169 comments on Oil export - import model for the UK
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169 comments on Oil export - import model for the UK
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It also does not seem particularly likely in undemocratic countries, because the rulers of those countries are primarily interested in one thing: cash. They will send their domestic oil to where it earns the most money, and in general that will be the international market.
Of course it is automatically true that a country's exports equal is production minus its internal consumption (neglecting any imports). The test of "export land" is whether the per capita consumption of major oil exporters is increasing significantly faster than other comparably wealthy countries around the world.
- they are mature economies, with fairly low energy consumption per unit of GDP anyway, and
- their prevailing ideology does not lend itself to protectionist economic policy.
But it's easy enough to demonstrate the truth of the model on a case by case basis with the major oil exporters (Russia, Saudi, Venezuela, etc...) where oil-product prices are indeed subsidised in order to promote economic growth.I'm not saying this is smart policy, but it's clear that it's happening.
Canada is bound by NAFTA treaty to supply the US on an equal basis to Canada-- the oil flows south from Alberta, not East to Toronto (largely: there are still some refineries in Sarnia, Ontario, near Detroit). Quebec and the Maritime Provinces import their oil.
The UK is, AFAIK, similarly bound to supply oil on equal terms to its EU trading partners, although in practice in 1973 and the oil embargo it was 'every man for himself'. But the price will be set by outside world prices-- no one imagines a UK government would be stupid enough to try to control the domestic price of oil.
PS
Interesting to learn that a plan to seize the Gulf Oil assets was going round Washington and Whitehall in 1973:
http://news.bbc.co.uk/1/hi/world/middle_east/3333995.stm
I agree with you in general, but want to add one qualifier. There is one thing autocratic regimes like more than cash, and that is staying in power.
Iraq had an enormous fuel subsidy when Saddam was still in power. That is changing now, and people are pissed off about it. In short, the rulers have to balance the desire for cash with the need to quell popular unrest, which threatens their regime.
A couple of scenarios are possible:
- despots in exporting countries will tolerate declining exports (rising internal consumption) since the declining oil remaining for export will push up oil prices enough to satisfy their greed.
- The need for cash will get the upper hand and they will back off on subsidies and try to control or suppress public unrest. This reaction would maintain the amount of oil available for export, or at least it wouldn't drop as fast as the Export Land model would predict
Which one should we expect? It obviously depends on what country you are talking about, the severity of any popular backlash to rising oil prices, and a million other factors. In short, it's anybody's guess.Demand destruction is going to occur primarily in the economies that do not benefit from higher energy prices because there will be a massive transfer of wealth from the importers to the exporters. However this only looks at it from a national perspective. The average Canadian is going to be hurting in the wallet just as much as an average Amererican. The big winners are going to be the oil companies and associated industries, their employees, their stock holders and the (Alberta) government.
While you raise some good points what evidence do you have to make the following statement?
"They will send their domestic oil to where it earns the most money, and in general that will be the international market" Does this really depend on the relative purchasing power of the domestic consumer (per capita GDP?)
Secondly exports and imports of oil will also be detrmined by the quality of the oil. Eg In Australia the oil is very light despite declining production much is exported as it is too light to refine into heavier products. So oil such as Tapis and Arab Crude is imported to make gas, diesel and bitumen products.
Thirdly there are long term contracts. Not everything is sold on the spot market to the highest bidder. They may well have to honour these contracts first they may be domestic customers on the other hand they could be export cutomers.
Fourthly distance from markets affects where crude is sourced and where it is sold. For example there are places in the world that it does not make sense to ship oil half way around the world when a local source is close at hand. Consumers rely on more local producers as transport costs impact on input cost.
As for your blanket generalisations about democracy, they are foolish.
An oil exporting country will be enjoying positive trade balance and a strong currency as a consequence. The result is that for the domestic consumption oil will remain relatively cheap even though the price may be rising for the oil importing countries.
The same thing is happening now with the US. Oil is realtively expensive for the US residents, but it is hardly felt outside of the US, because of the weakening dollar.
What is interesting in this article is that it shows exports decline (in the UK example) at consumption increase - production increase. Actually I suppose somewhat obvious.
