Saudi Arabia, the US & China (EIA Data)The cumulative shortfall in Saudi net oil exports, between what the they would have (net) exported at the 2005 rate and what they actually (net) exported was 840 million barrels (mb), from 2006-2008 inclusive, as US oil annual oil prices went from $57 in 2005 to $100 in 2008.On the import side, the US and China are respectively prime examples of the OECD and non-OECD responses to rising oil prices.The cumulative shortfall between what the US would have (net) imported at the 2005 rate and what we actually (net) imported from 2006-2008 inclusive was 687 mb.The cumulative increase between what China would have (net) imported at the 2005 rate and what they actually (net) imported from 2006-2008 inclusive was 839 mb.So, China not only offset our cumulative decline, their increase exceeded our cumulative decline.This pattern is what I expect to see in the future--OECD and non-OECD countries battling it out for a share of declining net oil exports, with OECD countries generally being forced to reduce their consumption. I had been expecting more of a short term decline in US demand, primarily because of large anticipated reductions in government payrolls and government services (initially local & state, with the feds joining in later), but the stimulus spending is apparently postponing that day of reckoning. But I do think that the longer it takes for another downward leg in US consumption to occur, the less impact that it will have on global net demand.Most companies, most governments, and most individuals are essentially basing their economic decisions on what I call the FIM--the Fantasy Island Model. On Fantasy Island, oil fields don't deplete.In my opinion, a more realistic scenario is that oil importers worldwide, in just the past four years, have already burned through 20% to 25% of our post-2005 global cumulative supply of net oil exports.In any case, based on our export models, governments worldwide are doing precisely the wrong thing at precisely the wrong time--by encouraging consumption, when we should be doing everything possible to discourage consumption.
(For those of you outside of the "Peak Oil" debate, Jeffrey Brown is probably the most well known Geologist on the planet with the exception of M. King Hubbard. I encourage you to Google Jeffrey Brown's stuff.)
In other words, the supply of exported Oil making its way onto the world's oceans is falling at 5 - 7% per year, but the fall in imports into the U.S. is declining faster. Given the currency and car fleet growth in Asia this makes a lot of sense.
It also means that the probability of an Oil shock and double dip recession is so high as to be near certainty sometime in the next 3 years. That does not mean Oil could not decline in price prior to that, but I don't see how another Oil shock does not harm the equity and housing markets and rough up the banks.
38 comments:
I still don't see how the reductions in worldwide oil imported doesn't follow common sense. The world is in a depression, depending on your definition. Demand overall is dropping for oil .. for now. We are loaded to the gills worldwide with oil. The oil tank farms in the U.S. are fully loaded to the usual 300 million barrels as they have been since 1945 (a similar situation exists with the natural gas in storage), and I thought China was building new tank farms so fast as to be almost unbelievable. We have dozens of FULL 2 million barrel oil tankers anchored off the coasts around the world (UK and Singapore in particular). Oil export nations perhaps CAN'T export anymore cause we already have oil sitting in storage waiting for a buyer, plus the oil demand is down across the board. Your argument would make more sense if the exporting nations could NOT STOP the oil from being produced, like when the Kuwaiti oil fields were on fire. Then it might make some sense that the production is dropping. The oil exporting nations may be voluntarily stopping their exports for justified reasons -- pure and simple.
B,
From this point forward (peak oil) may not be measurable in barrels, but rather in ecomonic conditions. My guess is history will show the actual date, at a later date, of course. We will only guestimate for some time. Guys like Greg will keep us in the loop. This should be the easy way down, I hate to see the reaction to anything other then that. Still, I plan for various scenarios. Mostly, knowledge,food,and tools, the best I can.
Peace
And if the imports start improving when the economies of the world improve, is Jeffers going to retract everything he has said about oil import reductions to date?
Bur:
If imports rise for 18 months, I would certainly retract much of my assertions. When the data changes, you better change, too.
If the glut were that big, oil would not be $75 per barrel. Yes, the tanks are full, but that is in response to the continuing decline in production that will not stop. The depression has left some breathing room on the demand side. Those who have the means to actually buy oil are stockpiling the hard goods at $75 to $80 per barrel. They aren't relying on futures to lock in the price because they believe that the product probably won't be there when the futures expire. There are lots of people who know what's going on, they just lie in the newspapers.
OPEC has never had the discipline to really control prices, and I doubt that they have it now. Look at the reserve numbers published by OPEC countries. They never go down. Somebody's fibbing. Don't expect that there is untapped supply.
Speaking of big fat liars, ABC news had a piece on last night about the first US enviro-refugees. These were people who had to leave their homes in the Mississippi delta because their island was being flooded by rising water in the Gulf of Mexico. The entire blame was put on global warming. No mention was made that the entire Mississippi delta is sinking because the Mississippi river has been diverted by dikes and levees. The annual flooding that deposits the silt that maintains the delta has been stopped. Much of New Orleans is 6ft below sea level. It has subsided as the organic matter in the silt decays and the silt compacts. On the other hand, the oceans have risen only 6 inches in the last century. It looks like the mainstream media exists to service the members of the liberal left.
