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
Posted by The Short Story Man at 5:34 AM