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America’s new energy reality – A bidding war for declining global net oil exports

America’s new energy reality – A bidding war for declining global net oil exports thumbnail

Americans are reading, almost on a daily basis, about increasing oil and gas production in the US. For example, Daniel Yergin wrote about his optimistic outlook for increasing US oil and gas production in an OpEd piece in the June 10, 1012 New York Times entitled “Americas New Energy Reality.”

It’s certainly true that US oil and gas production has rebounded from the production low following the 2005 Gulf of Mexico hurricanes, but a careful analysis of the production data suggests that the production outlook it not quite as rosy as most people seem to believe.

The primary new energy reality facing the US is an ongoing post-2005 decline in the supply of global net exports of oil, which we abbreviate as GNE, with the developing countries, so far at least, consuming an increasing share of a declining volume of GNE.

Net oil exports are most frequently defined as the total supply of petroleum liquids production (crude oil, condensate, refined products and natural gas liquids) that remains after domestic liquids consumption is satisfied in an oil exporting country. My colleagues and I have compiled a database of the top 33 net oil exporters in the world in 2005, accounting for 99%+ of total global net exports, which we define as GNE. We primarily used the BP global database, with some minor input from the EIA (Energy Information Administration).

Our database shows that GNE fell from about 46 mbpd (million barrels per day) in 2005 to about 44 mbpd in 2011. For every barrel of oil that the top 33 net oil exporters consumed in 2005, they produced 3.8 barrels of total petroleum liquids. For every barrel of oil that the top 33 net oil exporters consumed in 2011, they produced 3.2 barrels of total petroleum liquids. If this ratio were to fall to 1:1, GNE would be zero, but the trend line is toward a 1:1 ratio between top 33 total petroleum liquids production and domestic liquids consumption.

We define available net exports (or ANE) as GNE less China and India’s combined net oil imports. ANE fell from 40 mbpd in 2005 to 35 mbpd in 2011 as the developing countries, led by China and India, consumed an increasing share of a declining volume of GNE. For every barrel of oil that China and India net imported in 2002, there were about 11 barrels of global net exports. For every barrel of oil that China and India net imported in 2011, there were about 5.3 barrels of global net exports. If this ratio were to fall to 1:1, China and India would consume 100% of global net exports of oil, but the trend line is toward a 1:1 ratio between global net exports of oil and China and India’s combined net oil imports.

Canada has shown an increase in net exports, but the combined net oil exports from the seven major net oil exporters in North and South America, inclusive of Canada’s rising net exports, fell from 6.1 mbpd in 2004 to 5.0 mbpd in 2011.

Global annual (Brent) crude oil prices doubled from $55 in 2005 to $111 in 2011, in order to balance demand against a declining supply of GNE, with developed countries like the US generally being on the losing side of a bidding war, as developing countries consumed an increasing share of a declining volume of GNE.

But what about rising US oil and gas production?

It’s certainly true that US domestic production has increased, but we are seeing some troubling inconsistencies between EIA data and other data sources, such as the Texas Railroad Commission (RRC), which regulates and Texas oil and gas production and which has been keeping track of Texas production for decades. It’s important to note that the EIA uses a sampling approach to estimate US production, including Texas production, while the RRC sums the mandatory production reports from Texas producers.

Texas has seen a massive expansion of shale gas drilling efforts, especially in the Barnett Shale Play in North Texas. However, the RRC data show that Texas natural gas well production showed a recent annual peak in 2008, with annual gas well production declining in 2009, 2010 and 2011. The monthly RRC data show that Texas natural gas well production in January, 2012 was down by 20% from the January, 2009 production rate.

Note that the same RRC database shows a steady year over year increase in Barnett Shale gas production from 2004 to 2011. So, a common database shows increasing natural gas production from a large shale gas play, but declining overall total natural gas well production.

What I define as the shale play proponent’s model suggests that rising production from US shale plays and from new conventional discoveries will be sufficient to offset the underlying US production decline from existing production and to cause an ongoing and virtually indefinite net increase in US oil and gas production. Furthermore, the suggestion is that we can apply the US shale play model to the world, so we are looking at an indefinite increase in global oil and gas production, as the shale play model is applied around the world.

However, the three year 20% decline in monthly Texas natural gas well production—despite rising natural gas production from the Barnett Shale Play—directly contradicts the shale play proponent’s model.

In fact, if we use RRC Texas crude oil production data, instead of the EIA data for Texas (while using EIA data for other US producing regions), there was no increase in US crude oil production from 2010 to 2011, despite a huge increase in the number of rigs devoted to drilling for oil in the US.

