Net Exports of Major Oil Exporters Likely to Fall

The table below (from this Oil Drum post), points out that global net exports of oil have been falling in 2006 and 2007.  That’s interesting, even dramatic, information because it seems to go a long way to explaining why oil prices have been rising.  It also validates a position Matt Simmons has taken that shrinking global inventories are primarily the way that the world has been adjusting to demand outrunning supply in recent years.  

Another interesting exercise is to look at the net exports of the “million barrel club” - those countries that export in excess of one million barrels per day - and divide them into those which can be expected to grow their exports in the coming couple of of years and those which are more likely to have shrinking exports.  I put the following countries in the “growth” category:

Saudi Arabia:  7923

Algeria:           1862

Angola:           1707

Libya:              1552

Iraq:                 1484

Khazakhstan:   1193

Canada:           1010

   Total:          16,731

 

In the “decline” camp (remember, this is exports, not production), I would put:

Russia:        7018

Norway:      2321

Iran:             2298

Kuwait:        2268

Nigeria:        2040 (recognizing it would be possible to reverse this estimate based on political changes)

Venezuela:   2024

Mexico:        1456

   Total:       19,425

Excluded are UAE and Qatar, both of which had increasing exports in 2006 and declining exports in 2007.  I assume their oil exports over the next couple of years will be about the same, although that might be optimistic.

This grouping of the 14 top exporting countries, which includes 75% of all oil exports, suggests that more oil exports come from countries likely to have declining exports in the future than from countries likely to increase them.  That suggests the likelihood that there will be continuing lower net exports available to supply oil importers in the coming years. 

Note that Saudi Arabia [KSA] is the key here, as it is generally considered to be.   KSA’s exports are expected (by me) to increase in 2008 and 2009 because of the two new fields with total peak estimated flows of 1.7 mb/d that they are bringing on stream this year and next.  If KSA were to begin to reduce their exports world oil supply would clearly fall very substantially behind demand.  KSA might well begin reducing exports some time after 2010 and could need to do so sooner if their Ghawar field were to go into decline.

Note also that oil exporters have a strong tendency to reduce their exports because their economies are enjoying huge financial gains from high oil prices and such gains are fueling substantial growth rates in many of these countries.  At the same time, most of them are relatively poor countries that have very low oil use per capita and the price of oil in these countries is generally kept low through government subsidies.  Thus, as these countries’ GDP grows rapidly, so does their internal use of oil.  That fact suggests that exporters which cannot grow their oil production rapidly - or choose not to do so - must reduce their exports to accommodate the growing oil needs of their own economies.

Comments

[Dean Plassaras]

Couple this with the notion of Peak Oil and the spectrum of yet higher prices is very real. Any comments on Peak Oil?

[Alan von Altendorf]

Another great post, Jim, but I'd put political risk very high on Algeria, Libya, and Iraq, depending on what happens to Iran.

[Karl F.]

- As the recent BP report stated, Opec cut sales in 2006 and 2007 to prevent a fall of the crude oil pirce below the $50 level. This is the most likely explanation for the above numbers.

- Matt Simmons peak oil theory is essentially based on 3 years of flat conventional crude oil production. We have seen at least 4 such phases in the last 30 years. All caused by production cuts to stabilize prices.

- Oil isn't just conventional crude oil. 14% of global oil consumption today is coming from non conventional sources. That percentage is expected to grow to 30% by 2015. So, the hypothesis that conventional crude production will remain flat doesn't really matter.

- The IEA says that global supply and global demand (speculative demand isn't singled out) is currently in balance at 86.8mb/d.

- Following the IEA, spare capacity is currently 2mb/d - twice as much as in 2005, when the price was much lower. That number is supposed to grow to 3.3 mb/d by the end of 2008 - If global demand growth projection in 2008 remains at 800 kb/d. It could be lower than that in light of the current price of oil. The IEA is recurrently scaling back its demand growth projection, but seems to remain behind the curve.

- Global proven reserves of conventional crude represent 42 years of consumption. That is not counting recent huge deepwater finds (US gulf, Atlantic), which could move the number closer to 50 years. Anyway, that is a record. The 100 year average has been 30-35 years.

- The highest marginal production costs of those reserves are attributed to the recent Brazilian deepwater discoveries. Petrobras says that it can make a profit if it can sell that oil above $30/barrel. Yes: 30, not 130!
In light of those numbers, the crude oil production capacity is only a function of the amount of investments in new capacities, nothing else. Current prices are way above marginal production costs of all the proven crude oil reserves.

- Not counting all the renewable energy opportunities, or the ever increasing potential of electric cars, the cost of producing high quality syncrude from other fossil fuels, available in huge quantities:
GtL (gas to liquid)15$/b-20$/b,
Ctl (coal to liquid): 30$/b (China), 45$/b-60$/b (US, including CO2 sequestration),
Oil sands 30$/b-45$/b
Shale Oil: 30$/b-50$/b

Investments in such technologies will be too profitable to ignore. China is already building and planning CtL capacities at a frightening pace.

By all accounts, neither short term nor long term, the current oil price is justified. Only financial speculators buy long term crude oil futures contracts at current prices.

[Robert Sczech]

Let's assume for the moment that we are not at peak oil yet and that the high oil prices are due excessive financial speculation in oil futures.

Let's assume further that peak oil will happen one day - that is a very reasonable assumption given that the earth can hold only a finite amount of oil.

Then we should be very grateful to the financial speculators since by artificially pushing prices up, they force us to lower our consumption of oil and in this way, direct our efforts to alternative forms of energy. In this way, when the true peak oil arrives (in 2030 by the most optimistic predictions), then we will be well prepared so that the transition to other forms of energy will be easy and relatively painless.

To sum, it would be foolish to prohibit speculation in energy futures. These speculators are in fact beneficial to our long term interest.

[jjhman]

I have trouble with the idea that speculation is an important part of today's high oil prices. Every day someone takes delivery of 86 million barrels of oil. No one is going to pay more for that oil, on that day, than it is worth to them. Long term contracts mean nothing regarding the oil being delivered next week.

One more thing. There is a lot more behind the facts of peak oil than Matt Simmons looking at three years of flat production. The only question about peak oil is when, not if.