The Export Land Model

[kublikhan]

Note that Saudi Arabia showed a very sharp increase in net exports from 2002 to 2005, as global crude oil prices doubled from $25 in 2002 to $55 in 2005. In response to the first crude oil price price doubling, we did of course see a substantial increase across the board in total liquids production (inclusive of biofuels), in total petroleum liquids, in crude + condensate (C+C), and in Global Net Exports (GNE) and in Available Net Exports (ANE).

In response to the second Brent crude oil price doubling (2005 to 2011), we have so far seen a very slow rate of increase in total liquids production (up 0.5%/year from 2005 to 2010), virtually flat total petroleum liquids and virtually flat C+C production (through 2010), and a 1.3%/year and 2.8%/year respective decline rate in GNE & ANE (through 2010). GNE fell from 46 mbpd (million barrels per day) in 2005 to 43 mbpd in 2010, while ANE fell from 40 mbpd in 2005 to 35 mbpd in 2010.

annual "Gap" charts follow, showing the gaps between where we would have been at the 2002 to 2005 rates of increase, versus the actual data in 2010.

Perhaps oil prices could be rising because of a declining supply of net oil exports?

[AirlinePilot]

US total petroleum liquids production (BP) increased from 7.2 mbpd (pre-hurricane) in 2004 to 7.5 mbpd in 2010 (and probably to about 7.7 mbpd in 2011). From 2004 to 2010, despite increasing net exports from Canada, the combined net oil exports from the seven major net oil exporters* in the Americas and the Caribbean fell from 6.2 mbpd in 2004 to 4.8 mbpd in 2010, down 1.4 mbpd, a decline of 23% in six years.

So, just the regional decline in net exports, from 2004 to 2010, was about five times the size of the increase in US production. The 2005 to 2010 decline in Global Net Exports (GNE) was about 10 times the size of the recent increase in US production, and the 2005 to 2010 decline in Available Net Exports (ANE) was about 17 times the size of the recent increase in US production.

*Canada, Colombia, Venezuela, Mexico, Argentina, Ecuador, Trinidad & Tobago

[dissident]

http://www.theglobeandmail.com/report-o ... le2191152/

According to the above article the increasing US total liquids production is a threat to Canada's oil sales. This is so idiotic it is surreal. The only way that the Canadian exports would be threatened is if the US was self sufficient in oil production or for some odd reason decided to boycott Canada and import more from Saudi Arabia or elsewhere. These token US "oil" production increases are being touted as proof that peak oil is a silly notion. Innumeracy is a sad thing to behold.

The export land model tells us that the crunch will come much faster than it would appear based on depletion of existing oil fields alone. This point is completely alien to the media coverage of anything related to oil. Absurd pieces such as the one above, which are basically focused on domestic production and not even consumption, are what makes up the public information space. People have to come to "fringe" internet sites such as this one to get any information at all about how serious things are. As far as the economy is concerned it is the net export figure that matters and not global production. So even though not a single economist can be seen saying this in the MSM, we are already past peak. Somehow it is hard to believe that the global economic crisis since 2008 is merely a coincidence.

[ragged]

I thought this was a good article:

The Economist: Keeping it to themselves Gulf states not only pump oil; they burn it, too: http://www.economist.com/node/21551484

Yet these calculations do not take account of the region’s growing thirst for its own oil. Between 2000 and 2010 China increased its consumption of oil more than any other country, by 4.3m b/d, a 90% jump. It now gets through more than 10% of the world’s oil. More surprising is the country that increased its consumption by the second-largest increment: Saudi Arabia, which upped its oil-guzzling by 1.2m b/d. At some 2.8m b/d, it is now the world’s sixth-largest consumer, getting through more than a quarter of its 10m b/d output.

Saudi Arabia is not the only oil-producer that chugs its own wares. The Middle East, home to six OPEC members, saw consumption grow by 56% in the first decade of the century, four times the global growth rate and nearly double the rate in Asia (see map).

