Tag Archives: energy

The dangers of prediction

The recent post about Australia’s coal supplies took issue with the convention of quoting coal and other commodity reserves in terms of years remaining at current production levels. The problem is that it is too easy to assume that these figures give a good indication of how long the reserves will actually last, when in fact the chances are they will do nothing of the sort.

In the case of coal, production in Australia has been growing exponentially for some time, while estimated reserves have not changed very much. If this trend continues, the standard “years remaining” figure will overestimate the life of Australian coal reserves. Estimates of other mineral resources, however, have been growing more rapidly than consumption, which means that they may last longer than the standard figures suggest.

Geoscience Australia regularly reports on Australia’s mineral resources. In the 2009 report, there is a table showing economic demonstrated resources (EDR) expressed in the standard “years remaining” format at various points back to 1997. This data highlights the shortcomings of this convention. ┬áThe chart below illustrates how the figures for a few of the minerals have evolved over time. In each case the dashed line shows the trajectory the “years remaining” should take from 1997 if each passing year simply reduced the remaining years by one and so falling by 11 years to 2008. This is the path that would be expected if “years remaining” was in fact a reasonable forecast of how long the mineral reserves might last.

EDR Life

Over the space of a mere 10 years, we have gone from having 190 years’ worth of black coal left to only 90 years. This is simply due to the fact that production grew steadily over that time, while reserves did not change very much. In this way the chart gives an alternative perspective on the argument of the earlier post, namely that the 90 year estimate for the life of Australia’s black coal looks optimistic unless production drops or new reserves are discovered at a comparable rate to production growth. Both of these are, of course, possible but the trend does not look encouraging.

The picture is very different for a mineral like nickel, which has managed to extend its remaining life from 55 years to 130 years over the same period. In this case, reserves grew faster than production.

In every case, the minerals quite clearly fail to track a simple year by year remaining life trajectory. Once again the lesson is that it can be misleading to quote mineral reserves in terms of remaining years at current production, without any qualification as to how production or reserve estimates may change over time.