Using the RRC data for Texas crude oil production suggests that annual US crude oil production in 2011 was only back to the 2004 production rate. In other words, it appears that the cumulative expenditures by the US oil industry for 2005 to 2011 inclusive only served to bring us back up to the pre-hurricane production level that we saw in 2004.

Our analysis suggests that at best we may only see a slow increase in US oil and gas production–especially if we use actual production data in lieu of EIA estimates. This is not to discount the critical importance of domestic US oil and gas production, but again our analysis suggests that the critical new energy reality facing the US is that we are still dependent on imports for about 60% of the crude oil processed in US refineries, while we have seen an ongoing decline in global net exports of oil, with the developing countries, led by China and India, so far consuming an increasing share of a declining volume of global net exports of oil.

We are currently seeing weakening oil prices, but the current oil price decline appears to be primarily related to an accelerating rate of decline in oil consumption in OECD countries. For example, Greece is having a great deal of difficulty in trying to pay their oil import bill.

Consider the Titanic analogy. Late on the evening of April 14th, 1912, at 11:40 P.M., the Titanic struck the iceberg. At around midnight, it seems likely that only about one-tenth of one percent of the people on the ship knew that the ship would sink, but that did not mean that the ship was not sinking. The ship’s pumps helped, but they were not sufficient to fully offset the flood of seawater coming into the ship.

I believe that the slow increase in US crude oil production is to the ongoing decline in global net exports of oil as the Titanic’s pumps were to the flood of seawater into the ship, and I suspect that perhaps one-tenth of one percent of the people in the world have some appreciation for the global net oil export situation, but that does not mean that global net exports are not declining, with the developing countries, led by China, so far consuming an increasing share of a declining volume of global net exports of oil.


11 Comments on "America’s new energy reality – A bidding war for declining global net oil exports"

  1. SOS on Tue, 26th Jun 2012 12:33 am 

    Gas production is dwon because price s down. Price is down because supply seems infinite. There is no shortage.

  2. DD on Tue, 26th Jun 2012 1:46 am 

    More up to date info and graphes please to back up your thesis

  3. BillT on Tue, 26th Jun 2012 5:26 am 

    SOS, no there is no shortage of natural gas, it is just not in the economic reach of us anymore. The cost to get it out of the ground and to consumers is high. The glut of gas from greedy investors set the price too low. Failure of the idea is the result. We are not ever going to export natural gas anywhere. If we manage to balance supply and demand, and that is a big IF, it will ALL stay here in the Us to partially offset the shrinking oil supplies. When a well cannot produce enough profit to pay for it and the investors profits, it will not be drilled. There will be billions, maybe trillions of cf of natural gas still in the ground when the last well shuts down…wait and see. Only suckers are throwing their money at the ‘opportunity’ now.

  4. DC on Tue, 26th Jun 2012 9:45 am 

    Bidding war? What is the US of Debt going to bid with? Oh yea, the US is still trying to destroy the Euro so the world has no choice but to use the worthless US dollar. But if the world is less and less interested in the worthless george washingtons, how bout a shooting war instead of a bidding war, that is to say, wha the US is doing now. When the US can no longer force people to accept its debased currency, the US will resort to openly attempting to steal what it wants. IoW, it will be like now, only with much less subtlety. If the US fully succeeds in destroying the Euro, who is to say the other nations attempts to create an alternative to the dollar wont come and replace it? The US was able to send Goldman-Sachs to mine the Euro-zone, hopeully the Russians and Asians and South Americans wont be as careless as Europe was letting the US TBTF run around doing whatever they felt like. Time will tell…

  5. Arthur on Tue, 26th Jun 2012 11:59 am 

    DC, there is no euro problem whatsoever. Prices are stable and the euro does not rust, so there is no euro

    In reality there is a southern European debt problem that is SOLD as a euro problem, to make northern Europeans think that their currency is in danger. It is not. The agenda behind all this is that European politicians want to seize the financial crisis opportunity to create a superstate a la the USSR of former fame or the USA or China. That’s what politicians do for a living, grab as much power as they can, rather than representing the interests of the people who voted them in. The European population does not want a superstate, they like the status quo of European soccer tournaments and Euro songfestivals, but not more. It is true that the US, or Wallstreet/London rather (the 1%), are trying to torpedo the euro because it is a dangerous competitor for their scam casino business. The euro or a successor coin like the D-mark extended over Holland, Belgium, Denmark, Austria, Finland, Baltic states however is here to stay. The most likely scenario is that Greece, Portugal and maybe Spain will leave voluntarily, but that will be it. They could even very well stay in the euro.

