq. ''Now the message is to let the world know that Iraq has the second-largest reserves in the world.''

Mr. Chalabi placed Iraq's proven reserves at 100 billion barrrels, compared with an estimated 170 billion barrels for Saudi Arabia.

This is then Iraqi Oil Minister Issam Abdul-Rahim al-Chalabi. He is still active in Iraqi oil debate, even being listed as giving a presentation at ASPO 2008. In 1990 Saddam replaced him with a palace bodyguard/son-in-law, as Chalabi imposed fuel rationing after the UN imposed sanctions for the Iraqi invasion of Kuwait. The rationing lasted all of 5 days.

In June '88 we have Chalabi stating that Iraq Demands Oil Quota Rise.

''Iraq will never accept a quota below that of Iran within the framework of any new accord reached by the organization,'' Mr. Chalabi said in advance of a meeting of the Organization of Petroleum Exporting Countries in Vienna.

Going back to KSA, on Jan 10, 1989 this was reported in the Anchorage Daily News, picked up from the LA Times; this is such an extraordinary article I'm going to repeat it in full:

Saudi Arabia, already blessed with the world's largest reserves of crude oil, declared Monday that a new computer assessment shows it has about 50 percent more crude oil and 25 percent more natural gas than previously believed.

If correct, the new Saudi numbers would boost by about 10 percent the world's proven reserves of crude oil to the 900 billion barrel range. This would tend to prolong the oil era and underscore the reliance of industrialized nations on the Middle East.

Some Saudi watchers said the dramatic upward revision is legitimate and over due, while others said it was at least partly inspired by the politics of the Organization of Petroleum Exporting Countries. Both views might be correct, analysts said.

"This was a political announcement. On the other hand, they may well have the oil," said William Dietzman, a retired Energy Department geologist who has studied the Saudi oil fields for the U.S. government.

Several other OPEC nations, including Iran, Iraq. Kuwait and Venezuela, have also increased their own oil reserve estimates sharply in the past year. The higher a country's reserves, the greater its influence and production quota in OPEC. Within the oil community, Iran's claims are widely discounted while the others are accepted to varying degrees.

The Saudis, through their Arabian American Oil Co., or Aramco, said that six years of studies at their new oil exploration and engineering computer center showed that they have 252.4 billion barrels of proven crude oil under ground and 177.3 trillion cubic feet of gas.

For many years, the official Saudi government number was 110 billion barrels. But since at least 1975, the scientific community has

carried Saudi Arabia on its books as having 150 to 170 billion barrels, the estimate varying annually with oil prices, discoveries and production levels.

The U.S. Geological Survey in Reston, Va., said its estimate a year ago was 167 billion barrels, similar to the Saudis' own numbers at that time. The USGS put the natural-gas estimate at 130 trillion cubic feet, while Aramco had previously estimated 141 trillion.

Dietzman and others said the timing of the announcement dramatically boosting the Saudis' official oil reserve estimate strongly suggests that it was inspired by the need to hold their ground within OPEC for the purposes of determining quotas.

"They're saying, if Iraq says it has 100 billion barrels, then we say we have 250 billion," said Dietzman.

Even without the political element, any assessment of how much oil is underground and how much of it can be recovered with known technology and current prices is inexact. But in Saudi Arabia, the reserves are considered so large that it is hard to challenge any estimate.

Consultant Joseph Story of McLean, Va., a former Aramco executive, said there is so much oil in Saudi Arabia that until recently, not much effort has been expended at determining just how much there is.

But skryocketing oil prices in the late 1970s and early 1980s prompted Saudi Arabia to spend some of the financial windfall on establishing a state-of-the-art oil exploration and engineering center in Dhahran in 1982 that is the envy of oil geologists.

Aramco, calling the latest estimates "very conservative," said the work done at the Dhahran center is the basis for the big increase in the official reserve estimates.

"There was no need to look for oil. But now they've put a lot of money into upgrading their seismic capabilities and into exploration activity," said Story, president of Gulf Consulting Services Inc. "The point of this is, the numbers are probably true. But in announcing it, they might also be trying to alleviate any worries that there are going to be shortages any time soon."

Here in a nutshell we have the whole peakist argument about the significance of the Quota Wars, along with some of the standard rebuttals.

So can we build a timeline? Not judging from what's been dug up, as that NYT article in 1989 seems to indicate, with its Oh My God sense of reserves having just suddenly gone through the roof at some point in the last five years. These three dates might get us somewhere, though:

1982 ??? Iraq
1984 Sep Kuwait
1987 Apr Venezuela

Iraq's quota held at 1.2 mb/d all through 1982-Jan 1987, when it was bumped up to 1466 kb/d, with attendant decrease from KSA. In Nov 84 Kuwait's share actually decreased, from 1050 kb/d to 900 kb/d. Shot themselves in the foot, eh? Venezuela got a bump up in July '87 from 1495 kb/d to 1571 kb/d. Why, that's almost as much as the 1574 kb/d they were at in Nov '86!

Mostly we see chaotic wobbling about, but get these bump ups from Dec '88 to Jan '89:

Iran Iraq Kuwait Libya Nigeria Qatar KSA UAE Venezuela
2369 0 996 996 1301 299 4343 948 1571
2640 2640 1037 1037 1355 312 4524 988 1636

That must have been some Meeting. Iran had been left out of the previous quota for some reason, subtracting their 1540 kb/d from the last quota set on Jul 1987 we get an advance of 1884 kb/d for the group as a whole.

Did anyone come out ahead here? Iraq did advance 4.09% - while KSA declined -4.60%. Tit for tat. Venezuela did get bumped up 1.02% at the Jan '88 meeting, in the wake of its revision. But Kuwait declined -0.38% in Nov '84, in the wake of its announcements. Their average shift over Nov '84 to Jan '88, when I'd think their bump up in reserves would have its primary effect, is 0.09% up - fairly small potatoes in the grand scheme of things.

All in all I can't see much clear correlation between an increase in reserves and more quota.

Investigating all of this revealed the most intriguing tidbit of all, however - from Oct 2000 to July 2005 percentage of total for all member nations remained totally constant, barring a 0.1% drop in Feb 2001 for Venezuela. This, despite the total quota having shifted from 26.7 down to 21.0 up to 28.0 mb/d! It's as if OPEC has just given up on all that horse trading and jockeying for position; the general meetings, with the eyes of the world upon them, now consist of the Chairman saying "So, what do you think, increase 750 kb/d?" "Sure, sounds great!" "Right on!" "Ah, splendid. Now, who's up for some baccarac?"

I did a fair bit of digging around for impartial papers analyzing the OPEC quota system, and/or its effectiveness as a cartel, and there are a good deal of them, this being oil and they being OPEC and all; didn't find anything about the reserves revisions which wasn't a screed on one side or other of the fence, and the analytical papers treat the published reserves as a given; but none of these documents seem to notice how proportion of quota has become wholly set in stone. Perhaps this is laid out in OPEC's bylaws and I just didn't catch the fine print. It certainly must make operations run that much smoother, as my snide scenario in the previous paragraph suggests.

Link to revised worksheet: OPEC Quotas

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