Sunday, March 7, 2010

Guest Post from ("Westexas") Jeffrey Brown

The following was written by Jeffrey Brown in the Comments section of my most recent post. As many folks skip the comments area, I thought I would repost those comments directly on the Blog.

For those of you outside of the industry or issue, Jeffrey Brown is one of the better known, if not the best known, Geologist in the world (Ken Deffeyes from Princeton University is a close contender). Although several people made note that peak oil would hit the importer's first, it was Jeff's work and detailed analysis depicted in his "Export Land Model" (click the link for a better explanation) that became the "Aha!" moment.

I give you Jeffrey Brown:

Dividing an expanding economic pie is difficult enough, but dividing a contracting economic pie is, and will increasingly become (perhaps literally in many cases), a bloodbath.

The division between the savers and the spenders, between producers of essential goods & services and consumers of essential goods & services, will become increasingly apparent. Kurt Cobb probably had the best image, he showed an inverse pyramid with 95% of the US economy resting on the 5% represented by the food & energy producers.

I have described developed countries with out of control debt financed government spending as the Grand Prix of Debt Race; some countries are just closer to the edge of the fiscal cliff than others. The "Thelma & Lousie" moment is the point at which local, regional and national governments can't borrow enough money to fully finance their deficits. For national governments, it would especially be the point at which they can't borrow enough money in their own currencies to fully finance their deficits.

Circa 2005/2006, I started describing the probable impending decline of (North) Ghawar Field in Saudi Arabia and the certain decline of Cantrarell in Mexico (the two largest producing fields in the world at the time) as "Two warning beacons heralding the onset of Peak Oil." From 2002 to 2005, combined net oil exports from Saudi Arabia and Mexico increased from 8.7 mbpd (million barrels per day) to 10.8 mbpd (close to one-fourth of total world net oil exports, EIA)--as annual oil prices rose from $26 to $57. But from 2005 to 2008, their combined net oil exports fell from 10.8 mbpd to 9.5 mbpd, a decline of 8%, as annual oil prices went from $57 to $100. This was, IMO, a huge confirmation of the "Warning Beacons" thesis, but our government/finance system can't handle to concept of a finite earth, so these warning beacons continue to be largely ignored.

To put projected US deficits in perspective, let's assume that we had to repay the debt with barrels of oil. The CBO is projecting 10 year cumulative deficits of $9.8 trillion (let's call it $10 trillion). Of course, this assumes economic growth. In any case, let's assume $100 oil, so if we had to pay back $10 trillion of debt with oil, if my math is correct, we would have to come up with about 100 billon barrels (100 Gb) of oil--the equivalent of about eight Prudhoe Bay Fields.

And to put 100 Gb of oil in perspective, if we extrapolate Chindia's (China & India's) recent rate of increase in net oil imports out to 2018, they would be net importing 15 mbpd, when our best case projection puts the combined (2005) top five net oil exports at about 15 mbpd. So, based on these two projections, the total volume of post-2010 cumulative net oil exports from Saudi Arabia, Russia, Norway, Iran and the UAE--after subtracting out Chindia's net imports--would be about 22 Gb.

Estimated annual 2010 net exports from the (2005) top five exporters--less Chindia's estimated net imports--are about 5.5 Gb.

22 Gb divided by 5.5 Gb/year is four years. In other words, based on the above projection, the estimated volume of post-2010 cumulative net oil exports from Saudi Arabia, Russia, Norway, Iran and the UAE, after subtracting out China & India's net import,s would be depleted in four years at the current import rate. The key point here is that recent data show a clear pattern of developing countries like Chindia outbidding developed countries like the US for declining oil exports.

Again, my forecast for the US is that we are going to be forced to make do with a declining share of a falling volume of global net oil exports.

End of Jeffrey Brown's Comments

27 comments:

Anonymous said...

Peak oil, national debt, increasing budget deficits, social security, medicaid/medicare, commercial real estate bubble, unemployment, it goes on and on. Any one of these things would be a huge problem in normal times. But all of them at once? It doesn't make you a doomer to think something bad is going to happen, it simply means you have utilized your powers of observation. How is it that people who are at the top of their field are being largely ignored? Why in the hell is George Soros buying farm land? Look at the price of gold, and its not dropping. The indicators are everywhere and yet people continue to look past and discount them. But then again, bur still has running water and electricity so I don't know which way to go.

kathy said...

George Soros is not the only one. Warren Buffett was talking about his son't farm on CNBC this past week.

westexas said...

"For those of you outside of the industry or issue, Jeffrey Brown is one of the better known, if not the best known, Geologist in the world."

