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Nigeria: A Closer Look at "Above Ground Factors"
Posted by jeffvail on June 22, 2007 - 1:45am
Topic: Supply/Production
Tags: geopolitics, nigeria, peak oil [list all tags]
Oil prices recently passed $69/barrel in New York (and above $72/barrel for Brent) over fears that a looming general strike in Nigeria will exacerbate already tight oil supplies.
The “indefinite strike” is scheduled to start Wednesday, June 20th, and will include both major union groups in the country. The prospect of a strike successfully shutting down Nigeria’s remaining oil exports is rightly driving world markets, but what is the relationship between this strike and the background of violence and attacks in the Niger Delta? Buried below headlines of the looming strike, this week saw two significant attacks: one on a Chevron facility that cut 42,000 barrels of oil production, and a separate takeover of an ENI facility taking 27 people hostage and cutting 40,000 barrels of production.
Unions & Villages
Nigeria’s trade unions reflect the general mood of the populace—disgruntled over rising fuel prices, higher taxes, and the new government’s failure to implement a promised general pay increase. There are few things that Nigeria’s highly diverse and divided population can agree on, but the unions seem to have found a set of uniform grievances, and are now pushing this lever.
In the Niger Delta, on the other hand, government wages, taxes, and official fuel prices have little effect. Few people have a traditional salary—most earn their living fishing, as small-time entrepreneurs selling goods and services to employees of the oil industry, or living off the kickbacks that trickle down from payments made to village chiefs by local ministers or foreign oil companies. Fuel prices are determined by the black market, not the government, and decisions to engage in “illegal bunkering” of local oil pipelines are at least as pressing as calls to strike.
Negative vs. Positive Feedback Loops
There is a very real difference between the violence in the Delta and the looming general strike. The strike is a decent example of a negative-feedback loop—if the unions succeed and get concessions from the government, then the strike ends. If the unions manage to take oil production off line, but fail to win concessions, then at some point the strike will also end as popular support for this tactic declines. The violence in the Delta is quite different. The vast profits available from illegal bunkering and from ransoming western oil workers have degraded the traditional tribal structures of the Delta peoples to the point that gangs now exert great social, political, and economic power. In the Delta it is a classic positive-feedback loop: a switch from political motivation to profit motivation is shifting the entire culture to one of guerrilla entrepreneurs. So while the strike and the ongoing attacks both impact the oil markets, one seems likely to be a short-term event, while the other is a growing and indefinite problem.
"Above Ground Factors"
Both the strike and the Delta violence are excellent examples of what is euphemistically termed “Above Ground Factors.” While it’s convenient to explain away high oil prices by pointing to vague generalities like “above ground factors,” the reality is less rosy. The insinuation is that such factors are temporary—a brief but unexpected disturbance that will be resolved shortly, so stop worrying and go back to following the saga of Paris Hilton. This is why the distinction between positive-feedback loop and negative-feedback loop factors is so critical. Positive-feedback loop factors, such as the violence in the Niger Delta, won’t go away on their own. They will persist, and they will get worse unless the underlying catalyst of the positive-feedback loop is addressed. In the case of “above ground factors” influencing oil production, the underlying cause is geological peaking—if the world was awash in spare capacity, there would be little incentive to fight over control of oil. Oil Majors would just move to greener fields elsewhere if geology (and the resulting difficulty replacing reserves) didn’t dictate that they stay. I’ve called this phenomenon Geopolitical Feedback Loops in Peak Oil. Geologically-driven scarcity sets the conditions that lead to oil-related violence: the battle over oil revenues in Iraq, the violence in the Niger Delta, the leftist policies of Hugo Chavez, China’s increasingly aggressive policies in Africa, etc.
These “Above Ground Factors” aren’t happy to meet you.
An Isolated Example, or an “Early Adopter”?
So while we watch events unfold in Nigeria, it is important that we distinguish between “above ground factors” that will go away on their own, and those that will continue to get worse. Geological scarcity is a driving force behind both types of factors—-it is certainly one of the root causes of the Nigerian strike—-but it is particularly critical when geological scarcity spawns positive-feedback loop disruptions. In this sense, Nigeria is a case study of particular importance—is it just an isolated example, or is it a glimpse of what many (most?) countries could look like on the down-slope of global oil production?
