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Global Net Oil Exports Have Declined for Two Years
Much has been written recently about the “Export Land Model” (ELM)of Jeffrey Brown, most of it by Mr. Brown himself. The model hypothesizes a country that has declining oil production and increasing oil consumption. It’s graphic representation is:
The model is one way to analyze global oil flows and is useful to the extent that it dramatizes the very real fact that since oil exporters’ economies are growing rapidly with their new riches, they are using an increasing amount of their own oil internally. If their oil production also happens to be in decline, then their exports will decline even more rapidly. We have discussed this phenomenon extensively in regard to Mexico, which presents a stark challenge to U.S. oil supplies in particular over the next few years.
What the ELM fails to consider is the exports by countries that are increasing their oil production sufficiently so that they are also increasing their exports. Moreover, the model tends to cover up the fact that much of the growth in global oil demand (in fact, about half of it presently) is from oil exporting countries like Russia and the Middle East. Therefore only the demand for oil from countries that do not export oil is required to be supplied from net exports, and that excludes a good deal of global demand.
The chart reproduced below is from a recent post by Mr. Brown on The Oil Drum. It covers the whole field - those countries with growing as well as declining exports. Here it is:
At first blush the information is alarming, showing a decline of about 1 mb/d in net oil exports in both 2006 and 2007. On closer analysis, however, the chart is less chilling. Here’s why:
1. Over half the decline is from Saudi Arabia. The Saudi’s are swing producers in the world and they claim that they could produce more oil if the markets required it. Some suspect the Saudi’s are unable to produce more but the true facts are unknown. What seems clear is that they do have the capacity to produce a good deal more (1 - 2 mb/d) of heavy sour crude oil on a sustained basis but there is not currently market demand for it due to lack of refining capacity for that type of oil. The Saudi’s are well along the road to constructing substantial new refining capacity, as are both the Chinese and the Indians, all of which will be able to use heavy sour inputs. In fairly short order - 2009 or 2010 - there will be substantially more global capacity to refine the heavy sour crude that is in increasing surplus supply in the world, particularly from the Saudis.
2. Iraq, Libya, and Angola are all poised to increase their net exports substantially in the near term.
3. Brazil is not on this list but is also expected to become a substantial net oil exporter in short order.
4. Nigerian exports have been declining due to violence, not an inability to produce and export a great deal more oil. It is impossible to predict if that situation will get better or worse, but regardless the Nigerian export declines do not fit the ELM model of a country with naturally (geologically necessary) declining oil production.
4. The Wikipedia megaprojects analysis suggests a substantial surge in oil production will occur in 2008 and the immediately following years. Although I believe this data needs to be adjusted for slippage, ramp-up, and optimism - since it is based on public relations press releases - it is nonetheless logical that after several years of much higher oil prices and vastly expanded expenditures for oil exploration and development there is likely to be a substantial surge in new oil projects coming on stream.
In sum, I believe Mr. Brown’s model makes a substantial contribution to our understanding of Peak Oil. But it is only one way to analyze it and it tends to disguise other important insights into the issue.
Tags: peak oil energy investments
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3 responses so far ↓
1 La aviación, en el ojo del huracán de la crisis petrolera « Crisis en Canarias // Jun 3, 2008 at 6:46 am
[…] la producción no está satisfaciendo el ritmo creciente de la demanda de este recurso natural, y desde hace dos años los países productores están declinando en el volumen de exportaciones) deberá ser tenida en cuenta para la planificación de cualquier actividad económica que dependa […]
2 paultaut // Jun 3, 2008 at 10:38 pm
too bad I can’t read Spanish. But I have to assume that the concern is that potential weather related occurances have been excluded from the above model. They can be extrapotlated into a model if a longer time frame was used.
The US Gulf has not recovered from the previous Hurricane hits.
And while the US and other similar importers are not exporters, they do have production whose increase or decline has a serious impact on overall world supply. If it were not for overall internal usage, The US would be probably be ranked in the top 5 of daily oil producers.
3 Randy Kirk // Aug 5, 2008 at 4:55 pm
Another observation of the land export model is that if a large importing country decreases consumption, then overall imported oil declines at a faster rate.
Numbers: if the US consumes 20M bpd, imports 12M, decreases consumption by 5% to 19M bpd, imported oil goes to 11M barrels, or declines by 8.3% y/y.
The result is that if oil exporting countries are increasing consumption, and oil importing countries are decreasing consumption, it is not clear that there is an added strain on exported oil supply due to the fact that the world oil market is based on exportable oil.
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