Defining the Limits of Oil Production 

Preparing mid-term projections of oil production requires an assessment of the availability of resources to meet production requirements, particularly for the later years of the 2005-2030 projection period in IEO2008. The IEO2008 oil production projections were limited by three factors: the estimated quantity of petroleum in place before production begins (“petroleum-initially-in-place” or IIP), the percentage of IIP extracted over the life of a field (ultimate recovery factor), and the amount of oil that can be produced from a field in a single year as a function of its remaining reserves. 

Total IIP resources are the quantities of petroleum—both conventional and unconventional—estimated to exist originally in naturally occurring accumulations.^a IIP resources are those quantities of petroleum which are estimated, on a given date, to be contained in known accumulations, plus those quantities already produced, as well as those estimated quantities in accumulations yet to be discovered. The estimate of IIP resources includes both recoverable and unrecoverable resources. 

Published estimates of global IIP resources vary widely across sources, from about 13 trillion barrels to more than 24 trillion barrels. An estimate of 20.8 trillion barrels is used for the IEO2008 reference case (see "Petroleum-Initially-In-Place Resource Estimates Used in the IEO2008 Reference Case table). Conventional crude oil and lease condensate account for about 40 percent (9 trillion barrels) of the total IIP worldwide, and unconventional petroleum resources account for the remainder. For instance, there are an estimated 2.3 trillion barrels of extra-heavy oil in Venezuela and an estimated 2.1 trillion barrels of petroleum in shale rock in the United States alone. 

The second factor that limits oil production is the ultimate recovery factor. For most producing fields, the ultimate recovery factor is larger than the current recovery factor, which is defined as the sum of cumulative production plus remaining reserves as a percentage of IIP. Typically, estimates of the current recovery factor for a particular field increase over time, reflecting the effects of three interrelated factors: technology, economics, and knowledge about the field. 

In general, as producers develop a field they learn more about its characteristics and are able to apply additional or more efficient recovery techniques. In addition, the efficiency of recovery can also be improved by developments in technology, either in the oil industry specifically (such as new reservoir fracturing techniques) or in industry generally (such as more powerful computer processors). Such efficiency gains can lower the cost of extracting a field’s reserves significantly, making production more profitable and lowering the price at which production is justified. 

Remaining reserves, by definition, are limited to those quantities considered economical to produce. Thus, estimates of current recovery factors based on reserves are affected by changes in production costs, oil prices, and fiscal regimes (such as tax rates). Estimates of current recovery factors can decline if adverse economic factors—such as low oil prices, high production taxes, or inadequate investment in field maintenance—arise and are expected to persist. For example, the two latter factors currently affect both Russia and Venezuela. 

Current recovery factors for oil fields around the world typically range between 10 and 60 percent; some are over 80 percent. The wide variance is due largely to the diversity of fluid and reservoir characteristics for different deposits. For example, Canada’s oil sands are markedly different from Saudi Arabia’s Ghawar field in terms of both fluid properties and the geophysical characteristics of the rock that contains the oil. For the global average ultimate recovery factor, petroleum engineers often cite a value of one-third for conventional oil deposits; however, no verifiable studies have been conducted to estimate ultimate recovery factors at the field level for all fields worldwide. Even if such a study were conducted it would not provide a definitive value for the upper limit of global recovery, because technologies, oil prices, and taxes change over time. 

In 2005, the U.S. Department of Energy commissioned “basin potential studies,” with the goal of providing a better understanding of the potential impact of technology advances on recovery factors for conventional oil in the United States.^b The results suggested that long-term recovery factors in the United States could vary from as little as 40 percent for mid-continent resources to as much as 72 percent for resources in the Gulf Coast States. To put those percentages in perspective, cumulative U.S. oil production as a percentage of estimated discovered IIP averages 33 percent and ranges from 23 percent to 44 percent, depending on the U.S. region. The studies suggest that improvements in technology have the potential to raise ultimate recovery factors to 60 percent for U.S. areas that already are in production or open to exploration. 

An additional factor limiting oil production is the fraction of a field’s reserves that can be produced in a given year—which in turn is affected both by the physical characteristics of oil flowing through a porous rock reservoir and by financial considerations. Oil flows more slowly through fields with thicker oil and/or lower permeability. Unless a field is close to the end of its productive life, it is physically difficult to produce more than 10 to 15 percent of its remaining reserves in a single year. From a financial standpoint, oil producers maximize returns on investment by matching the timing of investments to the timing of physical oil production. They will lose money if they expand production facilities by too much or too long before the oil begins to flow. 

On a field-by-field or regional basis, the proportion of reserves produced in a single year may vary widely. For example, in the United States, 13.3 percent of the onshore reserves in Texas and 5.1 percent of the reserves in Utah were produced in 2006. For the United States as a whole, 7.9 percent of reserves were produced in 2006.

^aWorld Petroleum Council, “Petroleum Resources,” The WPC Newsletter, No. 20 (January 2000), web site www.world-petroleum.org/ newsletter/issue20.htm. 

^bOffice of Fossil Energy – Office of Oil and Natural Gas, U.S. Department of Energy, “Ten Basin-Oriented CO2-EOR Assessments Examine Strategies for Increasing Domestic Oil Production” (prepared by Advanced Resources International, Arlington, VA, February 2006), web site http://fossil.energy.gov/programs/oilgas/eor/Ten_Basin-Oriented_CO2-EOR_Assessments.html; and Evaluating the Potential for “Game Changer” Improvements in Oil Recovery Efficiency from CO₂ Enhanced Oil Recovery (prepared by V.A. Kuuskraa and G.J. Koperna, Advanced Resources International, Arlington, VA, February 2006), web site http://fossil.energy.gov/programs/oilgas/ publications/eor_co2/Game_Changer_Document_2_06_with_appendix.pdf.