"Above ground factors" are a very serious problem, and they are inextricably linked to geologically determined decline in oil production. We should continue to distinguish between geological limitations and "above ground" limitations, in Nigeria and elsewhere. What we should not do is think that "above ground" somehow means either "temporary" or "less serious."
For all of The Oil Drum's past work on Nigeria (including Jeff's recent profile and other information), click this link: http://www.theoildrum.com/tag/nigeria
International flights cancelled in Nigeria due to petrol shortage
Strike shuts Nigeria, but oil keeps flowing
Re: The Export Land Model: http://static.flickr.com/97/240076673_494160e1a0_o.png
We have had a lot of discussions about oil exporting countries trying maximize exports, at the expense of domestic consumers.
I think that Nigeria is a good example what can happen when exporters do try to maximize exports, at the expense of domestic consumers.
Absolutely. To me this article perfectly captures the nexus of geology, global economics and local political upheaval in a post-peak world.
I love the work you've done on the Export-Land Model, Mr. Brown. It is probably more significant than any other factor with respect to the onset and magnitude of PO.
I'm curious. Will most nations follow this, however, or are there other potential major exporters, not necessarily super-rich First World ones, that may decrease available oil for local consumption in order to fuel exports instead?
I can't see the KSA doing it, for instance. Though Nigeria obviously has no qualms with cutting back on what natives get in their pursuit for the (formerly) almighty dollar.
I've speculated that we may see Phase One and Phase Two in post-peak exporting countries.
In Phase One, their income from export sales will continue to increase, even as their oil exports fall, because oil prices are going up faster than exports are falling.
In Phase Two, their income from export sales will decline, as their exports continue to fall, because higher oil prices can't offset the export declines.
In any case, the top five net exporters (half of world net exports in 2006) have shown an accelerating rate of increase in domestic consumption (most recently up 5.5% from 2005 to 2006).
Note that one of the interesting aspects of the ELM is that the decline rate in net exports accelerates with time. For example, the first 4.5 years of the ELM show a 16% per year decline rate. For the second 4.5 years, it's about 37% per year.
Another factor that I've been trying to incorporate into your ELM model is population growth. Oil exports seem to correlate with population growth in many cases--perhaps most notably in Saudi Arabia, but this is also certainly true in Nigeria. I think that this is very significant for what happens in exporting countries for several reasons. First, while total oil export revenue is probably the best factor to explain the rise in domestic consumption, export revenue per capita is probably a better indicator of potential for violence. Despite the huge oil wealth of Saudi Arabia, for example, its per capita income is steadily declining, exacerbating social tensions caused by the divide between the rich royal family and the poor masses. Nigeria faces a similar problem with its exploding population--even an honest effort to distribute oil wealth among the people will fail to raise their standard of living enough to remove incentives to engage in illegal bunkering and other such activities. Contrast this with Norway, where the low population growth (accompanied by the wise investment scheme) will lead to dramatically different social dynamics on the down-slope of oil exports.
Oil revenue per capita and rate of populatin growth will, I think, be a critical factor in determining the rate of violence in Export Land countries as their total oil export revenues peak and begin to decline. And, of course, the more that an exporting country suffers from violence, the more "above ground factors" accellerate that country's decline rate in both production and exports. Yet another positive-feedback loop...
Note that in undeveloped oil-exporting nations all of those also positively correlate to unemployment. Saudi, Nigeria, etc...
I've used the example of the US since about 1950, 20 years before we peaked. We saw a gradual increase in production, a peak in 1970, a decline, a little rebound due to Prudhoe Bay and then the gradual decline resumed, but we still have a pretty reasonable level of production.
One problem, if the US were the sole source of crude oil for the world, net crude oil exports since 1950 would have been zero.
You are right about the demographics. I think that the Saudis are "down" to something like six children per family now. Saudi crude oil production seems to have recently stabilized at about 8.6 mbpd. One problem. With rapidly rising consumption, flat production = declining exports.
Look at some of the problems that Iran is having trying to curtail their subsidized gasoline consumption.
