Title : Using fuzzy logic to assess sustainability of oil and gas resources(R/P): Technical, economic & political perspectives
One of the most widely used metrics for oil and gas producing-countries’ wealth and prosperity is ‘sustainability’ of oil and gas resources. Sustainability of oil and gas resources is defined as the number of years a producing country is expected to economically extract these resources from the ground, while increasing or at least maintaining production rates. Sustainability of oil and gas resources is classically measured as the ratio of proven or recoverable reserves, depending on the reporting country, to annual production. The classical definition of oil and gas sustainability measures life expectancy (age) of oil and gas resources based on only technical inputs: reserves and production. While this approach has worked well in the past due to oil abundance, one cannot ignore economic and political stability factors that could play a major role in determining oil and gas sustainability.
This work presents, based on fuzzy logic, an equation that combine the impact of both technical and non-technical factors on sustainability of oil and gas. The classical formula for oil and gas sustainability factor (α = R/P) was fuzzified to include a risk factor (β) that takes into account risks associated with economic health and political stability of oil and gas producing countries. This was made possible through the introduction of risk impact factor (γ) and risk impact weight % (w) into the overall risk factor (β).
Results showed that economic health factors: oil-revenue dependence; level of public debt; and institutional structure (quality and transparency), all impact oil and gas sustainability for oil producing countries. The level of economic diversity was found to play a major role on oil and gas sustainability. It was also shown that political stability should not be overlooked as it could indirectly impact oil and gas sustainability for oil producing countries. This is especially true for young political regimes due to lack of long-term clear (institutional) vision; proper strategic planning; in-house knowledge and experience; and decision-making flexibility.
A hypothetical case study was presented to show how our fuzzified formula works. Results showed that ‘sustainability’ factor (α) dropped by 45.1% when including economic health and political stability risk factors. It was further shown that increasing the weight of unreliable oil and gas reserves in the country’s economic portfolio may not prove beneficial to oil and gas sustainability factor (α) due to the risks inherited in the estimation process.