Appreciate the comment, but I suspect that I am, shall we say, something less than the best known. . . .but what is truly bizarre is that if you do a Google Search for Net Oil Exports, roughly half of the top 10 listings take you to work by an obscure Texas geologist and his genius Canadian sidekick (Sam Foucher). It shows you just how overlooked this incredibly important topic is.

Anonymous said...

We have many choices in how the US deals with a "declining share of a falling volume of global net oil exports."
If we do it smart, we will squeeze all the "waste, fraud and abuse" out of our energy usage. That could give us time to make accommodation to the new realities.
The US squanders energy. The US squanders oil.
We have totally lost the virtue of that old New England saying, "use it up, wear it out, make it do, or do without."
Americans have spent the last four
hundred years squandering resources in place, and then moving on when it got used up. That's over.
Because there is so much waste in the system, it seems we have the option to be more efficient without an extreme reduction of quality of life. At least for a good while.
We can be smart or really stupid.
Really stupid will bring a lot of pain.
Thank you, Mr. Brown, for your contribution to the smart side!

bureaucrat said...

Westexas has lots of good information at his disposal, and I welcome his viewpoint (I heard him speak at the Peak Oil conference last year).

But I also heard Jeremy Gilbert and that Mello guy speak -- everyone has an opinion.

Why is there no mention in Brown's piece at all of the #1 oil import source for the U.S.? It isn't Saudi Arabia or Mexico. It is Canada, which has somehow managed to increase its shipments of (very dirty) oil to the U.S. by up to 2 million barrels (so far) a day. What Mr. Brown says is true, but how can we embrace Armageddon in a proper way when the #1 oil import source is left out of the entire piece? :) (Not to mention half-a-million new barrels a day of Gulf of Mexico oil [Thunderhorse], etc.) that started flowing last year)

bureaucrat said...

People like to embrace doom, especially old men (I'm almost there! :)). It makes old men feel warm inside to say I TOLD YOU! after years of being ignored by all these damn women and teenage children. But an old man is going to fold up and blow away as well if even half of the bad things listed happen. So don't embrace doom too closely. Yes, I know, you all have fired rifles since yo daddy taught you how to shoot. But that isn't going to help you and your family for long.

And as far as all these awful things happening, lets look a short list of REALLY bad things that were supposed to have ended the world .. and didn't ...

The American Revolution
Hitler, Mussolini & Japan
The Civil War & Slavery
The Great Depression
All Empires withering and dying
Cancer
Dozens of plagues and diseases
Smoking
Drinking
and the list goes on and on.

Humans are NOT STATIC. We change and roll with the punches constantly. We could conceivably find more oil, or better yet, find a way to make artificial oil (oil is nothing but hydrogen and carbon atoms -- the big problem is getting them into the long chains of "H" and "C" that form crude oil). Or how about all the natural gas that is pouring out of the ground due to this NEW drilling method? Things change every day. Optimism, people!

When you all fantasize you are Warren Buffett, remember how Buffet got rich ... he believed in the American model, and in better days ahead, no matter what "doom" was out there.

Anonymous said...

Bur, I think you make a good point but again go into some extremes in you examples that the "world didn't end".

Your point is well taken, but actually most people drink the denial of reality "kool-aid" and are optimistic and irrational. Sure, mabye Santa Claus will bring free energy in the future. Natural gas, again is a good news story--but its not oil, and doesn't do the many things oil does--thats why its the miracle substance of such key importance globally, while Natural gas is not.

The US does have some advantages mind you, food production (albeit tied to oil currently)more landmass and biodiversity then many countries and two big oceans with only Canada and Mexico as neighbors come to mind.

But most of those things listed were not thought to have "ended the world" many people in my grandparents generation of the great depression--told me they were unhappy and scared but not hopeless, they were just trying to ride things out.

I don't see peak oil, peak food, water issues etc as the end of the world--just the end of the current incarnation for most people (perhaps not all). Wealth distribution is likely to get even worse, and this will cause social problems as more people compete for smaller pieces of the pie, while some smaller sliver remains ultra wealthy and retain many of the things the yuppies are used to having, but may start giving up--as we transition to some scaled down techno-green future, or some more bad times with some people dying and struggling immensely. But plenty of people do this now, even in America, this is the relativism of how each person's life and circumstances vary.

Some people wake up thinking life is great and some people wake up wallowing in misery.

Irrational optimism is just wishful thinking, optimism based upon adaption is rational. IMHO it just appears that most people are Irrationally optimistic, hell isn't god going to fix things for 80% of the population that believes god is going to save them, and destroy all those nasty people that don't agree with their beliefs/story?

Greg T. Jeffers said...

Jeffrey:

Sorry if I embarrassed you... I am a natural born salesman... We'll stick with "one of the best known"...

westexas said...