Every time I run these scenarios through my head, I get more concerned. I remain stupefied that declining world export capacity is not the #1 story in the world.
WT, I think you really have it nailed with your Iron triangle. reading the paper "...housing prices up 8%..."
http://blog.oregonlive.com/breakingnews/2007/06/portlandarea_home_prices...
When you read it you see in SW washington "median" prices are up 4.3% yet volume is off 17.7%.
I find the volume data for the Portland market missing while they report the 8% increase in the "median" cost of homes, and that the national media wanted to report on it(why?).
I firmly believe you have this correct(I-T). I pay nothing extra to get the paper delivered to my remote address. They have to make it up on advertizing, and advertizers want increasing sales(or at least not down!). It is all to easy to see why things get reported (spun) the way they do.
Add to the newsprint papers reluntance to kill the sales of it's advertizers the general populations avoidance of PO and I think it adds up to any export story being buried in the middle in small print if at all.
This is one major reason I think we are screwed.
It will take high prices to change behavior and this will be bad for retail sales and our service based economy. The effort made to prop our economy via low interest rate, mortage ATM withdrawl, is all but over.
There is no political will to tax our energy use.
Add CERA's and Exxon's recient statements that everything is OK for 35 years and I think we are set up for some serious problems.
This is my optimistic forcast.
D,
The MSM people are really in a fix. A financial columnist for the Dallas Morning News (Danielle DiMartino) last year wrote a series of columns warning about a housing collapse, and she occasionally referenced future oil supply problems. I can only imagine the angry e-mails that the Morning News was getting from real estate related advertisers. Result? She was fired in September of last year: http://housingdoom.com/2006/09/15/dimartino-goodbye/
From her next to last columan:
In any case, the net result is that the message being conveyed to the average Joe Consumer by the Iron Triangle is that high energy prices, high food prices and slumping real estate prices are temporary problems.
The root problem is the lack of a low cost source of energy (obviously). Concerning this, there are a series of articles over at EnergyPulse (one of the most respected websites for utility articles) by Dr John K Sutherland that state that new generation breeder reactors
re-enrich (reprocess) uranium as they use it -- so the resource base of uranium is over 100 years (Sutherland estimates 100,000 years here): http://www.energypulse.net/centers/article/article_display.cfm?a_id=374
All articles by John Sutherland and bio: http://www.energypulse.net/centers/author.cfm?at_id=283
From reading briefly on breeder reactors it seems to fit -- but I am not a nuclear expert. Does anyone konw more about Breeder reactors and supply of uranium (I know the traditional estimate of supply is only 50 or so years but breeder reactors propose to increase supply
dramatically).
So far no-one's managed to keep a breeder reactor running long enough for it to actually start "breeding" in significant quantities (AIUI, all reactors breed to some degree), for various commercial and safety reasons, but there are no serious technical limitations that I'm aware of. I've never heard 100,000 years though. Personally I think a couple of hundred would be more than enough time for us to develop something else. But note that FBRs aren't particular cheap - indeed wind power is significantly cheaper.
Care is needed to distinguish between "exporters" and the general population. The "exporter" is simply the ruling or Royal families that allow the export of national resources, with token or no participation by the vast majority... [and please list the exporting countries that are exception to that view. E.g., Venezuela exports with huge participation of its population, but only after failed attempts by BigOil to assassinate its popular leader].
This is a good point, but there is also a great deal of feedback between the exporters and the local populace. Take Saudi Arabia, for example: while the royal family essentially gets all the revenues, the vast majority of it is spent on social, jobs, and infrastructure programs to buy off their potentially restive populace. Same deal in Kuwait. Qatar and the UAE have slightly different "trickle-down" structure, but the effect is the same: wealth accumulated by the royal family or ruler-du-jour trickles down to the local populace, who in turn drive more, consume more imported goods, and engage in other practices that increase their consumption of oil.
Actually, the imported goods issue is potentially important. Because trickle-down oil wealth leads to a monetization of the economy and an increase in consumption of imported goods, this means that domestic spending in places like Saudi Arabia, Venezuela, etc. is responsible for a portion of the oil consumption of first world importers (who are also often the exporters of the consumer goods). For example, when a Venezuelan buys a new SUV, they will consume more gas, but they are also driving the consumption of energy in the US needed to produce and export that SUV to Venezuela. So, not only does the Export Land Model lead to increasing domestic oil consumption, but it also "speaks for" an increasing portion of the use of the oil that they are exporting to first world consumers, decreasing the demand elasticity of the importing nations... not sure how to accurately quantify this.
