Declining net oil exports--a temporary decline or a long term trend?
Posted by Khebab on September 27, 2007 - 10:00am
Topic: Supply/Production
Tags: Export Land Model, indonesia, oil exports, original, united kingdom [list all tags]
This is a post coauthored by myself and by Friend of TOD Jeffrey J. Brown (westexas), an independent petroleum geologist in the Dallas, Texas area.
To answer the question
in the title
of this paper, we believe, for reasons outlined below, that the current
decline in world net oil exports is probably the start of a long term
trend, as a result of declining production and/or increasing
consumption in key exporting countries.
EIA data show a small
decline in world net oil exports from 2005 to
2006, led by a 3.3% per year decline rate in net exports from the top
three net oil exporters--Saudi Arabia, Russia and Norway. Furthermore,
recent data suggest that the net export decline is continuing, and
probably accelerating.
The Export Land Model and Two Case Histories
In previous articles
posted on The Oil Drum we outlined a simplistic
export model for a hypothetical country with Ultimate Recoverable
Reserves (URR) of about 38 billion barrels (Gb), labeled the Export
Land Model
(ELM). The model showed the effect on net exports of a country that hit
peak production and started declining at 5% per year. The exporting
country consumes 50% of its production, and that consumption is
increasing by 2.5% per year. The 5% decline rate is loosely based on
the post-peak Texas decline rate of about 4% per year. The ELM is shown
graphically below, Figure One.
Figure 1
While this is a simplistic model, it has some important lessons for us.
First, assuming ultimate
recoverable reserves of 38 Gb, and assuming
that Export Land peaked when it was about 55% depleted, Export Land
would have about 17 Gb of remaining recoverable reserves, after
peaking. The model shows that only about 1.7 Gb, or 10%, of remaining
post-peak recoverable reserves would be exported.
Second, the overall
exponential net export decline rate, about 29% per
year over the eight year net export decline period, is much more rapid
than the production decline rate of 5% per year, because net exports in
a given year are the net difference between two exponential functions:
exponentially declining production and (generally) exponentially
increasing consumption.
Third, the net export
decline rate in a given year accelerates with
time, from an initial year over year change in net exports of -12.5% to
a final year over year change in net exports of -47.6% (last year of
net exports).
So, how
does the simplistic ELM compare to real world case histories? Actually,
two recent case histories, Indonesia and the UK, showed sharper net
export declines than the ELM. Figure Two, shows the year-over-year
changes in net exports, from the start of the most recent production
declines to the (apparent) final year of net exports (EIA, Total
Liquids).
Figure 2
Note the differences between the overall production decline rates and net export decline rates for the three regions:
| Region | Production Decline | Net Exports Decline Rate |
|---|---|---|
| ELM | - 5%/year | - 28.8%/year |
| Indonesia | - 3.9%/year | - 28.9%/year |
| UK | - 7.8%/year | -55.7%/year |
It's also interesting
that the UK and Indonesian net export declines
were so similar, given the radical differences between the two regions.
The UK is characterized by high per capita income, high energy taxes
and a minimal increase in consumption (+0.2%/year over the net export
decline period). In contrast, Indonesia is characterized by low per
capita income, energy consumption subsidies and a fairly rapid increase
in consumption (+4.1%/year over the net export decline period).
Note that once
production in a given exporting country starts
declining, the net export decline rate is a function of: (1)
consumption as a percentage of production at peak production; (2) The
production decline rate and (3) The rate of change in domestic
consumption.
The UK and
Indonesia net export declines were similar to the ELM because of their
relatively high consumption as a percentage of production at the most
recent peak, in the 50% to 60% range. However, regions with lower
percentages of consumption, relative to production, will almost
certainly also show accelerating net export decline rates, once
production starts declining.
The Top Five Net Oil Exporters
The current top five net
oil exporters--Saudi Arabia, Russia, Norway,
Iran and the UAE--account for about half of world net oil exports. From
2000 to 2005, they showed a combined 3.7% per year increase in
consumption.
From 2005
to 2006, their combined consumption showed an accelerating rate of
increase, to +5.3% per year. From 2005 to 2006, the top five showed a
net export decline rate of -3.3% per year. Based on year to date data,
it is a near certainty that this net export decline rate will
accelerate from 2006 to 2007.
