[ This article represents the first sign that any nation is seriously considering adopting the Oil Depletion Protocol, or at least something resembling it. It’s especially significant coming from one of the world’s top producers. To read more about the protocol see How to avoid oil wars, terrorism, and economic collapse by Richard Heinberg ]
Challenges of Linking Kuwaiti Production with Oil Reserve
Ten members of the Kuwaiti National Assembly last week tabled a motion to link Kuwait’s crude oil production with its oil reserve. After it is passed by parliament it will become a law under which the Ministry of Energy and the oil sector will operate.
The motion comes from National Assembly members seven months after a report published by the ‘Petroleum Intelligence Weekly’, which is a prestigious and internationally acclaimed specialized magazine. The bulletin stated that the actual volume of oil reserve is about 24 billion barrels and it is almost the same volume of the potential reserve. This means that the total reserve stands at about 50 billion barrels, and that the oil industry will last another 25 years or more according to the production capacity of the oil reserve, which is not yet finally defined.
Other sources of information, such as the Organization of the Petroleum Exporting Countries (OPEC), the International Atomic Energy Agency (IAEA) and specialized publications all indicate that the Kuwaiti reserve ranges between 85 and 102 billion barrels of actual and potential crude oil.
The Kuwaiti Ministry of Energy and its oil sector have not yet verified the exact figure of the oil reserve, because it wants to assure the world and Kuwait in particular. With this lack of information, some MPs asked the former Minister of Energy a direct question about the accuracy of the published information. The National Assembly has provided all the information on the nation’s oil reserve in general, and the tables and statistics on the quantity of reserve in each field, and the number of discovered reservoirs that are being developed.
With the beginning of the new session of the new National Assembly last week, ten members tabled a four-item objective bill. In the absence of real information about the size of oil reserve amid growing queries and doubts, the purpose of their motion is to ensure proper utilization of the exhausted oil riches to stop the depletion of this wealth. The bill also aims to ensure that this wealth lasts, but under the umbrella of the government and the National Assembly.
If approved, Kuwait will be the first oil state to regulate and tie up oil production with the rate of oil reserve quantities. Certainly, all the other oil states will follow up on this thorny issue carefully. So, too, will the consumer countries. The proposed bill illustrates the mechanisms of calculating the production of crude oil while estimating the volume of oil reserve. This is done by calculating the amount of Kuwait’s crude oil output and the size of the oil reserve for two consecutive years. The bill will be passed immediately after the government sends the official information to the National Assembly and the State Audit Bureau (SAB) of Kuwait. If the quantity of oil reserve remains constant, the daily production will remain stable. The production goes up or down depending on the quantities.
To further simplify the equation, the current rate of Kuwait’s oil production has stood at 2.65 million barrels per day for two consecutive years. If we assume that the current oil reserve is 100 billion barrels, and that any change in oil reserve, for example, drops to 85 billion barrels, Kuwait’s production will be reduced, and the Ministry of Energy will therefore have to reduce the output to 2.25 million barrels per day instead of 2.65 million.
The idea itself is pioneering and transparent. Detection of oil reserve in producing countries will significantly help consumer countries understand the energy capacities of all the producing states. It may be an important factor in the stability or the rise of prices, due to the inadequate quantities of the world’s oil reserves.
The proposal lays down the mechanisms and the responsibilities of the Ministry of Energy to provide the National Assembly, the Cabinet, and the SAB of Kuwait with the dates for sending the data, the timetables of the reserve of every field and reservoir. Furthermore, the ministry will be committed to reporting any discoveries or new fields and reservoirs annually, two months after the end of the fiscal year.
But the pressing question, among many others, is how to explain or clarify the difference between the actual and potential (unconfirmed) reserves, and who will determine the difference. Will he be satisfied with the existing quantities on the ground, which are estimates, whereupon everyone agrees to a certain discretionary percentage of the possible extraction to obtain an approximate figure that would be to everyone’s satisfaction?
Today, there are major differences, not only in the oil states, but also between the giant oil companies, over the definition of the actual reserve and the extraction percentage. Some major companies insist that the actual reserve is the last barrel extracted from the field. The oil extraction percentage hovers between 40% and 55%. At the same time, some companies confirm they are capable of extracting more than 60%, depending on the state-of-the-art technologies at their disposal.
The main concern is the controversy over the definition of the actual reserve, hence giving rise to the urgency for a common definition, if possible.
Everyone may not agree on this, but the Kuwaiti bill, if approved by parliament, will frankly lead to a new challenge for the oil industry and the national oil companies to reach reliable figures for the oil reserve.
*A Kuwaiti oil analyst
