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267 comments on DrumBeat: July 15, 2007

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westexas on July 15, 2007 - 8:22am Permalink | Subthread | Comments top

How Long Before Net Exports Decline by 50% in Selected Countries?

I have suggested that we will see Phase One and Phase Two Net Export declines in exporting countries. Phase One would be characterized by stable to increasing cash flow, even as net exports decline, because of increasing oil prices. Phase Two would be characterized by declining cash flow, as increasing oil prices can’t offset the declines in net exports.

Probably a good dividing line between Phase One and Phase Two will be when the country’s net exports decline by 50%

Note that the Export Land Model (ELM) suggests an initial net export decline rate of 15% per year, to the halfway point, and then about 45% thereafter, with an overall decline rate of about 30% per year, for my hypothetical country.

If we assume a 5% production decline rate for Saudi Arabia, and a 5% rate of increase in consumption, their initial net export decline rate would be 8% per year, declining by half in 9 years.

If we assume a 10% production decline rate for Russia (roughly based on the HL model) and a 5% rate of increase in consumption, their initial net export decline rate would be 40% per year, declining by half in about two years.

If we assume a 10% production decline rate for Norway and a 5% rate of increase in consumption (both consistent with 2005 to 2006 data), their initial net export decline rate would be 12% per year, declining by half in about six years.

Note that the EIA showed, from 2005 to 2006, declining net exports for all three of these countries, which accounted for 40% of world net exports in 2006.

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Bahamas Ed on July 15, 2007 - 8:45am Permalink | Subthread | Parent | Comments top

When an exporter stops exporting and starts importing, ie the UK, it seems this will compound the ELM numbers

or

where is mexico going to import oil from when the time comes? Or seeing this, why will they continue to export oil?

Ed

Off Grid, Off Mainland, current profession:Beach Bum

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westexas on July 15, 2007 - 8:58am Permalink | Subthread | Parent | Comments top

The US and the overall world industrial economy are both based on an assumption of an infinite exponential increase in exported crude oil and petroleum products, when the new reality, IMO, is an exponential decline in world net oil export capacity. And I anticipate that the net export decline rate will accelerate with time.

All I can do is to suggest ELP as a response to the ELM, and suggest, when people finally realize what is going on, that we implement Alan Drake's plans. I strongly advise that people start thinking about trying to lock in access to food supplies.

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reddot on July 15, 2007 - 11:26pm Permalink | Subthread | Parent | Comments top

... when people finally realize what is going on...

Are not exporters smart enough to ANTICIPATE and minimize exports asap for their own survival, if not also to mitigate global consequences? [excepting only exporters prevented from doing so by their foreign handlers].

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reddot on July 15, 2007 - 11:18pm Permalink | Subthread | Parent | Comments top

"where is mexico going to import oil from when the time comes? Or seeing this, why will they continue to export oil?"

..as in ANTICIPATE and so withhold exports?

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painlord2k on July 15, 2007 - 11:07am Permalink | Subthread | Parent | Comments top

I have a problem with the ELM as is. It is too simplified. It is good from a theoretical / formal point of view, but lack of predictive power, because it don't take in account the other real life conditions.
ELF can work in a model where the exporter(s) have an economic advantage to keep the oil extracted for internal consumption instead to sell it and buy goods with the revenues.
This is true for USA, Canada, EU, Japan; but is it true for Saudi Arabia, Iran, Nigeria and others?
The differences are that the firsts are rich countries able to pay more the oil than other and developed countries able to turn more value out of the same oil.
The first thing to remember is that exporter (all of them, whatever goods they export) do it with the aim to import something in exchange like drugs, cars, airplanes, weapons, food, cloths and so on.
Saudi Arabia and Iran governments export oil to be able to pay their polices, armed forces, clerics and keep them happy. So they will have a strong incentive to keep up the exports of oil and try to reduce the internal use of oil.
With the revenues from oil they can continue to hire their gunmen to crack down against the opposition (or they can try). If even they try to keep the oil for internal use, they will need to combat against smuggling (they do it just now in Iran).

Many big exporters like Saudi Arabia and Iran are big food net importer from the West. So they will need to sell oil to buy food. Linking oil prices and corn (food) prices is good from a geopolitical point of view, because put Iran, Saudi Arabia, Venezuela and others between a rock and an hard place. Rising prices of oil will force rising prices of food. And what they will gain from higher oil prices they lose twice from higher food prices. This will force the political collapse of these nations, because they lack the internal trust and the economic productivity needed to sustain the strain.

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westexas on July 15, 2007 - 11:47am Permalink | Subthread | Parent | Comments top

Many big exporters like Saudi Arabia and Iran are big food net importer from the West. So they will need to sell oil to buy food.

I am suggesting that most net exporters' cash flows from export sales will increase (at least in Phase One), even as their exports decline, because of rapid increases in oil prices.

For example, let's assume that Matt Simmons is right and oil prices in 2010 are at $200 per barrel, in constant 2005 dollars, and let's take a look at Saudi Arabia.

Let's assume $60/BOE in 2005, and ignore operating and other costs. Saudi Arabia exported 9.1 mbpd in 2005. So, let's call it about $200 billion in total liquids sales. ( BOE = Barrel of Oil Equivalent)

Let's assume $200/BOE in 2010, again ignoring costs, and let's assume an 8% annual decline rate in net exports. Saudi Arabia would export 6.1 mbpd in 2010, and let's call it $450 billion in total liquids sales (constant 2005 dollars).

So, a 33% decline in net exports would, with rising oil prices, yield a 125% increase in total liquids sales (again, constant 2005 dollars). I wonder what effect this would have on internal Saudi consumption?

In any case, the aggregate increase in total liquids consumption by the top five net exporters (half of net exports in 2006) was 5.5% from 2005 to 2006.

If you were in charge of the Saudi oil industry, would you confess that you can't increase production--and thereby encourage emergency conservation measures and efforts like Electrification Of Transportation--or would you constantly claim massive productive capacity, and thereby encourage energy consumption and discourage conservation and discourage alternative transport and energy options?

Edited to correct some numbers.

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