We are presently working
on generating a range of projected future
production curves for the top five, using the logistic method, and
consumption curves, using a Monte Carlo analysis based on observed
growth rates. This will result in a range of nine points at which
production = consumption for each country, in terms of time and
production rate, with eight points centered on the middle cases for
both production and consumption. We will then plot predicted total net
exports for the top five, showing the worst case, middle case and best
case in terms of the time at which production = consumption. We also
plan to show, for the sake of argument, a plot showing indefinite flat
production, versus increasing consumption.
In aggregate, the net
export decline rates will not be as severe as the
UK and Indonesian case histories discussed above; however, the models
will show that the net export decline rate accelerates with time. While
some smaller exporters are increasing their production and their net
exports, once the large net exporters start showing an accelerating
rate of decline net exports, it is very doubtful that smaller exporters
can offset the decline from the larger exporters.
While overall world oil
production is important, oil importers are
focused on two things: their domestic production and world net oil
export capacity. In our opinion, we should base our plans on the very
real possibility of a rapid decline in world net oil exports.
If I haven't mentioned it lately, in my opinion Khebab is a certified genius, and he is doing some tremendous work on the net export paper for ASPO-USA.
My usual acknowledgment: We are building on prior work by Simmons & Deffeyes, et al.
I have made some oblique references to some conversations I have had with some "concerned government scientists." One of them told me that you could have heard a pin drop when a group of them thought through the implications of the ELM. In any case, I thought that a couple of recent e-mails were particularly well written, and with his permission, I am posting them below:
Interesting.
I've often wondered whether the USGS scientists bought the party line.
FYI--no comment on whether my guys are at USGS, but that does not detract from his point and your point.
USGS proudly brought to you by ExxonMobil, DaimlerChrysler Corp. the El Paso Energy Foundation, German Coal Mining Association, Edison Electric Institute, Cyprus Minerals Co., Western Fuels Association and Intermountain Rural Electric Association
Just because it is sponsored by the oil industry, doesn't mean that internally is can't know about PO - if PO is rely happening soon, then it would be in the oil industries best interest to find out about, and model the outcomes from, PO. (what they share to other people is another kettle of fish)
I guess my point is that who sponsors a group doesn't mean that certain views can't be held, just that they can't be freely expressed to people outside that group.
I would think that is even worse: to be able to know how bad things are and not be able to tell people.
One of my good college buddies majored in geology, then embarked on a career with the USGS, some 30 years ago. We've kept in touch through the years, getting together now & then. He's published almost 100 papers in his field of expertise. A few years ago, as I was discovering the concept of peak oil & its possible ramifications, I emailed him at work to get his take on the subject(he has always been free to use his work email address to correspond). His curt reply was that some of his colleagues believed in p.o., others were not concerned. I have not heard from him since.
The "I have not heard from him since." was kind of cryptic. How long ago was this? And have you written back since?
Tim
tim, sorry, should have been more clear. we were in the habit of corresponding at least a few times a year up until that exchange. no, i have not written back since, as the tone of his email seemed clear to me ("not interested in discussing this issue further"). several months to a year would not have been unusual to pass, but 3 years is. in the past he has been more than interested & willing to discuss his geology projects and views with me. this just came across to me in two ways: "oh no, my buddy has been caught up in this crackpot idea of peak oil" and/or "this is something i don't want to be caught dead expressing an opinion on"
Then just call him up and see if you can buy him lunch. Couldn't hurt.
It's good to know people are reading this stuff and are concerned. However, if things are as potentially dire as they appear to be, isn't the 'correct' course of action to ditch the 'maintain anonymity for professional reasons' attitude and go public? I mean in times like these, dangerous times, doesn't one have to show a bit of courage and act responsibly and be brave? By 'responsibly' I mean responsible to ones own ethical standards and more importantly responsible to all the people who haven't a clue, who are sleepwalking and being led around by the nose towards the butcher's knife? Worrying about saving ones probably non-existant pension will probably be the least of one worries if the ELM model is as accurate as it seems to be. How long does one wait until starts to speak out? It's a challange and a dilema and up to the individual himself to make that call I suppose. I'm fortunate that I don't have a boss, never had time for them, and I don't need a pension plan, and I've never really had a position of responsibility to worry about losing.
Unfortunately, most that are in a position to "ring the alarm" and act "responsibly" have taken lessons from our current president and VP. They are thinking, "why should I take the fall here if no one else is going to..."