Your right I noted this also and almost wrote about it their is a bit of a double counting issue going on with oil exporters which are also big importers which is basically all the export countries. The problem is oil is intrinsic to all economies and price inflation of oil effects everyone not just the importers. Also understand a lot of the oil wealth is itself reinvested in exporting nations. This is one factor in the strong US stock market despite fundamentals.
To back up a bit and look at the monetary side we are conditioned to place a large amount of faith in "real" money thats in a bank account but in a fiat currency regime the ability to borrow money as as real as any bank balance and you can print as much money as people are willing to borrow.
So the oil exporters with their hard currency are competing with people willing to borrow and with fractional banking as the export nations inject hard currency back into the banking system you get even more debt creation since banks can lend money to anyone based on the hard money deposits.
We have discussed this before but I think you can see that the concentration of oil wealth initially causes the global economy to go into overdrive as the fiat currencies and debt creation causes massive monetary inflation until you effectively have a meltdown of the fiat system since its not sustainable vs the the real barter economy i.e goods for oil that is driving it.
Your right about the double counting but its a lot worse than that its more like 10 fold as the velocity of debt creation outstrips the real economy.
At some point we cannot grow since real inputs of commodities such as oil are decreasing and then we can no longer service our debt. Exporting nations will desperately buy hard assets a lot of them will be in importing nations and the importing nations will happily nationalize these assets in time just as these nations nationalize the oil assets.
The intrinsic problem is that with fiat currencies and concentration of wealth you get a lot more debt creation and this leads to rampant inflation when the real economies can no longer grow because of lack of commodities. As far as assets go I think initially you see price inflation in assets but I think this reverses as people are no longer able to buy common assets such as homes land and small businesses. You will see a continued inflation in higher end assets such as larger companies and infrastructure as the holders of concentrated wealth try to convert their fiat holding both borrowed and real into hard assets.
Since this is whats happening now I can't call it a prediction except to say expect the prices for higher end but common durable goods and fixed assets to continue to fall even as commodity prices increase as people have to spend more and more on non durable goods and esp commodities. So wealth will be focused increasingly into the hands of commodity producers who will in turn invest in "big" durable goods for a time as the attempt to solidify their gains.
As you can see the world's economy naturally converts back to traditional stores of wealth which are commodities and the means of production for critical goods and services.
So from this perspective you can again see that it will take some time for the economy to unwind and falter from this fake prosperity caused by high oil prices. Its tightly tied to when people begin to fail to service their debt on a large scale. I think we still have time but the fiat system will itself begin to unwind in 2008. I think that the maintainers of the fiat currency systems can actually stave off collapse for a time but 2009 onwards will be very dicey since real economic contraction will ensure a eventual collapse.
What I think will happen is a move to some sort of commodity based currency i.e glorified barter with effectively no fractional banking. So post collapse we will have a lot less money but it will be a very deflationary world with stores of wealth not debt being the focus. Debt will only be available for the creation of real goods and services with obvious benefits and backed by notes on real assets. In effect your only allowed to borrow a million dollars if you put up a million dollars in collateral. Needless to say this is a lot less money than we have in circulation today.
As people note we can continue to grow our wealth without increasing our energy usage but its a far slower business than today.
Memmel
I like where you are going.
There is an excellent book now in its 5th edition by a MIT Economics prof
Manias, Panics, and Crashes: A History of Financial Crises (Wiley Investment Classics) (Paperback)
by Charles P. Kindleberger (Author)
Key Phrases: financial crises, commercial distress, commercial crisis, United States, New York, Bank of England (more...)
He goes over the past 200 plus years on a worldwide basis. There are distinct patterns that emerge, and right now we are right on track.
Oil is a catalyst.
To be honest I'm getting well outside my depth and some professional help from someone with and understanding of economics would be a god send for tying WT export land firmly to a realistic economic model.
