Energy futureWorld's oil reserves may be twice as large as currently estimated

Black gold may not be as scarce as we thought. This week oil prices escalated to a record $139 a barrel, but this may partly be because the amount of available oil in known reserves has been significantly underestimated. Says who? Richard Pike, a former oil-industry adviser and chief executive of the U.K. Royal Society of Chemistry, who blames flawed statistical calculations. Oil companies produce a bell-shaped probability distribution for how much each oil reservoir might hold, and then quote as an indicator of the reservoir’s capacity a figure they are 90 percent certain they can exceed. When publishing a result for multiple reservoirs, they simply add up the figures for each one. This is where the problem lies. “They should be combining the bell curves for each reservoir,” says Pike. Adding the numbers for each reservoir ignores statistical information about the extremes of the distribution, giving a result which underestimates the true total figure for all the reservoirs.

According to published estimates, there are 1,200 billion barrels still to be extracted, but Pike says there could in fact be twice as much. “The figures are almost meaningless and just provide a conservative estimate for shareholders.” Pike claims that most oil companies do calculate statistically accurate estimates of the combined capacity of their oil reserves, but no one can access this information to work out how much oil there really is in total. “All companies keep their internal probabilistic estimates quiet,” he says.