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311 comments on DrumBeat: January 12, 2008

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PaulS on January 12, 2008 - 4:50pm Permalink | Subthread | Parent | Comments top

"An economist would expect to see..."

Hmmm...I thought most economists expect to see, on occasion, what they would call market failures caused by politics. History would include, for example, the 1973 Nixon soybean embargo, the 1975 Ford grain embargo, the 1980 Carter grain embargo, another embargo when bread was hitting $1 a loaf or maybe it was one of those, and countless other such events in many places. I can't imagine why anyone is shocked...

Of course, if an economist is thinking prescriptively, he or she might be right about Europe. By embargoing, Continental countries kept their prices artificially low, reducing both supply and efficiency incentives within their borders. This was not just a mere violation of delicate sensibilities - since EU countries incessantly preach from the very highest of high horses about burning less hydrocarbons, it was more than a tad hypocritical. Not that it was any more hypocritical than jetting tens of thousands of tourists and hangers-on to world jamborees to tell everyone else to stop consuming. Not that hypocrisy is the least bit unusual in this wicked world. Not at all...

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westexas on January 12, 2008 - 9:35pm Permalink | Subthread | Parent | Comments top

My favorite forward looking statement, by the Economist Magazine, in August, 2006:

Saudi Aramco's proved reserves alone could keep the world supplied for several decades. But it is only exploiting ten of its 80 or so fields, so will be able to pump at the present rate for about 70 years even if it never discovers another drop of oil.

It was remarkable that the Economist would make a 70 year projection without even considering the effect on net exports of increasing domestic Saudi consumption. Based on EIA data, Saudi Arabia showed a +5.7%/year increase in consumption from 2005 to 2006. At this rate, the long term net export decline rate (2005 to 2030) would be about -10%/year--assuming flat production at 11 mbpd (total liquids), with no decline. The year to year net export decline rate would start out slowly and accelerate with time. For what it's worth, at +5.7%year, the Saudis would be consuming 108 mbpd in 2075, which seems “somewhat” unlikely, since this is about 40% more than current total world liquids production.

In any case, what is interesting about the Turkey, Russia, Iran situation is that Turkey--a richer country (based on most recent Nationmaster data)--is being forced to reduce consumption by two poorer countries, Russia and Iran.

I wonder how this will play out for the US versus poorer oil exporters.

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ThatsItImout on January 13, 2008 - 5:45am Permalink | Subthread | Parent | Comments top

WT said,
"Based on EIA data, Saudi Arabia showed a +5.7%/year increase in consumption from 2005 to 2006. At this rate, the long term net export decline rate (2005 to 2030) would be about -10%/year--assuming flat production at 11 mbpd (total liquids), with no decline. The year to year net export decline rate would start out slowly and accelerate with time. For what it's worth, at +5.7%year, the Saudis would be consuming 108 mbpd in 2075, which seems “somewhat” unlikely, since this is about 40% more than current total world liquids production.

"somewhat unlikely" is an understatement. Has there ever been a case of a nation increasing it's oil consumption 5.7% per year compounded for 70 years running? I think it would be exceptional indeed!

Look a the long view of U.S. growth in petroleum consumption:
http://www.eia.doe.gov/emeu/25opec/sld007.htm

And we are supposedly one of the worst of the "oil hogs" in the world.

The other issue is how do we define Saudi consumption? If they retain crude oil for their growing home petrochemical industry and sell the finished goods to the world deriving from that industry, they are still meeting global petroleum demand.

It is also to be remembered that Saudi consumption is starting from a relatively low base of consumption compared to the largest consuming economies (the United States, China, Japan and the EU)

The more shocking part of the Economist quote to me was "Saudi Aramco's proved reserves alone could keep the world supplied for several decades. But it is only exploiting ten of its 80 or so fields..."

Do they have the statistics to back that up? Where and how large are these 70 other fields that are supposedly lying in wait to be exploited?

More proof to me that we know almost nothing about Saudi Arabian oil reserves.

RC

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westexas on January 13, 2008 - 9:57am Permalink | Subthread | Parent | Comments top

If memory serves, US consumption increased at about +4%/year from 1949 to 1979.

As I have previously noted, in addition to being at about the same mathematical stage of depletion at which Texas started declining, Saudi Arabia now, like Texas in the Seventies, is responding to higher oil prices with a sharp increase in drilling activity--and lower crude oil production (relative to 2005).

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BobCousins on January 13, 2008 - 6:22am Permalink | Subthread | Parent | Comments top

It's convenient for some to paint this as a UK vs Europe politics thing, but there is more to it than that.

Typically continental utilities have different operating regulations to UK companies, the continental ones must guarantee supply for longer and keep so many days supply in reserve, unlike the UK. Since UK utilities were deregulated and thrown open to "free market", our reserves are run down while the utilities make more profit. Naturally when our utilities ask the Europeans to provide gas from reserves which we failed to keep, we get a firm non.

The UK is at the end of a long supply chain, and the primary issue of availability of supply which should be addressed by government gets buried by cheap politics.

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