The world is not going to run out of oil. There is plenty of it. In fact, there is likely way more oil than we need, and much of it will have to remain in the ground. That means that the oil industry is in danger of vastly overspending to dig it all up.
A new report from Carbon Tracker looks at the common argument that high natural decline rates at oil fields necessitate high levels of spending on finding and developing new oil reserves. The report says that natural decline rates are often overstated or used in misleading ways.
For instance, many analysts and even oil companies themselves argue that enormous volumes of new reserves are needed to offset declining fields, and because of that, oil prices will need to remain high. But according to BP, total proved reserves are around 1,700 billion barrels, enough to last at least 50 years. “So decline rates need to be seen within this context. There is plenty of oil to extract. Some is cheap, some is expensive,” Carbon Tracker analysts Harry Benham and Kingsmill Bond wrote in their report.
Moreover, the industry has a variety of ways to control and mitigate decline, such as gas and water injections, new data techniques, and portfolio optimization. For evidence that production does not fall off a cliff when companies take their eye off the ball, witness what happened after the collapse of oil prices in 2014. There was a massive reduction in capital expenditures, but decline rates did not explode, as…