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Page added on February 21, 2011

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Egypt, a Classic Case of Rapid Net-Export Decline and a Look at Global Net Exports

Production

In a recent guest column, “Peak Oil Versus Peak Exports,” we discussed the dramatic differences between simple post-peak oil-production declines, e.g., Texas and the North Sea, and net export declines, e.g., the UK and Indonesia, as illustrated in the “Export Land” Model (ELM), a simple mathematical model.

Based on the ELM, we have concluded that given a production decline in an oil-exporting country, the Net Export Decline (NED) rate will exceed the production-decline rate and the NED rate will accelerate with time – unless the exporting country cuts its oil consumption at the same rate as, or at a faster rate than, the rate of decline in production. Furthermore, the bulk of post-peak Cumulative Net Exports (CNE) tends to be shipped early in the NED period.

After hitting a production peak in 1995, Egypt became a classic case of a rapid NED, as its NED rate exceeded its production-decline rate and accelerated with time. Furthermore, only four years into this NED, Egypt had shipped more than 50 percent of its post-peak CNE.

The BP database shows negligible Egyptian net oil exports for 2009, and Egypt probably approached zero net oil exports in 2010, or it became a net oil importer. The EIA database shows that Egypt in 2009 was already a net importer. Note that while Egypt’s total petroleum-liquids production in 2009 was only down by 20 percent versus the 1995 rate, this production decline combined with increasing consumption to result in a 95-percent NED from 1995-2009, according to BP. Most oil analysts would probably focus on the 20-percent production decline while remaining largely oblivious to the 95-percent NED.

This table shows key production, consumption, and net-export metrics for the ELM as well as for three case histories: Indonesia, the UK, and Egypt.

The ELM shows that a 35-percent decline in production plus rising consumption results in net oil exports going to zero in nine years, as the Consumption to Production ratio (C/P) goes from 50 percent at the final production peak to 100 percent nine years later. Furthermore, 60 percent of post-peak CNE was shipped three years into the nine-year NED period.

We saw similar results in Indonesia and the UK, as they went to zero net oil exports nine and six years respectively after their (apparent) final production peaks.

Besides the aforementioned declines for Egypt, which probably approached zero net exports in 2010, 54 percent of its post-peak CNE was shipped only four years into the 15-year NED period.

So how do this model and the case histories relate to global net oil exports (GNE)?

This table shows key production, consumption, and net-export metrics for exporters with 100,000 bpd or more of net exports in 2005, which accounts for more than 99 percent of total GNE. Also shown are net import data for Chindia, which is China plus India.

The only real difference between the ELM (and the three case histories) discussed above and total GNE is the lower Consumption to Production ratio (C/P) for GNE. Note that the lower the C/P ratio at a final production peak, the slower the NED rate will be, for a given production-decline rate.

It’s difficult to do detailed modeling on GNE, but in many cases we can get a useful estimate of post-peak CNE for a region by extrapolating the rate of increase in the C/P ratio. If we extrapolate the 2005-2009 rate of increase in

the C/P ratio for GNE, it suggests that post-2005 global CNE are on the order of about 420 Billion Barrels (Gb). This is of course only a rough approximation, but consider that just from 2006 to 2009 inclusive, world importers consumed 65 Gb of CNE, which is 15 percent of projected global post-2005 CNE.

However, a key question is, how are post-2005 CNE going to be distributed? Note that in four years Chindia’s net oil imports as a percentage of GNE rose from 11.3 percent to 17.1. If we extrapolate this rate of increase, it suggests that Chindia will be consuming 100 percent of GNE around 2025.

While we can all agree that something will change, and Chindia will not be consuming 100 percent of GNE in 2025, it appears likely only a question of what the long-term rate of increase is going to be for Chindia’s net oil imports.

In any case, for purposes of illustration it’s useful to carry out the Chindia extrapolation to its logical conclusion. If we define Available Net Exports as the volume of net exported oil not consumed by Chindia, then the estimated post-2005 total volume of Available CNE will only be about 150 Gb; and in 2006 to 2009 inclusive, non-Chindia importers have consumed about 56 Gb, or one-third of projected post-2005 Available CNE.

Our view is that there are two real questions: the long-term rate of change in GNE; and, more important to developed OECD countries, the long-term rate of change in Available Net Exports. In both cases we think that the long-term trend line is down; and that Egypt, as well as many other countries, serves as clear warning of where we are headed. Furthermore we believe that we are currently maintaining something close to Business As Usual, only because of a very high rate of depletion in post-2005 global CNE, especially in Available CNE.

Consider the first 15 minutes after the Titanic hit the iceberg versus the last 15 minutes before the ship sank. In the first 15 minutes, only a handful of people knew that ship would sink, but that did not mean that the ship was not sinking. In the last 15 minutes, it was readily apparent to everyone that the ship was sinking, but by then it was far too late to try to get to a lifeboat.

ASPO-USA



One Comment on "Egypt, a Classic Case of Rapid Net-Export Decline and a Look at Global Net Exports"

  1. Brent Korsa on Wed, 23rd Feb 2011 7:10 am 

    Fascinating topic.I am interested in your analysis with regard to Mexico.If the same equation applies Mexico’s oil exporting days may end sooner than I had previously estimated.Millions of middle and lower income Mexicans will be further marginalized by the large price increase in many food staples and by the severe government austerity that will follow plunging revenues coupled with higher borrowing costs due to a further credit downrade.Seems like a severe downward spiral which will force many more people on a northern survival trek.

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