Since the times of Ancient Greece, “The Shell Game” has been a confidence trick used to convince bystanders into believing they have a legitimate shot at guessing correctly and doubling their bet. We are currently in one of the more transformational periods of energy consumption, distribution and discovery seen in some time. The technology of extracting once undiscovered pools of energy is reverberating throughout economies and potentially causing tectonic shifting of political structures.
Much has been written about this transformation and its numerous impacts, of which we are in the bullish camp both on the direct impacts of perspective industries and indirectly to the global economy. While there is not enough space on this blog to perfectly address each and every issue, concern or speculation, one article came out discussing the evolving estimates of recoverable energy from shale. In a very intriguing article from Bloomberg, Old Math Casts Doubt on Accuracy of Oil Reserve Estimates, it is explained that based upon calculations from a different form of estimation for different types of wells, some drillers are lowering total estimates of potential barrels. When revisions or discoveries are made, often predisposed biases utilize each bit of information for justification of that bias.
The revisions are not to be ignored but should still be kept in the proper perspective of not only how much is still recoverable, but also understanding that as technology continues to improve, other forms of energy will present themselves. Those potential sources either known or unknown tend to make the past calls of Peak Oil Theory a bit overblown.
Consider the following chart from the Energy Information Administration’s (EIA) report from May 2013.
Now an interesting component is consider what has occurred in the last two reports on shale gas and oil from the EIA from 2011 and the most recent report two years later. You begin to see not only the attention to this once untapped energy source, but the improvements in technology that shift a resource from unattainable to recoverable.
Lastly, consider the top countries’ potential oil recovery in billions of barrels as well as the percentage of the global total. These top 10 countries comprise 81% of the world’s total.
In estimates for gas, I used the Advanced Resource International higher estimate as I would err on the side of higher estimates due to the trend in overall discovering more versus less, even in light of the article offering enlightening calculation methods.
Whereas the Shell Game was a confidence game, the “shale game” is one of constant revision. As evidenced on the comparison of the two reports from the EIA two years apart, the bigger component is the increasing estimates of the technically recoverable energy. Technically recoverable is also different form economically recoverable, however the ingenuity of mankind historically has found a way to attain those things once thought as impossible. Revisions are sometimes just funnels of accuracy in action. We continue to believe the energy revolution is in place and would continue to favor the energy sector in both equities and debt where applicable.
Advisors Asset Management, Inc. (AAM) was not involved with the preparation of third party articles linked to on this page and the opinions expressed in those articles are not necessarily those of AAM.
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