Saudi Arabia's oil consumption increased by 11% in 2005 -- due to strong economic growth (+6.3%), a growing appitite for SUV's (SUV's are the most popular car in the middle east) and a growing petrochemical complex, and population growth (2.18%). So unless oil production increases 11% then oil exports will decline in the 11% range.
Russia's oil consumption increased 7% in 2005 driven by economic growth (6.0%) and increases in energy usage due to cold weather, and increases in car sales from very low levels.
So looking at the main exporters we are facing about 9% declines in oil exported unless Saudi and Russia slow dramatically and/or alter consumption behavior, or increase production, both of which appear unlikely. Without oil exported there is no secondary market for oil.
Note that Saudi production is down, through 6/06, by 5.2% from last year's level (EIA, crude + condensate). So, as predicted, net oil exports being squeezed from two directions--by falling production and by rising consumption.
- Saudi production down, consumption up, therefore exports way down
- China imports way up (15%?)
- world production flat
- no apparent shortage of oil on the market.
So there is, necessarily, major demand destruction going on. Where? Africa, India? Are the numbers emerging?Saudi Arabia has 20 million people, and GDP per head of c. $8,000.
US consumes 25 bl per person pa, I would bet the Saudis don't consume a quarter of that per person.
Figure 12 bl/per person/ per annum in Saudi: that equates to 240m bl pa or about 600,000 bl/day so less than 10% of total production.
The picture might be a bit more blurry than that because the domestic petrochemical industry soaks up crude (but exports refined products).
The Saudi birthrate is surely an anomaly in terms of classic income-per-capita demographics. It's a rather extreme illustration of the fact that demographic transition is mostly about the emancipation of women.
Income per capita has roughly fallen by 2/3rds since 1974 in Saudi Arabia (population has tripled, the real price of oil is no higher, there hasn't been enough other industry come in to fill the gap).
Saudi Arabia is also dependent on 'shadow water' (the term used to mean the water imported as part of food and other products)- -it doesn't have enough of its own resources.
The country is on the edge of very serious political and social trouble. The combination of widespread religious radicalism, a corrupt ruling class, the absence of any meaningful democracy, and poor prospects for the huge majority of the population under 21 is a lethal cocktail-- precisely what led to Algeria's civil war for example.
Right now, the current high price of oil (and high production) and the ruthlessness of the state security apparatus keeps the lid on. But there is no question the Royal Family has been shocked by the various terrorist attacks, and the incompetence of the Security Forces at defeating them. The security forces themselves are rumoured to be riddled with Islamicist sympathisers.
Whilst Abdhullah remains alive and in power, I don't expect change. He is seen as an honest man, and not personally corrupt. When some of his cousins get to power, the situation may be very different.
Osama bin Ladin may yet see the day when he is welcomed in his homeland as a hero.
India 2004 oil consumption 2,573,000 bpd
India 2005 oil consumption 2,485,000 bpd
One of the developing economies to show a fall in consuption last year. Note that France, Germany and Italy also show falls in crude oil consumption - in part related to de-indutrialisation, but maybe also through introduction of "alternatives"?
When you think about it, the easiest answers tend to be the same ones which make Germany the world's largest exporter - a tight focus on efficiency, a hard headed view of costs, and an awareness of the entire cycle of production, from acquiring raw materials to disposing of the waste at the end.
Oil costs Germany money, whereas wind turbines, for example, are planned as a future export product - and with a fully electric rail transport system, it is possible to substitute long haul trucking with rail, using renewable sources such as hydro, wind, solar - to a major extent, this is seen as an engineering problem, something Germans tend to feel very comfortable in dealing with. Not that Germans are blind believers in technology like Americans - merely that Germans believe technical problems can be solved with technical solutions - for example, if solar is only available during the day, then the freight train schedule will simply have to reflect that fact - in American eyes, that is not a solution, it is a failure.
And Germany has been quite rigorous in creating a bio-diesel framework for trucks and farm tractors. At this point, easily 50% of the long haul trucks seem to be using bio-diesel, from the smell they leave behind.