The third reason for rising Gulf consumption is the inefficiency of domestic energy markets. Some 65% of Saudi electricity is generated using black gold, even as successive price shocks and the relative inefficiency of oil generation have seen it all but phased out in rich countries. Oil is used with such profligacy because domestic consumption is massively subsidised. According to the International Energy Agency, global oil subsidies added up to $192 billion in 2010. OPEC countries accounted for $121 billion of the total.

Saudi Arabia has the cheapest fuel in the Gulf and dirt-cheap electricity, too. This has alleviated poverty but it has also encouraged an American-style driving culture (for men) and limited public transport. Only a third as many Saudis own cars as Americans; as they get richer many more will take to the desert highways.

[Keith_McClary]

http://www.theglobeandmail.com/report-on-business/industry-news/energy-and-resources/us-oil-production-a-threat-to-canadian-energy-industry/article2191152/

According to the above article the increasing US total liquids production is a threat to Canada's oil sales. This is so idiotic it is surreal.

The point is, the only pipelines run south.

Mr. Wuori pointed to the current discount of nearly $25 (U.S.) per barrel applied to oil traded in the landlocked central parts of North America.

“That’s an example of just how serious price degradation can be when you have too much supply and not enough outlet,” said Mr. Wuori, for whom the coming changes provide further reason for Canada to pursue other markets. Enbridge, the country’s largest transporter of crude, is a major proponent of such plans, with its $6.6-billion Northern Gateway pipeline that would bring oil sands crude to the Pacific coast for export to Asia and California.

[Keith_McClary]

Blast from the past (I didn't pay $2.95 for the remainder of the 721 words).

The Washington Times: Oil and Iraq's future‎
$2.95 -
Washington Times - Apr 17, 2003
With an export potential of 7 million barrels per day achievable within about six years, Iraq could be generating about $64 billion per year at a price of
...
With the coalition of the willing having vanquished Saddam Hussein's regime in Iraq, it is now up to the "coalition of the drilling" to provide the resources to underwrite Iraq's political and economic development after decades of repression and economic mismanagement. Let there be no doubt: Iraq's immense oil and gas reserves 112 billion barrels of proven oil reserves; at least another 100 billion barrels of potential oil ...

Complete Article, 721 words ( )

This assumes $25 oil.

[Keith_McClary]

What isn't discussed much, is the tendency that net exporters will probably have to hoard their oil when it becomes apparent the oil will be worth more in the future as peak oil becomes more apparent.

It seems Iraq is in no hurry to spend money ramping up production:

Though Iraq could, in that scenario, theoretically pump as much as nine million bpd, Shahristani said that between five and six million bpd “would generate enough revenues to meet our needs.”
...
“We thought in Iraq that there is no point at this stage to invest very large sums to develop the fields for a much higher production capacity if we are not going to use that capacity and produce the oil, that we cannot market because there is not sufficient demand for it.”

Meaning not sufficient demand at a high enough price.
http://peakoil.com/production/iraq-in-t ... ergy-firms
Is this "hoarding"?

[ROCKMAN]

Keith - That position probably goes a long way towards explaining the Iraq position on trades with third parties on developing their oil infrastructure. The Iraq terms appear to allow only a very thin margin for those third parties and thus there’s little interest by anyone except the Chinese. China imports the majority of Iraq oil today and dominates forward projects. Not having to focus strictly on the bottom line China can play the long game of commodity access and not worry too much about quarterly profits.

[Tanada]

Keith - That position probably goes a long way towards explaining the Iraq position on trades with third parties on developing their oil infrastructure. The Iraq terms appear to allow only a very thin margin for those third parties and thus there’s little interest by anyone except the Chinese. China imports the majority of Iraq oil today and dominates forward projects. Not having to focus strictly on the bottom line China can play the long game of commodity access and not worry too much about quarterly profits.