On the subject of the left's bigger members, Obama wants to build more roads and bridges. OY!
As oil declines, we might bet on oil companies with reserves in the ground, but the better bets will probably be on oil's replacements. I'd guess Natural Gas, Nuclear, Coal, Wind and Solar in that order.
Regards,
Coal Guy
I won't argue with the data, someone once said (in addition to this "If I'm wrong, I am gone" stuff :)). Now we just have to wait for a worldwide economic recovery to test our thinking ... still waiting ... still waiting ... :)
Bur,
We don't have to wait for a recovery. All we have to do is maintain some sort of stasis. Oil is going away. The shortage will come as long as we aren't sinking faster than the oil supply.
Regards,
Coal Guy
Coal Guy,
You could have at least thrown conservation into the mix given the huge amount of energy waste in the US.
BTW, you still smoking those unfiltered cigarettes the tobacco companies assured us forever would not cause cancer?
Prices will take care of conservation. But, that will take time. There is huge fleet of vehicles to turn over, and millions of homes that heat with oil. Oil has just recently become a scarce commodity. It's all about the dollars. There has been waste because Oil has been almost free. Those days are gone.
I don't smoke, drink very little, drive a car that gets 47MPG, and turn my heat down to 60 at night and 58 when we're at work. How 'bout you?
Regards,
Coal Guy
Anon 7:57 AM
Greg seems to think that we'll all end up pedestrians, and I think technology will evolve to keep us driving. What we both agree on is that absolutely nothing started today in terms of conservation or public transportation or alternative energy or fuel will make a bit of difference in the next 5, maybe as long as 10 years. We are in for a very rough ride. I think I'm a bit more optimistic about the future past that.
Regards,
Coal Guy
Coal guy , you sound like you are in my camp,...at last someone who thinks like me...
Germany has about the same per capita GDP as the US on half the fossil fuel consumtion; its not that hard to be fuel-efficient.
Also a feature of analysis of Peak Oil is the chaotic nature of Peak plateau. Some think this is a function of price rises destroying demand, the damage to investment decisions by inconsistant forward pricing, and speculation (but there are other opinions).
But it does mean that any point of view can be 'proven' by reference to short term figures.
Dear MS:
NOBODY thinks like you...
Donal,
Germany is a much more compact country than the US. There are much greater distances to traverse here. Also, Germany has benefited from the need to control oil consumption since the 1950s since there is not local supply. They are further down the conservation curve than the US. However, they have probably squeezed as much efficiency as they can from their economy. They are having trouble meeting their CO2 goals.
There is still a lot that the US can do to increase efficiency as well as supply. Our fearful leaders have never had the intestinal fortitude to actually do something about our balance of trade deficit. Instead they financed the government's deficit spending by repatriating the money through the sale of debt to foreign governments. This kept the dollar strong, taxes low and oil cheap. The down side of the artificially strong dollar was huge loss of industry and huge foreign and internal debt. Forty years of bad policy will take a few weeks to undo :)
Regards,
Coal Guy.
MS
There are huge reserves in the ground. I can't imagine that no one will figure out how to use them.
Regards,
Coal Guy
It doesn't matter how much oil is in the ground, the only thing that matters is energy return on energy invested. We are apporaching the point where extracting more oil becomes uneconomical in terms of energy not cash amount.
By the time the nay-sayers are convinced, I'll be rich.
Do you think that someone won't burn $30 worth of natural gas to make $80 worth of diesel fuel? (equivalent energy)
Coal Guy,
I was referring to the longer optimism about alternatives.
In that sense too reserves in the ground referring to Geothermal perhaps?
I have told Greg several times, worry all you want about Peak oil but we will never have an electricity shortage in the long run. Just too many resources.
Greg, Nobody thinks like me?
I hope that was a compliment
Long term optimism about alternatives is fine. We're also all dead in the long term. Short term, the energy alternatives to oil suck, and you know it. Gasoline and diesel are here to stay -- we just have to hope we outbid the Chinese and Indians before they lock up all the spare capacity.
A minor clarification. The decline rate is the rate at which the volume of oil falls in a given time period. The depletion rate is the rate at which the cumulative volume of oil is consumed.
Three key factors control net export declines: (1) Consumption as a percentage of production at final production peak; (2) The rate of change in production and (3) The rate of change in consumption.
Three key characteristics of net export declines: (1) The net export decline rate tends to exceed the production decline rate; (2) The net export decline rate tends to accelerate with time and (3) Net export declines are front end-loaded, with the bulk of post-peak Cumulative Net Oil Exports (CNOE) being shipped early in the decline phase.