I think I'm on the right track since its easy enough to see that priced based demand destruction with most of the market participants in denial does not accomplish much. So the mechanism for demand destruction is primarily not demand destruction via high prices. I wonder if this model is ever valid but thats a different issue. So we go with the shortage model. Now what do I do ? How do I model a shortage ?
I'm sure their is a wealth of information but as I said I really need some help from someone who understands this.
It might be better to call my model a correct template not a model since I need more information to pick the right model.
And example I just posted lets say your depleted by a thousand units and you have say 500 customers. Lets assume 250 mess up in getting supples and they each suffer a 4 unit shortage for those with no reserves that use 4 units a day they simply do not use oil. Others draw down stocks etc.
I think you can see where this is going. The problem is you can partition this problem a lot of different ways and the time progression can be complex.
So I'm sure someone has studied this issue and ferreted out the correct or at least common models and parameters.
So basically I need more constraints before it could be a predictive model.
Right now you can easily see that even this simple design is close to reality since running low is very different from running out. A lot of people may well be running low at different times and further depletion will cause a cascade of true shortages. And its a bit insidious so the market can either not see whats happening or write it off to above ground factors. So its easy enough to see how the market could not see this happening and since we have scattered information on a lot of the uses of oil we don't even have enough data to detect the early but critical stages.
So anyone who feels I'm on the right track and can help I'd sure appreciate it I'd love to apply this to WT's export land to see how things play out. I really think we can get good leading indicators if we figure this out.
I looked at the reviews. First if anything I'm Austrian school for economics. But my understanding is feeble at best. I need a helping hand to wade through this.
I emailed Mish over at
http://globaleconomicanalysis.blogspot.com/
See if I could get some help I've followed him for a while and have been impressed with his understanding of economics.
Wish me luck.
Memmel, Your conclusions and opinions stated in this piece is an excellent example of why I scan for your posts in every drumbeat.
Perfectly stated.
My mental picture of this is a wave cresting on a beach.
What happens is the top is moving faster than the bottom and it just out runs itself.
Think of that mental picture. In our case the height of the wave is represented by the amount of money floating.
The bottom of the wave is the REAL economy. People working, etc.
Well the bottom of the economy, Real People paying Real Bills, is slowing WAY down. The amount of fiat money is getting extreme.
The Wave is a Tidal Wave of fiat money which is grows in perportion to the rise in prices of Real Economy goods like energy and food.
When this wave crests and falls, it will take out everything.
Great example of the effects of SA recycling their money back.
JC
Thanks :)
I think you have it about right. The real economy has to be slowing since oil is required for growth. Sure you can think of exceptions but the basic equation is simple oil = real growth.
Thus as you say at the moment the central banks are pumping more and more money into the system to keep it growing for les s and less real return. Its always worked in the past since oil usage simply increased. As your example indicate we go through these cycles and I like the way you describe it. But the problem is this time around they can't keep the GDP going via inflation.
Now I have been trying to find economic info on the effects of a depletion resource and economist generally hate the concept and effectively refuse to deal with the issue.
In normal economics you have your wave example it crashes then a new wave builds plenty of info on this. But near as I can tell our current economic models simply don't work in a era of declining natural resources.
Anyway I still don't have any good economic info on how to actually create a numerically testable model based on known economics.
I guess my simple model is good enough. When you have a market in denial you get shortages but because the market is so large the shortages occur and are corrected in different places and different times so they are viewed as uncorrelated.
To you your wave example its like random waves on a ocean.
But to continue with your wave example they coalesce and grow as depletion continues eventually causing a tsunami.
From the economic side we see fiat money expansion as you say unable to cause economic growth.
Interestingly it seems to be the same model either way you look at it.
Rough Waves may be a better analogy.
http://www.livescience.com/environment/050503_monster_waves.html
And the critical part of my model is the presence of correlation caused by peak oil by events that are generally not considered correlated. This correlation is what allows these waves to build.
If the model is correct the outcome is obvious and stark.
James Howard Kunstler is a flaming optimist and his predictions way underestimate the situation. He should be castigated for giving far to rosy a scenario and his books are rubbish. We simply won't have time for a long emergency.