Re: Canada

It's true that Canada's net oil exports have been increasing, but it's instructive to look at combined net oil exports from three of our four largest sources of imported oil--Canada, Mexico & Venezuela (CMV).

CMV's combined net oil exports fell by 20% in just four years, from 5.0 mbpd in 2004 to 4.0 mbpd in 2008, with the decline continuing in 2009.

bureaucrat said...

Very instructive :) however, I think you'd agree the national oil companies involved in Mexican and Venezuelan oil production are far from totally optimized (I think most people are amazed the BP engineers have gotten as much oil out of Prudhoe Bay as they have). Imagine what Mexico and Venezuela could do if they had even one decent engineering team running the show (and the government not breathing down their necks). That is wishful thinking I know. But who knew in 2002 the U.S. would own Iraq and GM at the same time. :)

I have more faith in the Saudi engineers, as I think they are doing what they can with that tired oil complex they have.

I appreciate the comments on Canada. As the Canadians move outward from the best oil concentrations in the sand (around 15%) outward toward what could be 8% concentrations, Canada will likely hit a wall at some point.

Nearing Coleman said...

Let's say we do follow westexas' previewed path and future foreign oil supplies go to higher bidders. What are the chances that both the Atlantic and Pacific coasts suddenly become drillable? The Florida gulf coast? Is there oil off our own shores which we are not tapping because of current prohibitions?

Molon Labe said...

"Yes, I know, you all have fired rifles since yo daddy taught you how to shoot. But that isn't going to help you and your family for long."

Bur,

Even in jest your comment reeks of the elitism that is so common to liberals. You feel as though your expensive education and world views are entitlements to look down your nose at the simpletons and the unsophisticated masses. I assure you this country was not built by Ivy League faculty and mid-level government employees such as yourself. Please continue to look down your nose at us simple folk clinging to our god and our guns because there will be a day when you only wish you could have had the foresight. Being aware of the predicament we all face is not akin to hoping for the destruction of our society. Any reasonable person would not wish for such an event to unfold as it will surely make the lives of our children and grandchildren a daily struggle. Please pull your head out of your proverbial ass and stop making arrogant assumptions about people. Perhaps then we can have a conversation based on reason.

Anonymous said...

Molon, if you're gonna go all class warfare on us, I suggest you read some of Joe Bageant's stuff, ya know, the guy who wrote 'Deer Hunting With Jesus'.
His latest post is pretty good, and he does hit on peak everything and dieoff.
http://www.joebageant.com/joe/2010/03/moon-over.html#more
Cheers

Molon Labe said...

It's not about social classes. It's not about economics. It's not about religion. It is about attitude. This is supposed to be a place to debate/discuss the issues free from the narcissistic blowhards all too common in the media and on other blogs. It's simply not helpful to have their ridiculous views regurgitated here for us all to be subjected to. Share information. Debate. Point/counterpoint. It's just a waste of time (and not to mention against the wishes of the author of this blog) for conversations to take this turn.

bureaucrat said...

I think I'm being very point/counterpoint and hopefully useful. But the psychology of people who assume nothing but the worst (day after day after day) is part of the peak oil thing, and I think it should be called what it is.

If people can factually point to actual cases where they had energy shut off or it became unavailable, or food became unavailable, or they can trace back their financial problems to someone other than themselves as the cause, I think it is relevant. How many gas stations closed near you? How many supermarkets? How many times did the government steal from your checking account? How many black helicopters did you actually see yesterday?

Meiyo said...

Bur, your comments just seem to be increasingly without merit when you go on rants about optimism.

See Detroit, MI if you want to see large sections of ghost town, with closed gas stations, and yes, even Walmarts.

Your argument you make in your most recent comment is invalid. In terms of prediction you don't base an argument upon IF it hasn't happened yet, it won't happen.

So if you Doctor tells you you have Pancreatic cancer and will die in 6months, and then 6months later you are feeling lousy, but aren't dead yet, do you go to the doctor and say, Ahah you were wrong I'm not going to die? Then you die a couple months later. The doctor wasn't wrong, his timeline and prediction about the timetable was wrong only.

Even 3rd world countries still have gas stations, and grocery stores--even when many in the country are underfed and live in lousy conditions.

IF your argument continues to be, hey it hasn't happned yet, so it isn't going to happen your just doomers etc, then you continue to make a logical fallacy. I do think you touch on the fact that many that post on such websites tend to only see doom and gloom--but that doesn't mean there aren't serious issues coming down the pike.