The Indonesia, UK and Egypt (IUKE) case history shows the three key characteristics. They went from a combined final production peak in 1996 to zero net oil exports in 2005, and then to net importer status. Their initial net export decline rate, from 1996 to 1999, was only about 3%/year, but--and this is the key point--their post-1996 CNOE depletion rate was about 25%/year. So, at the end of 1999, their annual net exports were only down about 9% from 1996, but they had shipped more than half of their post-1996 CNOE.
We have seen small declines in global post-2005 annual net oil exports, but I estimate that net importers are depleting the post-2005 cumulative supply of net oil exports at about 5% to 7% per year.
These various net exporters are simply following the same path that the US--once a large net oil exporter--followed. In fact, our rate of increase in consumption was so high that we went from being a major source of oil for the Allies in the Second World War to net oil importer status only three years later, in 1948--which was 22 years before our production even peaked.
Incidentally, here is my my "Severance Pay" analogy. Let's assume a man is laid off from his job, and he has to get by on $500,000 of severance pay and savings. He was spending $100,000 per year, so he decides to cut his spending at $10,000 per year, while he continues to hold out for a job that would support his old lifestyle. Over a three year period, his spending would be $90K + $80K + $70K, or $240K over three years. His spending fell at 12%/year, from $1000,000 to $70,000, but--and this is the key point--he depleted his Severance Capital at 22%/year, as his capital went from $500,000 to $260,000.
In this analogy, the spending rate is analogous to the net export decline rate, while the Severance Capital depletion rate is analogous to the Cumulative Net Oil Exports (CNOE) depletion rate.
This is my key point. World oil importers are depleting our global Net Export Capital--our post-2005 CNOE--at a ferocious rate that is far higher than the slight decline in the volume of world net oil exports would suggest. In effect, we are consuming far beyond what we can maintain, even in the near term, over just the next few years, while world governments are generally doing everything they can to increase our consumption.
MS
I agree with you. We will not be short of electricity. I'm just watching with shock and awe that our government is entirely ignoring, if not exacerbating the crash. The decline would be a lot less drastic if off shore and ANWR were developed, and we had a reasonable re-structuring of the energy markets to reduce use of carbon based fuel in fixed applications. (More nuclear, wind, solar and less coal).
I'm with Bureaucrat. Everything but gasoline and diesel fuel sucks. Further, the infrastructure to distribute, sell and use it already exists. The technology to create it from gas and coal is 80 years old now.
Of course all fossil fuels will run out, and we cannot develop what's left to help at all in less than five years from the time we start. We will be in sorry shape in 2020 with only about 7MM per day to run on. The decline is looking a lot more like a straight line than exponential decay. Scary. A lot of it is economic, in the sense that the price of oil has been too low to justify development of alternatives. A lot of it has been the CAVE men who have, and still do, stand in the way of everything.
In any case, GTL and CTL would soften the decline. Nuclear and geothermal for fixed applications would be a great help. Nuclear driven GTL and CTL would preserve much more of the carbon in the resources we have left. China is going after it. The US has chosen to repair roads and bridges. This country has a death wish.
There are 800,000,000,000 barrels equivalent of oil shale in the US. Shell Oil and a few others think they have ways to cook it to liquid in-situ and recover it. By my calcs, that's 44000 days' supply at the present consumption rate. Obama, being the good Socialist that he is, stopped research on public lands immediately after taking office. It is apparently, too environmentally dangerous to know whether or not it can be done. I have no printable words. On the plus side, either the Republicans or a third party will latch onto the liquid fuel issue and it may well be very rough on the Left for a long time.
Things will never be as they were, but the possibility of 50% unemployment and the enormous civil unrest that may accompany it are not attractive.
Regards,
Coal Guy
P.S. no one has found any oil in ANWR. It is illegal to drill (even test wells) there. Logic says there SHOULD be at least some oil there. But Alaska is full of dry holes too, where there should have been oil, and wasn't.
Forget about GTL (relies on cheap natural gas which we have for now, but ....) and CTL (may not have as much coal as we thought/hugely expensive to build a plant) and oil shale (has no energy density/has gone nowhere in 30+ years of trying to make a profit on it). Optimism just has no place in veihcle fuels. But, if you want to "wish on a prayer" .... :)
I'm not wishing on a prayer. But as long as the US government has both feet on the brake, it makes no difference. I don't see any nuclear licenses being issued either. No hope, no change until 2012, then 5 years after that until any results. So, 2017 at least before any relief of any kind. I'm preparing for a very bad ride.
As far as oil shale goes, just like tar sand, it is uneconomical at $20/BBL. Oil has been cheap. Oil shale will probably be wildly profitable at $200/BBL. Shell seems to think that production costs will be in the $50 to $60 range. It's almost worth the risk today.
