<DrumBeat: June 9, 2007The Oil DrumA Digest of This Week's Stories>

96 comments on Russian Car Sales & Net Oil Exports

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westexas on June 9, 2007 - 12:28pm Permalink | Subthread | Parent | Comments top

I am working on an outline of a paper for the Top 10 Net Oil Exporters, that Khebab and I are going to do, possibly for ASPO Houston this fall.

I think that the top 10 account for 75% to 80% of total net exports.

Note that Russia showed an increase in production from 2005 to 2006, but a decline in exports, because increased domestic consumption.

In general, once an exporter starts showing lower production, in most cases I expect them to show double digit declines (on a month to month basis), e.g., the 18% decline in Mexican exports, from 1/06 to 4/07.

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memmel on June 10, 2007 - 4:30am Permalink | Subthread | Parent | Comments top

Do we know where the overall production numbers come from for countries such as KSA and Russia. Exports can I assume be tracked easily but can we trust the total production numbers ?

For example Russian production could well have declined this year but they could have had enough internal storage coupled with straining any excess capacity to meet internal demand.

In general its not clear that the production capacity is utilized 100% year around thus its possible to increase production for a year or two before you start showing declines via drawing down storage without accounting for it and stressing the system.

Noting that Russia seems to suffer numerous problems with production like the US seems to have with refining stressing the system as above will lead to a increased incidence of above ground factors. And if this is coupled with outright fudging of the numbers and shell games you could easily be in a bit worse shape then reported.

Since your stating a 50% decrease in five years situations like I'm proposing that in effect hide the first year or more of decline are not insignificant.

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westexas on June 10, 2007 - 4:04pm Permalink | Subthread | Parent | Comments top

Export Land Model:
http://www.theoildrum.com/files/240076673_494160e1a0.jpg

There is some really interesting math here that I want to explore with Khebab (guess which one of us will be doing the heavy mental work).

In any case, if you look at the above graph, the decline per year for the first four years is about 16% or so. However, decline rate for the next four years is far greater--around 37% per year.

When we look at a normal bell shaped curve, where production starts declining, say at 5% per year, we have a long gradual "tail" of production, because as annual production declines, 5% represents a lesser and lesser amount of volumetric decline per year.

However, with the Export Land model, we have one dependent variable, net exports, and two independent variables, production and consumption that can both work against net exports--rapidly pulling net exports down to zero, with no "gradual tail." What would be interesting would be to model this for various combinations of decline rates and consumption rates.

In general, my guess is that once a region's exports start declining from peak exports, the first 50% decline in exports will be less than half the decline rate that we see for the remaining 50% decline in exports (relative to peak exports), or the final decline rate will be more than twice as great as the initial decline rate.

We can probably refer to the first 50%, relative to Peak Exports, as Phase One, with Phase Two being the decline of the second 50%, relative to Peak Exports.

This scenario is precisely what we saw in the UK, peak net exports to zero in about six or seven years.

If we apply this model to Mexico, they will be down to 50% of peak exports by about 7/1/10. I bet that the annual decline rate from there will be in the 30% to 40% range.

All of this implies that net oil exports will be a rapidly diminishing factor in the world economy as time goes on, especially in four or five years.

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memmel on June 11, 2007 - 1:38am Permalink | Subthread | Parent | Comments top

The one problem with Export land is I can't see exports dropping by 50% without a fundamental change in the economics of oil.

I was sent this link in a email by a reader.
http://www.hubbertpeak.com/reynolds/MineralEconomy.htm

This shows the exponential increase in prices soon after the peak in production.

The key graph is here.

http://www.hubbertpeak.com/reynolds/images/a2f2.gif

Note at about 20% or so post peak price effectively takes the market to a different level.

So I don't see the simple export land model holding past a 25% decline in oil exports at most.

In my response I used this example.

Your in a huge theater filled with thousands of people the film has just reach the middle point and best part. You smell smoke and leave notifying the management on the way out. They do nothing and only a short time later many people smell the smoke and panic as they try to reach the exits killing hundreds in the crush. Thousands are killed as the theater burns to the ground.

The point is that even though the greatest loss of life is from the fire i.e effectively no exports the system fundamentally changes far earlier with very few exiting in a controlled manner.

I think the above is a good simple explanation for the converging negative events we face GW Peak Oil Credit Bubble etc etc. Its going to go with a bang when it goes.

I've guesstimated the critical point is when we are down about 4mbd from peak this is when everyone smells the smoke.

I see no reason for any sort of orderly power down once its clear we are post peak. I'm claiming for oil it will actually start at about 5% from world peak production.
Looking at the graph your see this is exactly when the price starts heading for the stratosphere. So I think that for export land the simple model fails and goes over to the one described in the paper once your 5% or so off peak.