Germans have known that oil is a finite resource for more than a generation, which is one reason peak oil as handled here is not really a major theme, while consistent effots to conserve through higher efficiency and reduced use are seen as a necessity, not something which can be put off until the future.
But living between Frankfurt and Stuttgart, more or less along the flat and straight A5, which part of the direct route between Frankfurt Airport and the headquarters of Porsche and Mercedes, I expect this stretch of the autobahn to be one of the last unlimited speed routes in the world. Marketing is critical to selling overpriced vehicles.
Speaking very generally, trucks are only allowed 80 kph (50 mph) and up to maybe 90 kph is tolerated - 100kph is not. And those trucks are increasingly using bio-diesel.
This is not a defense of high speed driving - it is that simply the image of the autobahns is not really the same as the daily reality - most cars driven here are not even capable of 200 kph. But those that can go fast are often driven as fast as they can go - which certainly stands out for those not used to driving in such conditions.
After returning from the U.S., I would guess that the average speed of all traffic (not counting heavy rush hour) is at least as high as in Germany, mainly because of all the trucks doing 80 mph (130 kph).
I have noticed lately more trucks driving slower (55mph). I assume on orders to save fuel by the bosses.
It appears Schlumberger's "8%" decline rate is indeed a fact, and perhaps a very conservative one.
If Saudi Arabia and Kuwait follows this trajectory, you'd better be buckled in for a wild ride!
* * *
By the way, WestTexas, is SA production down 5.2%, or is that the decline rate for their Exports?
Based on EIA crude + condensate, highest KSA number last year was 9.6 mbpd. 6/06 was 9.1. 12/05 was 9.5 (9.6 to 9.1 is down 5.2%). Some Saudi ministers suggest about 9.0 for August, some suggest 9.2 range.
The annual production decline rate, based on 12/05 to 6/06, was 8.3%.
Based on the 12/05 to 6/06 EIA data, the top 10 net oil exporters, based on estimated consumption, showed about a 9.2% annual decline rate in net oil exports.
Any models of oil production should take into account that only exportable oil is traded. There is no way exportable oil is going up with Saudi Arabia and Russia growing like they are. I don't think anyone can pound the table hard enough on this point.
A quick calculation using average monthly all liquids production 2004->2005 shows a SA and Russian combined net exports increase of 364,000 bpd.
So yes, there is a way, and you can stop pounding the table.
Same method for Saudi Arabia: http://www.eia.doe.gov/emeu/cabs/saudi.html#oil However the EIA only presents Saudi domestic oil consumption in a graphical format. Therefore you have to eyeball the numbers and make a calculation of growth.
Saudi is closer to 4% from 00 to 04 according to the EIA data in the EIA.
How about trying to extrapolate to first half 06? Use bp data for consumption, assum this continues as in 05, then look at published first half production...
with SA down, even with russia up, my guess is that exports are probably flat at best, but maybe down.
The export number - 52 - is interesting. Its too late here for me to work this out - oil price go up or down with this number?
right side of page inder publications
first link Statistical Review of World Energy
Russia's Institute of Energy Policy's numbers updated through July 2006 show essentially no growth in oil production since mid 2004. see the presentation on this page http://www.energypolicy.ru/enews.php?id=1002255
It is hard to believe that domestic consumption hasn't risen when auto sales in Russia are growing 6%+ every year and the economy is growth above 7%. http://www.autofieldguide.com/columns/0805strat.html
Going forward, Russia's Institute of Energy Policy in the above link states: "Russian oil production will likely remain flat in the next 10-12 months," (from 7/06 to 5/07 to 7/07) also that Eastern Siberia (which is the only area of Russia that offers significant potential for production increases) "remains too underexplored to become new major Russian oil producing region."
The Russian energy minister stated in 2005 that Russian oil production could peak in 2010, which is consistent with the above presentation. Also note that, through 2010, Russian's oil Russian gas production from two of Gazprom's three major gas producing fields (Urengoy and Yamburg) is set to decline by 30%, from 2004 levels. To the extent coal cannot make up the energy difference, some oil may be diverted to satisify domestic energy needs.