If my model is correct our economy simply stops.
Now with that said you have to take a hard look at third world economies and how they function since they deal with shortages all the time.
Why I think they work but we collapse worldwide is these economies depend on injection of technology and money from the wealthier countries to keep them semi-functional.
When the wealthier economies are collapsing these injection
are not available. So I don't see how we stop at the third world level instead we will go below this.
So the real question in my mind is how far the collapse will extend before you hit stability. Certainly regions with a wealth of resources food and low populations will be able to maintain a higher standard so fragmentation will have a big effect.
Maybe the only model we have is the break up of the Soviet Union ?
Is their another case of a fairly modern society collapsing ?
And to repeat the key here is correlation !
Jeff,
Thanks for the excellent article. Here are a few tidbits I picked up from WSJ 6/16/07, byline S. Swartz.
- Shell to cut $100M in spending on Nigerian operations 'to offset rising costs and lost revenue as security concerns curtail oil production'
- $16B lost oil-export revenue in Nigeria since end 2005
- 710,000 bpd capacity currently idle (475,000 of which Shell participates in)
I wonder if you would comment on how this fits into the feedback loop. Negative loop in which Shell decreases investment here in favor of investment elsewhere or still positive loop in which there are no other opportunities for that $100M. Or is it silly to talk about such a small sum?
Thanks
I think you're correct that at some point, the violence and disruptions caused by positive-feedback loops begin to temper investment, and in turn reduce the effect of that positive-feedback loop. At some point, as oil is highly fungible, the level of disruption and violence in one locale can't get too far ahead of the level in another locale, or international actors such as Shell will allocate resources to the less violent locations. Of course, this will only serve to accellerate whatever positive feedback loops are already working in that "less violent" locale until partiy is reached. That's pretty theoretical--reality tends to be more erratic and jerky for a variety of reasons, so I doubt that we'll see a nice, even movement toward global parity in oil-related violence...
Also worth considering that when Shell cuts $100 million in Nigerian operations, that reduces the overall pool of FDI available for local politicians and gangs to target, enhancing their focus on the remaining portion...
Jeff, I am wondering, how prevalent in Nigeria
are guns (AK-47s, other guns?). I noted one
analyst wrote that it was and is the culture
of Iraq that almost all households process
at least one gun --which makes violence much
more likely.
Jeff, (one more question) much of the work in Nigeria is offshore -- so for example if the oil platform is 50 miles in the sea off the coast can the violence really affect the oil production that much?
WT care to speculate on when a export nation transfers to phase two. As we see in Nigeria when a country ignores its people to export problems happen. My own rough calculations goes as follows. Gasoline/diesel will not go over about 10 dollars a gallon in todays dollars since at this price biofuels are competitive and significant demand destruction will be happening. This puts a effective maximum cap on oil prices at around 200-300. Next we would expect a lower ceiling price say around 150 a barrel or less to be effective at curbing demand for some time say 1-2 years before we go to maximum. And finally because of the amount of storage most countries have it takes time for the price to spike even to 150 as the base price. Above ground factors will of course cause the temporary spikes.
Now if you add all this together if a exporting nation is in depletion the time period that they have maximum revenue in the export land model seems very short. WT you have said that exports drop by 50% in five years obviously by year five they would be at the maximum price and you would think it would hit earlier say year three.
This says to me that phase one of export land where prices are rising faster than exports are dropping is a short lived situation certainly less than five years once a country is in decline. Of course the economic engine won't immediately slow in these countries so you will enter a imbalanced condition where the economy continues but the balance of trade goes negative.
So the golden age of exporters seems to me very brief and I feel this is why the US is doing little to combat Venezuela since I think they realize that the time period which these countries can grow social programs is short.
And on a final note outside of KSA a lot of these countries don't have the technical know how to efficiently extract their oil without the help of the western oil companies. So these internal above ground factors will probably significantly increase the real decrease in production.
So overall we expect that despite high oil prices the balance of trade and next government revenue will begin to decline quickly as internal consumption increases since diversification will significantly lag the windfall profits from oil. If you look at Mexico and Iran they seem to already be in this position with Venezuela soon to follow.