But just because your not dead yet, doesn't logically mean you aren't going to die. Just because not all the doom scenarios for peak oil haven't played out yet, doesn't mean that many won't. Years ago only a handful of people predicted that oil could hit 147$ (Matt Simmons and a few others) and were made out to be crazy doomers, but they eventually were right, perhaps just off by a couple years on the timeframe. Clearly predicting the future is not possible, but analyzing data/trends/reality and making some conclusions based on that--that don't look to good is reasonable, and shouldn't mean you automatically are a pessimist.

If you want to preach pollyanna-ish stuff, you can certainly check out the American idol message boards--everything is groovy over there :)

Greg T. Jeffers said...

Bur:

I think your commentary is for the most part argumentative. The vast majority of the data you use in explanation is anecdotal - at best.

Anonymous said...

That China and India are increasing oil consumption as it is declining in the US is no surprise. They use far less per-capita than in the US. The last barrel of oil in Chindia is used much more efficiently ( generates more economic benefit ) than the last barrel of oil in the US, or anywhere else in North America or Western Europe, for that matter. As time goes by, we all will approach equally efficient utilization. This is another example of the law of diminishing returns. The overall economic implications of reaching parity in utility are enormous.

Regards,

Coal Guy

oOOo said...

Thank you, maths and data whilst also somewhat open interpretation provide a clearer view than all else.

westexas said...

Bur: " Imagine what Mexico and Venezuela could do if they had even one decent engineering team running the show (and the government not breathing down their necks). . . "

I wish we could put those engineering teams to work in Texas & the North Sea--two regions, developed by private companies, using the best available technology--that have respectively shown production declines of about 3.5%./year and 4.6%/year since peaking.

A key phrase to keep in mind: "Incremental versus material." Private oil companies could do an incrementally better job in many areas, but it would it make a material difference?

And in any case, the "solution" that you are offering is to increase the depletion rate--the rate at which we consume remaining fossil fuels.

Re: Offshore Drilling in the US, see above comments.

bureaucrat said...

Is this a blog where we discuss (or if you want to use the word "argue," that doesn't scare me) energy issues, or are you all already ready to ignore your eyes and wallow in the "peak doom" mentality?

Peak oil has a case. I'm investing as if they have a case (it parallels nicely with the Jim Rogers shtick I'm following). Peak oil has had a case for 100 years. And every time, including today, the oil keeps flowing (something new happens: North Sea, Prudhoe Bay, Canadian Oil Sands, Ghawar keeps flowing, Brazil deepwater, the Gulf of Mexico, etc.)

There's been so little BAD energy news, we've had to resort to talking about the economy and asset bubbles and credit. Is this actual cognitive dissonance? :)

bureaucrat said...

My solution is to cut the waste of energy by 50%, likely thru inevitable price increases, to start. Human beings waste, waste, waste almost everything. We already know life can be happier without so much "oil complex." And I hold out a naive hope that something might just happen ... maybe a little black swan, somewhere. :) Optimism ain't beanbag.

westexas said...

Bruce Willis & "The Sixth Sense" Movie

For those of you who have not seen the movie, one of the lead characters, Bruce Willis, is a ghost who does not know he is dead and who only sees what he wants to see. At the end of the movie, he realizes and accepts that he actually is dead.

In a similar fashion, for most of us our perpetual growth, auto centric suburban way of life is dead, but most of us don't know it yet, and we only see what we want to see.

IMO, there are two types of "ghosts" in the US--those who know that our current way of life, for most of us, is dead, and those who will realize that our current way of life is dead.

Greg T. Jeffers said...

Bur:

I am trying to gain a more civil and empirical tone here.

I am not trying to disabuse anyone of the notion that they cannot disagree.

By all means, you are an intelligent fellow... if you anything of value, well, let's hear it. But let us lay off the teasing commentary. That's my job...

bureaucrat said...

(Matt Simmons, who I do enjoy reading and listening to, has been pretty quiet lately ... have you noticed? :) His big prediction in March of '09 was VERY doomish. It ain't gonna happen, a year later)

westexas said...

The 1972 Texas peak (blue) lined up with the 1999 North Sea peak (black):

http://www.theoildrum.com/files/TexasAndNorthSea.png

Regarding Matt Simmons' principal line of research, it has been Saudi Arabia, and it appears that as of the end of 2010, Saudi Arabia will have shown five straight years of oil production below their 2005 rate, with four of those five years probably showing year over year increases in oil prices. This is in marked contrast to their track record from 2002 to 2005, but in any case, as the above graph shows, Peaks Happen, even in the best of circumstances.

And when Peaks Happen in exporting countries, their net export rate tends to accelerate with time.

bureaucrat said...

From Kunstler today (3/8/10) ...

"Meanwhile, I'm thinking: how many of you might be grubbing around the woods six months from now for enough acorns and mushrooms to make something resembling soup...?"

Wanna take the other side of THAT trade? :) I read his book 4 years ago .. he's still hoping ..