So this evidence points to flat to declining growth in production and exports going forward. The EIA's data shows increasing export growth from Russia in the past three years http://www.eia.doe.gov/emeu/steo/pub/gifs/Slide10.gif but I cannot find forecasts by the EIA for Russian exports -- but if the assessment of Russia's Institute of Energy Policy is accurate then there is not much chance of Russian exports increasing.
The expansion of Jubail Industrial City is planned for the next few years, which is, according to Bechtel, the largest engineering project in the world -- a city of 230,000 (up from 90,000 in 1999)based around petrochemical production http://www.bechtel.com/spjubail.htm
Petrochemical production is increasing in Saudi Arabia between 20-25% per year -- due to the goverment's attempts to provide young people with work and the country's strong balance of payments position.
All this points to continued higher domestic oil consumption for Saudi Arabia in the future - -note that Saudi Arabia alone accounts for 23.4% of world oil exports in 2004.
In either case the same amount of oil or gas comes out of the ground and the same amount of products are available to other economies.
From an economic standpoint, it is clearly positive for SA and negative for petrochemical producers that don't have access to resources. However in terms of how it impacts oil & gas export figure it is just a technicality. The statistics capture oil & gas as energy and petrochemicals as "not energy".
Why should this worry people who don't work at or hold shares in Dow Chemical, for example, or large Chinese and Taiwanese petrochem operators?
Good for SA. Good for me. Right?
Math:
SA 2004 production: 10.37 mbpd
SA 2004 exports: 8.37 mbpd
SA 2004 consumption: 2.00 mbpd
Assuming 11% SA domestic consumption growth in 2005 with flat production (2005 EIA not yet available)(never mind that production actually was down in reality):
SA 2005 production 10.37 mbpd
SA 2004 consumption (11% growth): 2.22 mbpd
SA 2004 Exports (prod-consumption): 8.15 mbpd
percentage change in SA exports from 2004 to 2005: -2.7%
Well I guess it always pays to run through the numbers, as there is a material difference in percentage terms.
Exports, as a percentage decline, will decline SLOWER than consumption growth as a percentage increase if domestic consumption is lower than 50% percent of total production.
In the case of SA, consumption is 2.0 mbpd and production is 10.37 (2004 data)(about 20%) so continued 11% growth in the near term will affect export growth at significantly lower percentage than 11%.
Russia, since consumption is 2.6 mbpd and production is 9.3 mbpd (ratio of 28%) will also see export declines as a smaller percentage than 7% (current increase in domestic consumption) (my calculation point to Russian exports down 2.7% with 7% consumption growth)
HOWEVER, once consumption reaches 50% of total production, exports decline at faster rate than consumption.
This assumes production is flat -- if production declines that is another story.
BUT, the production declines impact, in percentage terms, impact the country more severely when the ratio of domestic consumption to production is over higher.
Math -- let's say Saudi Arabia has a decline in production of 5% from 2004 to 2005. Assume SA consumption flat and exports = production - consumption
SA 2004 prod: 10.34
SA Consumption: 1.64
SA Exports: 8.73
SA 2005 prod (5% decline): 9.85
SA Consumption: 1.64
SA Exports: 8.21 = decline of 5.94%
If Saudi Arabia consumed 50% of its produced oil, then I calculate exports, with a decline of 5% of production, would decline 10%, holding consumption constant.
So, in conclusion, production for Saudi Arabia and Russia are still most significant from a percentage decline/increase standpoint, compared to domestic consumption, as the ratios of consumption to production are still relatively low in SA and Russia.
Saudi production increased by roughly 4.5% or 450,000 bpd from 2004 to 2005. (EIA gives 4.7%, BP gives 4.3%)
Start there.
And no, Saudi and Russian production are not the most significant. Your own calculations show they account for only 40% of global exports. That leaves the other 60% for what I would hope would be serious consideration.
I think you miscalculated. If oil production is 9 mbpd and consumption is 2mbpd. Exports are 7mbpd. If Consumption goes up by 11% then exports fall by about 3% right?
Same method for Saudi Arabia: http://www.eia.doe.gov/emeu/cabs/saudi.html#oil However the EIA only presents Saudi domestic oil consumption in a graphical format. Therefore you have to eyeball the numbers and make a calculation of growth
Saudi is closer to 4% from 00 to 04 according to the EIA data in the EIA.