And analogy of the situation would be the California gold rush the guy that sold shovels made the most money if we equate the post peak oil economics to be the same as gold rush economics where you have a rapidly dwindling resource thats used extensively locally (The gold itself was directly used to by shovels at inflated prices ) you see that export land will have problems quickly.
And last but not least you need to consider the economic issues most of the countries run a dollar peg and they may well unpeg their currencies but it will not prevent rampant internal inflation caused by the infusion wealth.
Venezuela is experiencing 20% inflation.
http://www.stratfor.com/products/premium/read_article.php?id=290286
Iran is officially at 15% but probably much higher.
Mexico is the oddball and has the most diversified economy
with a 4% inflation rate but in reading they seem to use American style inflation indexes which are bogus.
http://www.latin-focus.com/focus-economics/indicators/070607_mexico_infl...
I expect that the real inflation rate in Mexico is higher at
least 8%.
Overall we expect inflationary forces to be very strong in exporting countries both from monetary inflation caused by the influx of wealth and price inflation since they import almost all goods and services.
And we can expect bubbles in land housing etc to form pushing prices for fixed goods very high. We already see this in Russia for example.
This economic inflation tends to drive economies to grow even faster before they "explode".
Maybe you can expand a bit on the internals of export land like I've done. The conclusion is that countries like Venezuela will experience a very brief period where they have a real increase in wealth and will quickly fall into economic disaster. I think this is true since Bush is doing little to stop Chavez and its because for once he listened to his advisor's who I think have come to the same conclusions I have. These countries will meltdown rapidly.
So if you consider the economic factors and export land model most of the exporters will briefly grow because of the flow of wealth but probably will quickly fall into economic chaos which will almost certainly lead to dramatic drops in exports.
This is why I'm not all that interested in long term decline predictions since above ground chaos will effectively eliminate exports from a lot of countries soon.
Now look at Nigeria its taken the opposite route from Venezuela and is trying to maximize exports yet its failing even faster so its a no win situation. The story of the golden goose is also a good description of the economics of export land. KSA actually seems to be the best steward of its oil wealth when you compare it to other exporting nations.
I can't argue with that.
I'll put it this way, the world industrial economy is a like a guy, with late stage terminal cancer, with a severe heart condition, who looks up to see an 18 wheeler bearing down on him as he crosses the street, as a guy on the other side of the street is shooting at him. The only question is what kills him first.
It's going to get very interesting.
WT, when do you think the industrial economy will start dying? 2 years, 5 years, 10 years or 20 years from now?
I'll give my two cents event though you asked WT I want to compare. I actually think that things will play out slower than we expect initially. At least in the US their is room for a lot of demand destruction via simple changes in lifestyle such as car pooling. In general all that has to happen is employers become somewhat flexible with employees getting to work. Short term it looks like we will have a refining capacity induced shortages soon. Next year it will be oil supply driven. Overall I think we will make it through 2008-2009 with a worsening oil shock like effect similar to the 70's. This puts the big one so to speak possible in late 2009 early 2010. Next we theoretically have 20mbd of new production coming online over the next few years I doubt we will see most of it but it will help. And we can drain the SPR to play with prices.
So this puts us at about 2010-2011 for TSHTF as far as I can tell 2012 for sure at the latest. Economic downturns and simple conservation measures will buy us a bit of time and it simply takes time for the market to adjust and oil reserves to be drained. So even though the fuse will be lit I think in 2008 the world economy is large enough that it will simply take time for the real effects to manifest themselves. The models are right but I think it will take longer then most people realize on this board for the world to wake up to the fact that things won't get better and the problems are not temporary. At least I hope this is true.
Now with that said the factors are primed starting 2008 so depending on events we could readily fall into problems starting in 2008.
I'm personally still working on my plan A but I did my plan B already ( Move back with mom and dad on the farm :)
Since I don't own property and am not a millionaire I am gambling a bit waiting for the housing bubble to collapse massively in 2008/2009 which will send land prices downward.
I wish I had more money but I need to wait till this bubble blows off to maximize the amount of land I can buy right now prices are still ridiculous but I expect land prices to plummet in 2008. This is personal and it is a gamble but since I have a good plan B I'm willing to take a chance and see if I can pick up a lot more land for the same amount of money.
