Thursday, October 5, 2006

The United Kingdom passes from Oil exporter to Oil importer

“Houston, we have a BIG problem” - Matt Simmons, speaking before the U.S. Department of Defense, June, 2006, the seriousness of the energy situation facing the United States.

Based on data published by the 2006 British Petroleum Statistical Review, Europe’s Oil imports are expected to grow 29% by 2012. Currently, the European Union’s population of 460 million consumes over 15 million barrel per day (”bpd”). Until the discovery of the North Sea’s prodigious oil fields Europe essentially imported all of its liquid petroleum fuel requirements. Unfortunately, the North Sea’s production has been declining at roughly 8% per year since 2000 (1999 for the UK and 2001 for Norway if you want to be picky), and many knowledgeable (I never use the word "expert" unless I am quoting someone) people believe that there is a high likelihood that the rate of decline will accelerate.

“Applying a 0.5% growth in consumption and a 8% production decline rate points to EU oil imports growing from 9.8 million barrels per day (bpd) in 2005 to 12.6 million bpd by 2012 - an increase of 29% over the next 6 years.” Dr. Euan Mearns, PhD

Dr. Mearns believes that the UK alone, which was an exporter as of 2005, will need to import over 1 million bpd by 2020. Where is Europe’s new import requirement going to come from? Said another way, which exporter(s) are going to have the capacity to step up their exports (production – domestic consumption) 2.8 million bpd – and that’s just for Europe. During the same time Asia’s import requirement will grow by at least 5 million bpd.

The world has been unable to increase production for at least 22 months (each month’s production has been within 1% of the monthly average during that time frame) at an average production of just over 84 million bpd of “All Liquids” (crude oil production has actually fallen during the time frame, the difference is NGL and condensates). So tell me, where is the extra 7.8 million bpd going to come from? – and that’s just for Europe and Asia, to say nothing for growth in demand in the rest of the world.

Indonesia, a member of OPEC, has gone from an expoter to an importer. The UK is making the transition. Mexico might cross over in 2010-12. If the net number of barrels available for export worldwide declines on a continuous basis what is the effect on the price of the marginal barrel of Oil?

It is going to be a wild ride.

mentatt (at) Yahoo (dot) com

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