The de-industrialisation of the UK economy also needs to be taken into account.
I looked into Chinese oil consumption growth and it appears half of the increase in China's oil consumption over the past two years has been due to increased demand by power plants -- resulting in increased usage of oil in power generation and the increased sale of diesel generators. (which is not likely to continue as new power plants are built)
It is still not clear to me how much oil consumption growth stems from increased sales -- but it appears for China increased auto sales in the 20% range translates to 7% or so higher oil consumption growth. But it is not clear.
President of Russia's Institute of Energy Policy:
http://www.energypolicy.ru/epres.php?id=1002408
"The growth in oil consumption was particularly high in China - 15.4 percent (this country posted a two-digit increase in demand for the second year running). However, many experts allay possible fears concerning these figures: approximately half of the increase in the demand for oil in China, as well as in other Asian countries, was provoked by a shortage of electric power plants (the inert energy sector cannot keep up with the rapid development of the economy) and by the large-scale introduction of diesel generators. Obviously, this situation will not last long, and additional electric power plants are in the cards. These will operate on natural gas, coal or nuclear energy. However, even if the rapid growth of the Chinese and other Asian economies continues, it will no longer result in an astronomical increase in the demand for oil.
"Competition between different energy sources (natural gas, coal, nuclear energy, and renewable and alternative sources) is possible only in stationary power engineering (most importantly, in electric power engineering), where, incidentally, oil consumption has decreased to a record low in recent decades. However, humanitys "mobility" now directly depends primarily on oil: in the transport sector of the world economy, which is vital for global economic growth and globalization itself, there are no alternatives to oil as a fuel.
There have been power cuts, so there is undoubtedly a diversion to local diesel power sets, etc. As you say, this is being addressed.
But the Chinese domestic market is now 4 million motor vehicles. The car 'park' in China is growing almost exponentially, as is the long distance trucking fleet. And the road network is growing very fast as well. So I would suspect this is the main source of new fuel demand.
http://www.chinadaily.com.cn/english/doc/2005-04/28/content_438345.htm
This says 2008, but I think they got there 2 years early.
Domestic gas prices are about 60cents US a litre, (4.8 Yuan), for reference.
However, UK will soon be in a serious predicament: the balance of payments effect of becoming a significant net importer on top of the already dire trade deficit. The UK £ is no longer a significant reserve currency so it can't just print money (like the USA can for a mite longer) to fund its deficit.
It would be wise for UK to join the Euro zone before this becomes a horrid fiscal problem; if it doesn't I expect painfully higher UK interest rates, increased UK taxation and inflation, a sharp increase in unemployment, in fact: a return to the bad old stagflationary days that prevailed when UK was last a net oil and gas importer.
And before any US lips crinkle a smirk at the probable limey predicament I would say: watch well, you would be going there already if it were not for the hangover of the petrodollar, when that switch flips you will be in much deeper doo-doo faster than a brer rabbit quip. UK will be significantly different from the other exporter to importer switchers, and will probably be the most relevant example for the USA when its turn comes - if there is sufficient time.
On the bright side, it will be an opportunity for UK to make the essential changes to high and going higher fossil energy taxes, investment in renewables for generation etc, mindshift to sustainability for survival. The irritating Brits will probably, hopefully, provide the model for industrialised country powerdown and reorientation. But to do that we will need to learn from an interesting mix: the practical sustainability movement especially in USA, the appropriate technology inventiveness of the likes of China and Brazil, the energy and transport efficiency of Japan, the commitment to renewables of Germany, Austria and Switzerland, the political wisdom and commitment of the Scandinavian countries.
How would that help? On the contrary, it would take away the possibility of fiddling the exchange rate to improve competitivity (Italy, champion of competitive devaluation, is in deep crisis since they joined the Euro.
Agric, I love this stuff from your last paragraph. Let's hope that we in the UK can get beyond Blairite rhetoric and pull it off. There are encouraging signals; not least the Internet enables us to see all the facets of change you mention.