Indeed, and it seems to me that KSA was following the same strategy until 1986 or so when the USA convinced them to start pumping flat out and crash the world oil price. If they had stayed the course and never pumped more than say 4 MMbbl/d how much better off would they be today than they were in the 1990's when the world had a temporary oil glut? To my way of thinking long term goals and stability are far more valuable than fleeting bubble profits.

[ROCKMAN]

Tanada - It also seems to go along with the development of those refinery JV's with China et al. I wish I had a better handle on the profit margins the KSA would make by selling refined products instead of oil. In theory they could produce less oil but still have the same revenue stream by capturing some of the product profit. Not only might this save oil sales for the future but might also increase oil prices as they remove a certain volume from the market place. And then there would be the potential for reducing their cash outflow by using their own refined products and eliminating at least some of the imports. OTOH they’ll be paying for a portion of the refinery build out. One has to assume the KSA sees some financial benefit to the effort but difficult to guess the magnitude.

[Tanada]

Tanada - It also seems to go along with the development of those refinery JV's with China et al. I wish I had a better handle on the profit margins the KSA would make by selling refined products instead of oil. In theory they could produce less oil but still have the same revenue stream by capturing some of the product profit. Not only might this save oil sales for the future but might also increase oil prices as they remove a certain volume from the market place. And then there would be the potential for reducing their cash outflow by using their own refined products and eliminating at least some of the imports. OTOH they’ll be paying for a portion of the refinery build out. One has to assume the KSA sees some financial benefit to the effort but difficult to guess the magnitude.

I also see another aspect of the deals that I have not heard you comment on. By refining close to home and shipping out the valuable products instead of the crude itself each of these deals will provide lower over all shipping costs to the owners. If you have a 1 MM/bbl freight tanker and you ship all crude oil then you are spending X to deliver the crude to the recipient. If you take that same tanker and divide it up so that you are shipping Gasoline, Kerosene (jet fuel/Diesel-1) and Diesel fuel (diesel-2, heating oil) in the proportions your refinery produces you are saving the cost of shipping all the asphalt, heavy oil, oil coke and so on along with it. With a proper design you can use some of the heavy oil like bunker fuel or diesel-4 to power tour tank freighter and you can stack up the petroleum coke and sulfur in some convenient pile until you have enough to be worth filling a regular freighter up and sending off to an end user for that as well. That all adds up to lower cost more efficient shipping. Also for any of the refinery end products like the petroleum coke the USA has a use for you have a new sales stream because our refineries won't be making enough if we are importing finished product.

[ROCKMAN]

Tanada - I know even less details about the shipping end than refining. But I think in many cases, especially with the KSA, the buyer has to arrange and pay for transport. Maybe the same with products…just not sure. I am sure it’s a matter always open for negotiation. And this is where some aspects get even harder to read. The KSA now owns 50% of a huge refinery, Motiva, in Texas. The assumption has been that the KSA would ship their oil to the plant which, as you point out, they would have to pay for along with RDS. But then the obvious market would be the US except that now a lot of products are being exported for the US. And someone will have to pay for that transport. But maybe that wasn’t the original plan or it was but now the dynamics have changed. The KSA would spend a good bit less transporting their oil to the Red Sea refinery JV with China. From there it’s a short haul to the EU markets.

So what of Motiva? It is capable of refining the Canadian oil sand production also. And given that this is foreign produced oil there’s virtually no restriction to exporting the products made from it or even the oil itself. Again, that may not have been the original plan. And if the KSA had known China would be taking the approach to refinery JV’s today they might not have partnered on Motiva. But right now with lower US consumption of products and an international market that’s willing to pay a fair amount for fuel it seems like those dynamics are firmly in place. Today it doesn’t seem to make much sense to ship Saudi oil to Texas, refine it and then ship some/all of the products overseas. The oil patch doesn’t handle change very well especially on a time scale of 5 years or less. And today 5 years seems like a long time for any part of the dynamic to hold static.