Are you guys kidding? Have you ever worked for a corporation? Ever worked inside a government office? (I'm guessing yes to at least one or more.)
I'll explain it though, to refresh your memory. It's pretty basic. See, how it works is you do your job, you make whoever is above you look good--all the way up, and keep your mouth shut. That's why these corporations (and even government departments) have what are known to some as a "Public Relations" contingent. If it can't be put on TV and spun, it does not exist. If you abide, you get a promotion.
If you don't abide by these descriptors, you're fucking canned. In a nutshell that's how it works. There are clear ideological boundaries. Kiazan Moneypenny (the strangest goddamn name ever) isn't going to publicly disclose that the State Dept. and Blackwater are full of shit. You'd have to be a mad man. Ditto the Pentagon. Behind closed doors while filthy drunk, fine. Anonymous sources spilling a tidbit here or there, okay. Trying to finagle your way out of a sinking ship via "whistleblowing", great. But free, open speech within corporations and the government? Hahahahah...
I mean, that's why we have contracts (and sockpuppets).
CERA, USGS and EIA are not going to implore us to take mitigation steps. They will merely observe the past with a twinkle in their eye, and optimistic view of the future. Anything else is political suicide. Toe the party-line. Which is:
Nothing to see here...
It has nothing specifically to do with the current administration. Things were this way under Cigar Clinton, Bushy One, Reaganmeister, PB&J Carter, Lucky Ford, Tricky Dick, ad infinitum all the way back to the Standard Oil racket (although, T.R. tried to save face, and was able to accomplish much more, relatively, than the sockpuppets in power over recent history.) The more things change, the more they stay the same. Cliché rules the day.
Next quarter looks good.
Haaa....sad, but true...I've worked in both government and private corporations. My current company just went through some workshops where they identified types of people in the workplace as Loyalists, Passive Terrorists, or Active Terrorists.
They were using these labels to tell if you were part of the Solution or part of the Problem. Loyalists work together to come to positive results. Terrorists work to sink other people to make themselves look better. All the while listening to this workshop, I kept thinking, "My God...why the hell are we using these labels?"
So what you say is true, if you are a "Yes Man/Woman" and act positively all the time, you will go far in corporations. If you rock the boat and criticize people or ideas, you will eventually be forced out.
Well, now your invocation makes sense. Looks like your company really did take a line from this Admin's speech writers. You're either with us or against us. Which actually makes sense, corporate-wise.
This scenario sounds like something out of The Office.
Passive Terrorists? What, is that like a lazy terrorist who just colors his or her coloring books all day long while letting the phone ring? Meanwhile the Active Terrorists are cutting RJ-45 cables, hax0ring into company databases, uploading them to the Pirate Bay, and exposing the pron on the CEO's computer?
Ya...I was thinking The Office as well...life imitating art?
Passive Terrorists...saying crap behind people's backs instead of provoking outright fistfights over the coffee machine.
"It has nothing specifically to do with the current administration."
My Dad worked for the government for many years Starting when HST was POTUS and ending when Bush one was in office. He told me that that the government lies 2/3rd of the time. He said that the government lies when it is to their advantage, that is when the truth would be a problem, and when it does not natter, The govt lies when there is no advantage or disadvantage for or against, in order to keep their activities obtuse and to keep the populace confused. The government only tells the truth when it is to its distinct advantage.
That is what the govt and the oil industry are doing regarding energy
Hi Jeffrey,
Thanks, esp. for being in contact w. concerned scientists, and for sharing the comments.
re: "Then everyone wins."
Do the people you're in contact with ever talk about mitigation paths or other actions (of any sort)?
re: "...believe it is important to maintain anonymity for professional reasons."
Do they have any opinions about what actions others should take? Or what actions should be taken by scientists who perhaps are in a better position WRT anonymity?
Regarding our post-peak future, the Matt Savinar and Alan Drake are pretty much polar opposites. Matt is scouting out places to live upwind from probable fallout zones, while Alan is pushing electrification of transportation (EOT), while trying to make a go of it in New Orleans.
One of the scientists I talked to is deeply concerned that Matt may be more correct that Alan.
Nevertheless, I suspect, but do not for sure, that they would strongly support EOT.