Why is it that people believe that everything that can be known is already known? Conditions change, times change. Knowledge increases over time.
Regards,
Coal Guy
Things do indeed change (nobody saw the surplus in natural gas production coming, nor did anyone predict the spiking and cratering of the oil prices last year). But you can't change chemistry and physics. I hope for the best, but as an investor, I have sworn an oath to make money especially when there is blood in the streets. :)
And oil will never go to $200/barrel. 2008 proved when it sustains over $80, the economy gets slapped and demand for oil drops, so prices drop.
Back to Jeffers and his hatred for the estate tax ... a commenter on an Agora site said ...
"“Your debate about estate taxes misses the fundamental point about what they are for,” a reader writes. “Like them or not, it's not about the revenue, it's about the redistribution. Estate taxes are specifically designed to prevent families accreting too much wealth and power over generations. Antitrust and monopoly laws (are supposed) do the same for corporations.
“Sure, they raise revenue for governments and in these straightened times, it is easy to see the expediency of raising or extending them, but in the great scheme of things, the tax take from this source ($23 billion in 1998) is not be enough to bail out a medium-sized bank.
“Absent effective estate taxes, a country will eventually be captured by a small wealthy elite like the 3% who now block development in Haiti, or the seven families who run the Philippines as a glorified private fiefdom. Overly concentrated, powerful elites do not share the hopes and ambitions of a nation as a whole, and once they are vested and established, they can frustrate initiative for the common good that threatens their existence.
“By some measure, you appear to think that this has already happened in the U.S., and the elites are already mining the wealth of the majority to protect and consolidate themselves.
“Perhaps the argument should be about how to improve or extend the estate tax so that it can more effectively break up the establishment before it’s too late.”"
Bur wanna bet on the $200 price?
MS:
Of course it was a compliment. Nobody loves your twisted logic like me...
Sure, why not, though I'm still waiting for EVEP to come crashing down too. :)
$200/barrel oil (actually anything over $80 sustained) will shut down the world economy so much no one will be able to afford to pay for a barrel (especially in the U.S. where we drive a lot more distance.) Demand drops and then prices drop.
Bur:
The estate tax has its purpose in maintaining a democracy, certainly.
But if you think our trusts and estates statutes prevent the problem you refer to, you are very wrong.
The estate tax did succeed in destroying the family farm, though.
So it had that going for it.
Selling something because the risk reward is not in your favor does not mean it will go down immediately.
At least it was a buy low sell high. I did not put a strong strong sell at $16 and a Strong buy at $25 like the brokerages do.
On the oil front you are hallucinating.
Look at our gasoline consumption, where it is after the worse possible recession, we are off 5-7% from the peak.
All the easy demand has been decimated.
if we have a 20-40% decline in imports in a few years don't expect anything under $200.
You must mean Canadian gasoline demand is dropping cause the U.S. demand sure isn't. :) Look at the EIA charts. Gasoline demand here is actually RISING (though I am refering to very recent history. Gasoline demand was indeed down in 2008. Not anymore.)
So what's the bet? I'll make it easy on you. If we have 6 months sustained $100+ (doesn't drop below $100 at all in 180 continuous days) crude oil prices at any time in 2010, 2011 or 2012, I'll send you $100 (U.S., not Canadian! :)) Otherwise, you lose, and have to sing "God Bless America!"
You are arguing for my point B. Or did you not realize that in your excitement.
That has been my difficulty with you since the beginning, Scientist ... you have a wonderful command of facts and investment info (impresing Jeffers apparently), but if you thought I could figure out something simple such as what your "point B" is without you making it plain and simplifying and "bottling the answers," you expect way more of me than I can give. :) This "English isn't my first language" crap can only bail you out for so long. Haha! SUMMARIZE! TAKE US SOMEWHERE! BE CLEAR IN WHAT YOU"RE SAYING! GIVE ME A DAMN MAP!!!! :) What "B" are you talking about?
As far as I see Bozocrat, youare the only B on this board.
You are saying that gasoline demand is rising in spite of very high prices hence in shortages the price would go up a lot more , would it not?
At a national average of $2.62 a gallon today, gasoline is cheap in the U.S., as usual -- about where it has AVERAGED for the last 5 years. But the EIA gasoline demand graph does show increasing gasoline demand the last 2-3 weeks vs. normal 2008 demand. What I've said so far doesn't say anything about those two facts. What I have said is that 2008 showed that if crude price per barrel exceeds a certain price for awhile, it slows down the economy so much that demand for gasoline drops. And then therefore pump prices drop. And then therefore price per barrel drops. It's a natural limiter. I realize pure economists will say that if the supply of something dwindles, prices should go thru the roof. I don't think we can say that in this instance. It has that natural limiter. If the only people who can afford it is the rich, a lot less oil will be needed -- people will lose jobs and walk.
Post a Comment