This if may calculations are right is in 2008 or 2009 at the latest so we probably only have a year or two at most before we begin to see this phase change when everyone knows every year their will be less oil.

I've yet to see anyone effectively argue these models are wrong. Since you never have enough time I'd love to see it be 2010 or later but I don't think so.

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AlanfromBigEasy on June 11, 2007 - 8:26am Permalink | Subthread | Parent | Comments top

An interesting question that raises a corollary.

How far can a society adjust down their oil consumption and still function ?

The most extreme example I found was Switzerland in 1945. After the end of a six year, 100% oil embargo, the average Swiss used 1/400th the oil used by the average American today. In other words, the average Swiss got by for the entire year with less oil than the average American uses in a day !

Yet they had a functioning Western industrial democracy with a decent quality of life, if stressed.

France is building an infrastructure that mimics, in several ways, the Swiss infrastructure. A cohesive and fairly comprehensive non-oil transportation system (that relies on local non-FF electricity) in parallel to the popular oil based one.

If today's oil imports into Switzerland and France were cut in half over a short period (months ?) it would be tough, but they could adapt (barely) and continue to function. With more time to adjust (small lead acid EVs, more urban rail that stretches out, re-localization, abandoning some exurbs and suburbs, complete replacement of oil heating, etc. they could cut back 90+% IMHO and still function.

The United States is, of course, not doing this.

Best Hopes for Non-oil Transportation,

Alan

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DelusionaL on June 11, 2007 - 9:48am Permalink | Subthread | Parent | Comments top

memmel and Alan,
My biggest concern is the population has shifted to suburbia. As a kid most moms canned and raised a garden. Rarely does this happen today. The summer close of school was adjusted for harvest if in dire need so kids could harvest crops/work in fields.

This economy we have is so far removed from that.

Memmel, unfortunatly you bring up the second part - what happens....

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memmel on June 11, 2007 - 11:14pm Permalink | Subthread | Parent | Comments top

I think the biggest thing in America will be for lack of a better word a shear effect. We don't have a very large class of people living in extreme poverty in America as is common in many countries that are what I consider economically bound. These are countries that are effectively controlled by a elite upper class Mexico and don't have a social welfare net. Mexico is a example but in general outside of Japan/US/EU most countries have a substantial class of people that are not just poor but what we call in the South dirt poor. In the US some illegal immigrants call into this category but we still manage to provide decent health care social services etc even for this class.

I think the first thing to go in the US will be this social safety net which is what separates the first from the second and third worlds. The reason is that taxes/government will be forced to either start a tax increase spiral or cut services and tax revenue dries up as more income is diverted to gasoline/transportation. And they cannot increase taxes on gasoline the time for this is long past. So the first thing we will see is a tax crunch that start to rip out this safety net. Next of course more and more families will slid down the slippery slope towards poverty a lot of course is because of their own greed but the result is the same. This dropping standard of living feeds into dropping taxes ...

This has not happened in America since the 1930's but what it is is a depression and what it means is that if you lose you job etc over the next few years the bottom may be a long way down. The example of people working together to lower everyones consumption works but the easiest is to have say one and ten Americans fall into absolute poverty and no longer consume basically any gasoline then 2 in 10 etc.
Eventually we will cut gasoline usage by say 50% simply because 50% of Americans now live in extreme poverty.

I think we will get electric rail and trams etc but they will be used to ferry our new class of desperate workers willing to work basically for food not some sort of Swiss dream. West Texas's ELP does not have to be done in a dignified manner the social effects of ELP applied brutally by the free market can significant and harmful. We have a choice how we practice ELP but we have to ELP.

This is how I think demand destruction will play out in America. The key is that by dropping a increasing percentage of Americans into abject poverty we can reduce consumption without changing the lifestyles of those that still have money. Obviously its also a breeding ground for political activism which will actually help people reduce services more. In general what this means is the New Deal will be repealed as we head into the next great depression. The irony does not escape me.

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memmel on June 12, 2007 - 12:01am Permalink | Subthread | Parent | Comments top

To reply to my own post :)

I think Detroit is ground zero for the rise of this class of deeply impoverished people. Its got all the right or more correctly wrong conditions. Its highly dependent on the sale of large automobiles for its economy and its tax base is heavily eroded. Soon government services will state being scaled back and of course I expect failure of the big automakers. This will leave a large population of retired people in Detroit with no pensions or retirement and a escalating unmet need for social services. So overall I think Detroit will be the model for whats coming for the rest of America. If I'm right it would be good if its possible to get a graph of gasoline consumption in the Detroit area. If you have the info post and email me.

I'd like to watch it like I watch Asphalt prices as another canary for the coal mine. Googling Detroit and gasoline does not work for obvious reasons.

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