Sometime ago I was on a morning programme with Mr Cape of ALNG, discussing the availability of reserves given the plan to build a train IV. I had the Ryder Scott estimates for the proven, probable and possible reserves. Mr Cape on the other hand was working with an estimate of some 100tcf of gas that may exist in the basin.

At the last energy conference Dr Jim Lee Young expressed concern over the lack of increasing reserve position given the drilling programme, yet the Government was talking about massive expansions both in LNG and other natural gas based plants (e.g. aluminium smelter).

Prime Minister Mr Manning, who spoke after Dr Lee Young at the same conference, confirmed this vision of expanded use of natural gas and dismissed this concern. The Prime Minister, at the recent “Breakfast with the Prime Minister,” confirmed his belief that the Orinoco Basin in which T&T lies has some 70-100tcf of gas and that there is a significant amount of oil and gas yet to be discovered. Hence to him the question of oil and gas running out is one that need not detain us.

I have no problem with the above optimistic approach, though bpTT appears to have, given its new motto “beyond petroleum”. I am sure that no new plant will be built in T&T by FDI without the guarantee from the producers that the gas exists. My concern is that our Government may be so lulled into a false sense of long term economic security based on the expected rents from ever increasing resources of oil and gas that we completely ignore the need to re-invent the onshore economy which is a task that can take us anything like 20-25 years to complete.

It is important that we all understand the ideas behind what the industry means by reserves and ultimate production. My literature search (Reference, Korpela, “Oil Depletion in US and the World”) gave the definition of proven reserves as the amount of oil or gas that there is a 95 per cent probability of producing economically. This figure for T&T gas is of the order of 20tcf. The proven and probable reserves are the amount of oil or gas that there is a 50-50 chance of producing. Proven plus probable and possible reserves are that quantity which there is a five per cent probability of producing.

As companies exploit their fields and are better able to assess what can be extracted reserve figures can change. None of these figures may be near the ultimate production figure for the field or country. As a result the Securities and Exchange Commission of the USA, in an attempt to protect investors, only allows its listed companies to officially post their proven reserves. The rest of reserves are too speculative and no business is done using these figures. Yet our Government is doing our business, planning our economy, with even more speculative figures.

There is a well tested view that at the present rate of production the discovered resources of oil in the world will last for 40 years hence, and for gas, ten more years. Although this is true, it is highly misleading for it presents a picture in which production is flat for 40 years then drops to zero after that. The truth is that production rate increases until depletion overtakes production and then reduces until the field is exhausted. When we enter this declining position (i.e. after production rate has peaked) half of the original resource endowment will still be there to be extracted but this is no comfort to those who, because of this reduced production, have to struggle to get by with diminishing supplies each year.

Some think that all we need to do is to keep looking and drilling for oil and gas and surely we will “discover more” and increase our resources. But according to the geologists oil and gas are found in certain select areas of the world and certain conditions must be met for them to be formed and trapped. That these conditions are not often all met simultaneously accounts for the large number of dry wells drilled around the globe, drilled in T&T in part at taxpayers’ expense.

There are many regions in the world that for geological reasons will not hold any oil or gas. The industry has a good idea where oil is likely to be found and the predicted oil stocks of the world appear to be some 2,000 giga-barrels. Also, the world production is expected to peak by the year 2010 (something presidential hopeful John Kerry takes seriously) and the timing of the peak at today’s production rates is quite insensitive to large additions in the ultimate production.

Surely we have optimists, even geologists themselves, who point to false alarms in past predictions. I refer them to the work of M King Hubbert and the now renowned geologists Jean Laherrere and Colin Campbell. The hope that new technology will increase these production stocks is largely an illusion as its main effect is to deplete the field faster. The same can be said of secondary recovery techniques.

-To be continued