As far as housing goes if I don't get a place with a good house I have no problem using a double wide trailer as temporary housing and building my own home either a existing one or a new one. A lot of properties have trailers on them.
Plan C for me is to move into a city that has a chance of making it post peak Portland Oregon is my top choice and land in Northern California Oregon Washington State as plan A. The pacific northwest seems to be a region that in general will weather peak oil/global warming reasonably well outside of the Seattle/Vancouver area which is over populated.
A bit personal but I think that expressing my private plans might be useful for people. I'm pretty doomerish I think but also hopefully making the right balanced decisions. I certainly don't see us having more than 2-3 years at most before things get obviously and permanently bad.
WT ?
Memmel has a solid response, but in regard to how bad/how fast, I think that the big variable is Russia, but as I have said before, IMO, net export capacity--the lifeblood of the world industrial economy--is draining away in front of our very eyes.
It is kind of interesting that the North Sea has two Export Land extremes, Norway, with a net export decline of 3.5% per year and the UK, with a net export decline of 60% per year. Of course, this is primarily related to the population difference between Norway and the UK. If there were ever a country that ought to curtail net oil exports it is Norway.
The top five net exporters (half of net exports in 2006) showed an annual rate of increase in net exports of 2.6% per year from 2000 to 2005. The decline from 2005 to 2006 was 3.3%. The average monthly Brent crude price in the 20 months prior to 5/05 was $38 per barrel. The average monthly Brent price after 5/05 was about $62, within a range of $54 to $74.
If we assume a 5% rate of decline in production by the top five and a 5% rate of increase in consumption, I estimate that their net exports will decline by about 22% per year. The 2006 stats (relative to 2005) were a 1.3% rate of decline in production and a 5.5% rate of increase in consumption--resulting in a 3.3% decline in net exports.
In any case, the math on this export situation was clear to me in early 2006. By and large, we are highly dependent on some large exporters at advanced stages of depletion, with fast growing domestic consumption.
So that puts us into definite problems in 2008. But I'd argue that external factors could keep us going albeit with problems through 2008 a obvious one is we have not drained the SPR yet.
This is of course betting against a big hurricane or Iranian invasion. So please what are your bets for 2008 I think we will skimp through it with problems and 2009 onwards are going to be problematic. If your right its basically down to the wire so I'm fascinated to get your prediction for 2008.
So I'm basically saying that 2008 will be a bad year but can be still considered "normal" and its 2009 that the truth is obvious barring again hurricane or Iranian invasion.
I think you will agree we are toast by 2010-2011 for sure ?
And 22% per year ?? Simple math indicates 10% per year and if you add in at least some support from projects coming online and simple demand destruction we get what I call a effective decline rate of about 5-7% per year at least for the first year that export land will be a major factor this year its refinery capacity. The point is its a at least geometrically increasing number not a simple percent increase.
I see like I said our effective export land effect including demand destruction to go like this.
7% decrease 2008 <-- shortages/recessions -->
14% 2009 <--- importers start too collapse depression--->
28% 2010 <--- wars start--->
90% 2011 <--- exporters collapse ---->
2012 end of oil age.
This is why I think we will barely make it through 2008.
And on the same hand I also see the export economies hitting a brick wall almost immediately after the importers do because of the fiat currencies. The key is your prediction for 2008 :)
I think your implying we are toast in 2008 but I really think the system is effectively so large it will just simply take time to fail we still have a lot of slack. It will take a good bit of 2008 to draw down inventories and into 2009 to empty the SPR.
So are you will to voice your opinion of 2008 ?
I think that a lot of the production coming online is overestimated, and will be delayed in any case, e.g. the ongoing delays at Thunderhorse that pose serious questions about ultra deep water production, and is further characterized by brief peak production periods, with sharp declines. Also, I think that the underlying declines of the giant/super giant fields are underestimated.
The 22% decline in net exports is what you get if we assume a 5% decline in production per year and a 5% rate of increase in consumption (for the top five net exporters).
In any case, if Russia starts declining this year, I think that 2008 on will be very tough.
Dave Cohen has an interesting article in the Energy Bulletin. An excerpt:
"In a recent personal