  6. Arthur on Tue, 26th Jun 2012 12:13 pm 

    The US and it’s military-industrial complex has not a ‘defense’ expenditure equal to the rest of the world combined for nothing. They are up to something and they intend to use their military machine. No, the US is not powerful enough to occupy Sverdlovsk and Xian. It does not need to. Domination of the last oil reserves in the Gulf suffice to dictate conditions on a starving China. The US (or it’s ‘Straussian’ elite rather, to avoid another word) intends to create global institutions, not an American occupation. The Straussians are even willing to destroy the dollar if it fits their globalist agenda. Heck, they are even willing to destroy America by mass immigration, as they have done after they killed JFK, the last Euro-American resistance fighter against the Straussians. And you know what, they are going to succeed in destroying the dollar and America, just like they destroyed imperial Russia. But they are going to fail in using the US as a vehicle for the creation of a global super state, just like they failed to use the USSR as a vehicle to create a red globalist planet.

    Instead, this is going to happen:

  7. Arthur on Tue, 26th Jun 2012 1:01 pm 

    Here is a real Straussian, Michael Ledeen, able to give facism a bad name:

    “Every ten years or so, the United States needs to pick up some small crappy little country and throw it against the wall, just to show the world we mean business.”

    You will be hard-pressed to come up with similar quotes from Hitler or Mussolini.

    This is the attitude of the ruling elite in Washington. And if the American population does not come into action soon, they are going to find themselves catastrophically isolated vis-a-vis the rest of the world. And the cheapest way to achieve results is via the 9/11-truth movement.

  8. BillT on Tue, 26th Jun 2012 2:37 pm 

    I see the Euro being killed by the same thing that is killing the dollar. A contracting capitalist economy in a world without cheap plentiful energy (oil). The Euro and therefore the EU is done for. So is the Empire, although it will try everything to try to keep it’s power a few more years. Then, who knows. There are 20,000 nukes still scattered around the world, minutes from anywhere. Duck and cover?

    I sit in Asia, watching the current switch of focus as the Empire sees China rising and moving to eliminate the Empire’s power, the shrinking dollar. Japan is dead and just needs to fall over. Taiwan belongs to China but has not realized it just yet. Korea is also no contest. Ditto for Australia, and India. The rest are just waiting for the inevitable Russian/Chinese domination of most of the largest continent on Earth.

    South America is cozying up to China and So is Africa. China doesn’t have 1,000+ military bases all over the world. They just have Chinatowns in every city big enough to have one and enough Charmin dollars to buy anything they want. Meanwhile, the West is declining to Asian labor levels and 3rd world lifestyles.

  9. Arthur on Tue, 26th Jun 2012 4:25 pm 

    China has ten times the population of Russia and has a functioning economy, unlike Russia. Russia’s only strength is it’s fossil fuel reserves, it’s nukes and military industry. SCO is a rather uneasy alliance between Russia and China, but will remain intact as long as China and Russia are faced with an agressive imperial US. But Russia has too much soil to defend, if left alone with China. That’s why Russia needs Europe as an ally of last resort and able payer for Russian fossil fuels, if necessary in a barter trade with goods and in the end a military alliance. It is not difficult to predict how a rising China is going to be bought off by the coming Greater European alliance. There will be a secret meeting between German, French, Russian and Chinese leaders, once the American might starts to crumble. The European leaders will say: listen China, don’t you dare invading Australia! Here is what we do if you invade:
    1) we are going to stamp with our feet on the ground real hard
    2) we will call back our ambassadors from Beijing.

    Uhh, on second thoughts, the second measure might be too hard.

  10. SOS on Tue, 26th Jun 2012 9:27 pm 

    The world is not flat and the natural gas, as well as good crude oil is not scarce or hard to get. Peak oil is a creation of politics, it is not a real physical constraint.

    Change the politics to pro energy and you will change your energy reality for the better. Pro energy development is a very intelligent stand for people to take if they want to reap the benefits from all the energy we could be producing.

    North Dakota, even while pouring money into oil field infrastructure, has amassed a budget surplus of 2 billion dollars. Bad news for peak oil!

  11. Dismayed on Tue, 26th Jun 2012 10:50 pm 

    Wow, DC, how could you fit so much incorrect information into one post! The Euro is in trouble because the structure is fundamentally unsound. But you choose to blame your problem on the US. Suck it up and fix your own problems. Europe created their own housing bubbles without help from the US.

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