WT: IMHO, both Matt and Alan are correct. Alan is right on target for the future of Germany, Japan, Sweden, France, etc. Matt is closer for large parts of the USA- I think parts of the USA will do OK. IMO, in many ways the USA circa 2037 will look like Mexico circa 2007 (many areas in Mexico are still great places to live).
Hi Jeffrey,
Thanks for responding. I'm curious, if you do get a chance to talk and/or share again...Do they ever talk about a coordinated plan, for eg. immediate conservation, Alan's plan, and some policies that favor retrofits (ag policy that recognizes "peak" and promotes conversion to organic, build-out of wind/solar, etc. - just examples)- i.e., something that actually addresses things in a comprehensive way? It seems like we need all of this (and more) ASAP.
Also, do they see any role for "concerned scientists" and/or the public in terms of policies or any other kind of action?
Probably not under the current administration, would be my guess.
Westexas, I am just curious about one thing. Why does khebab (Samuel Foucher) post under his real name at energybulletin.net but not here at TOD?
For the final paper, we are using a range of three different projected consumption rates, but in the short term Saudi Arabia is definitely showing accelerating rates of increase in consumption. A recent report indicated that Saudi Arabia is going to have to shift 500,000 bpd of liquids production to domestic consumption in power plants and desalination plants, because of a shortfall in natural gas production. This why the Saudis are contemplating importing coal.
Because of this report, my guesstimate for the 2007 increase in Saudi consumption was 10%. Rembrandt recently put the increase in consumption for the first half of 2007 versus first half of 2006 at 9%. Of course, for the long term projections, we are not using anything like this, but in the short term, it definitely appears that consumption is exploding.
Net export Saudi decline rates (total liquids, EIA), actual for 2006 and estimated for 2007 based on year to date production and +9% increase in consumption (Rembrandt's estimate for first half):
2006: -5.5%/year
2007: -11.0%/year
Fantastic work. One factor that I think makes these export decline rates both believable and conservative is the tendency for energy intensive industries to relocate where the energy is both available and subsidized. As an example, look at the relocation of the natural gas intensive industries out of the US. Thus, countries which have hydrocarbons are going to keep more of them for themselves.
To emphasise a point made before:
Extreme subsidisation of local fuel prices in some countries with large net oil exports decouples local consumption from changes in world oil prices, accentuating the rate of reduction of exports, as per the ELM model. Recent prices (mainly from GTZ - international fuel prices 2007) of particular interest are: (US$ prices per US gallon November 2006)
Saudi Arabia: $0.61
Venezuela: $0.12
Iran $0.34
Libya: $0.49
To make a less remarked point:
Once such countries become significant oil importers, the economic pressure to move to world prices eventually becomes irresistible - resulting in a much larger percentage increase seen in the local market than the rest of the world, and then, on balance of probability, resulting in an 'exaggerated' downward pressure on oil consumption over the subsequent period. Thus Indonesia's seven fold increase in the local price of gasoline over the last few years will eventually 'distort' local fuel consumption trends. There can also be a political cost - Myanmar(Burma) resisted adjusting local prices until a remarkable 13 years after becoming a net importer, but the seven fold increase in the local price in one year is having 'interesting' consequences.
This is my first comment on the Oil Drum, after a year or so of reading - many thanks to all for a great project - what a fantastic way of using the web to develop important ideas and analyses.
In support of your premise, Indonesia has shown a recent decline in consumption in 2006--after they became a net importer (they also showed a small decline from 1997 to 1998). The overall Indonesian case history may be the most troubling for various export models. Their consumption continued to increase as their net exports were falling. Makes you wonder what will happen in richer exporting countries.
westexas,
it seems to me that the essence of the ELM model is to highlight that post peak, the overall decline in world oil supply will not be shared ‘evenly’, and that in particular countries that continue to be net exporters are likely to chose not to enforce, by one means or another, a declining oil supply within their own country.
An interesting ELM model to do, might be: segment the post-peak world for about ten years into two groups, the continuing net exporters and the rest of us - make some plausible assumptions about demand growth within the continuing net exporters - assume that this demand growth is met: and then see what overall rate of decline this forces on the rest of the world.
One issue may muddy the water a little... to some extent, oil producing countries may be developing energy intensive industries whose products are then exported. The net global effect of this is much less than when the end consumption is moved from one country to another.
