The Oil Drum

This is a guest post by Jeffrey J. Brown, known on TOD as westexas. Jeff is an independent petroleum geologist in the Dallas, Texas area. His e-mail address is westexas@aol.com.

Building on prior work by many people, including Matt Simmons and Kenneth Deffeyes, and largely based on great technical work by Khebab, I have been intensively studying the Net Oil Export issue for more than two years.

The simple mathematical model I have been using to talk about our export situation is called the Export Land Model (ELM). Recently, data and media reports have shown that the concerns I have expressed about our export situation are growing more valid each day.

Venezuela and Mexico are critically important to the US because of their proximity to the refineries on the Gulf Coast. From what I have been able to discern, it takes an average of about five days for a tanker to get to the US from Venezuela and Mexico versus about 30 days from the Persian Gulf. Based on recent news reports, it certainly appears that the overall net export decline from Venezuela and Mexico is continuing into 2008.

So, what has happened to net oil exports from Venezuela & Mexico to the US and what effect has had this had on Gulf Coast crude oil inventories, and why am I concerned?

I normally try to be a “Good News” kind of guy, but today I bring bad tidings. Despite my previous claims that Australia is The Place To Be, we are in for some tough times here.

TOD has featured the Export Land Model (ELM) on several occasions (http://www.theoildrum.com/node/3018 ). A summary can also be found in Wikipedia.

The concept is deceptively simple:
Oil producing countries service internal markets first, and then export their surplus. Observations of oil exporting countries show that their internal markets continue to grow rapidly even after the peak. So their exports are hit by 2 factors - declining production and increasing domestic consumption. As a result, their export capacity drops with unexpected rapidity.

An Example: Precipitous Decline In Net Exports From Indonesia.
Source: Matt Mushalik, based on data from http://tonto.eia.doe.gov/country/index.cfm

http://biz.yahoo.com/ap/080212/venezuela_us_oil.html?.v=9

CARACAS, Venezuela (AP) -- Venezuela's state oil company said Tuesday that it has stopped selling crude to Exxon Mobil Corp. in response to the U.S. oil company's drive to use the courts to seize billions of dollars in Venezuelan assets.

Exxon Mobil is locked in a dispute over the nationalization of its oil ventures in Venezuela that has led President Hugo Chavez to threaten to cut off all Venezuelan oil supplies to the United States. Venezuela is the United States' fourth largest oil supplier.

Have at it.

This is a repost of an article that ran a few weeks ago. It was linked to by Professor Deffeyes, so it seemed a good time to bring it forward again.

It is quite common to hear experts explain that the current tight oil markets are due to “above-ground factors,” and not a result of a global peaking in oil production. In reality, geological peaking is driving the geopolitical events that constitute the most significant “above-ground factors” such as the chaos in Iraq and Nigeria, the nationalization in Venezuela and Bolivia, etc. Geological peaking spawns positive feedback loops within the geopolitical system. Critically, these loops are not separable from the geological events—they are part of the broader “system” of Peak Oil.

Oil suppliers are tightening taps says Jeff Rubin, CIBC World Markets chief economist, because they're using more and more themselves. (Oct 2, CNBC, 5 min, hat tip to Energy Bulletin, Moral Equivalent of War, and Graphoilology). If you're interested in more from Rubin, check out his slides entitled "OPEC's Call on Itself" here (pdf warning).

It all sounds like what Jeffrey Brown has been saying regarding his Export Land Model. Good on you Jeff.

T. Boone Pickens shares his outlook on oil. (Sept 19, CNBC, 5 min)

Connect to other peak oil media or comment on these below. Send the link to friends or put it in comment boxes on other sites! (Kenneth Heebner is under the fold, by he way...)

It is quite common to hear experts explain that the current tight oil markets are due to “above-ground factors,” and not a result of a global peaking in oil production. In reality, geological peaking is driving the geopolitical events that constitute the most significant “above-ground factors” such as the chaos in Iraq and Nigeria, the nationalization in Venezuela and Bolivia, etc. Geological peaking spawns positive feedback loops within the geopolitical system. Critically, these loops are not separable from the geological events—they are part of the broader “system” of Peak Oil.

This is a guest post by Friend of TOD Jeffrey J. Brown, an independent petroleum geologist in the Dallas, Texas area. His e-mail address is westexas@aol.com.

You can also check out Jason Bradford's recent interview with Jeff for The Reality Report over at Global Public Media here.

Building on prior work by Matt Simmons and Kenneth Deffeyes, I have written a number of articles on Net Oil Exports, often with my frequent co-author, “Khebab,” most recently, “Net Oil Exports and the Iron Triangle.” We are going to present a quantitative assessment of future net exports by the top net exporters at the ASPO-USA (Association for the Study of Peak Oil & Gas) conference in October, in Houston, Texas, and we will be doing a preview of the paper in late September.

Disclaimer: While I certainly think I'm qualified to perform quantitative analysis, I'm no expert on the oil industry. I welcome and expect the constructive criticism of the many knowledgeable editors and commenters.

There are many people on either side of the Export Land Model issue: those who think the internal consumption of an exporter will continue to increase at the detriment of exports and those who think there will be enough pressure, be it economic or otherwise, to stifle internal consumption so that net exports don't suffer. I see no reason we won't see both of these situations occurring depending on the specific details of a given exporter. The question, I think, is which effect will be dominant in the aggregate and to what degree? If, after the peak in world oil production, either effect is dominant in the extreme then "bad things" happen. If internal consumption continues to grow, importers will have to drastically decrease consumption. If exporters force their populace to decrease consumption for the sake of exports, my guess is this would initiate or fan unrest and increase instability in the exporting countries - possibly resulting in production loss (i.e. Nigeria) and hence a decline in net exports.

What I've set out to do in this post is to construct a World Import/Export Land Model (extending the work of westexas and Khebab, the most recent of which can be found here) followed by an investigation into one of the possible extreme situations above: the pre-peak rate of change in internal consumption of Export Land continues post-peak.