If a plastic factory moves from New Jersey to Saudi Arabia, certainly some New Jersey workers will lose their jobs. Maybe the turnpike through Elizabeth will lose a little of that special tang! But if the plastic produced is then shipped to New Jersey... seems the impact won't be so big.
I think that in actuality, looking e.g. at standards of living in oil exporting and importing countries, there is a lot of opportunity for end consumption to move to exporting countries. But still, to get the detailed numbers right, somehow it would be good to take into account movement of intermediate product manufacturing.
Very interesting work, admirable. I just hope someone pulls it to pieces and debunks it in double-quick time, because, if these projected decline rates for the major oil producers are near to being accurate; then we are in difficulties! How on earth we are supposed to mitigate and compensate for such a steep decline is going to be a profound challange to our civilization and its ability to adapt, change, and develope alternatives to oil. It's potential rate and speed of the decline that concerns me. If these countries are not only going to be using more themselves, but producing less oil, then we're in a real jam. Exports will, seemingly, be hit by declining production and increased domestic consumption, leaving us with exactly what? If one starts to think about the potential consequences of these numbers, one can't help feeling uneasy.
First, I would like to say that I really appreciate all the work the authors do, and I think you guys are doing a great job. Keep it up.
Now, these numbers seem very odd to me. I can't see how the numbers are useful. They all seem depended on the percentage that you export. If two countries produce the exact same amount of oil and have the same decline rate 5%, but one country exports 50% of there production and one exports 25% of there production, they will be taking the same amount of oil off the market. There percentages will look drastically different and it will look like the second country is doing much worse then the first. But both countries are removing the same amount of oil from the market.
Why is it interesting that one country has a faster decline percentage when they are removing the same amount of oil from the market?
digbee,
if they have the same amount and the same decline rate, but one exports 50% and the other exports 25% and keeps 75% for their internal consumption, the "market" as a global total is not impacted. Importing countries will see an decrease available to them greater than the production decline rate. At a global scale you are correct, but for those countries dependent upon imports, the amount available to import is the only amount that matters. An that amount decreases faster than the actual product decrease. That is the main point of the ELM that westexas is making.
thanks again to the authors for the continued excellent work
ej
Let's stick with the simple ELM and use year over year changes in production of -5%/year, with no increase in consumption. Export Land is producing 2 mbpd and consuming one mbpd, and then production starts declining at -5%/year.
The initial decline in production, about 100,000 bpd, would be equal to the export decline (in volume). However, the initial decline rate in exports would be -10.5%/year (the 0.5 comes from the exponential function).
In any case, we can use the simple Rule of 72--production would drop by 50% in 14 years, at which point exports would be zero. (With a +2.5%/year increase in consumption, exports go to zero in nine years.)
So, a -5%/year production decline rate, with zero increase in consumption, would result in a -16%/year decline in exports over the first 10 years of the production/export decline.
I think the problem is that we all live in importing countries...
I am willing to hazard a guess that these civilization-shattering implications have been well considered by those implementing a policy of war in the Middle East. From Dick Cheney's speech to the London Institute of Petroleum, 1999 (quoted from this paper by Kjell Aleklett):
It's a classic quote for sure, but nowhere does it imply ELM modelling.
That is of course not a proof it hasn't been done, but it hasn't been openly discussed.
The reference "but also to meet new demand" is to an aggregate whole world rising demand.
ELM is about asymmetry of that demand rise.
Consumption rises faster in exporting countries, hence importing countries are even worse off, even if they don't grow their own demand at the same time (and they do).
And of course consumption does not NEED to rise faster in exporting countries for the effect to remain significant - albeit less severe. It only needs to remain static in absolute terms or, at best (for the importers) decline at a slower rate than domestic production for a decreasing proportion of a decreasing production to be available for export
Sabretache
Dear Steve001,
The current administation is arguably the most oil literate group of people leading the United States ever. They may not know much about invading countries and fighting guerilla wars, (though even that is debatable, we are, after all, just beginning in Iraq,) but oil they do know and understand. Saddam and his regime was in the way of our investing in Iraq, so we got him out of the way. Iran is in the way of us controlling Iraq, so we'll get them out of the way. That is unless things go wrong. It's the going wrong part that concerns me at the moment. Getting Iraq and Iran 'right' is going to be a very unpleasant job. We may not like what we see in the mirror if we follow that path. Maybe we should choose another path.
On the other hand, maybe the United States is already the victim of a bloodless and very successful