September 28, 2007
Declining Exports From Big Oil Exporters Expected

Economist Jeffrey Rubin sees higher oil prices in part due to rising demand in oil exporting countries.

CORK, IRELAND, Sept. 17 /CNW/ - CIBC (CM: TSX; NYSE) - Oil prices are likely to hit US$100 a barrel by the end of next year as soaring rates of domestic oil consumption in the world's leading oil producing nations cuts into their export capacity, forecasts the chief economist at CIBC World Markets.

Speaking at the 6th Annual Association for the Study of Peak Oil & Gas conference in Cork, Ireland, CIBC World Markets chief economist, Jeff Rubin told delegates that the export capacity of OPEC, Russia and Mexico will drop by 2.5 million barrels per day by the end of the decade.

"Domestic demand growth of as much as five per cent per year in key oil producing countries is already beginning to cannibalize exports and will increasingly do so in the future as production plateaus or declines in many of these countries," says Mr. Rubin. "OPEC members together with independent producers Russia and Mexico consume over 12 million barrels per day, surpassing Western Europe to become the second largest oil market in the world.

"At current rates of domestic consumption the future export capacity of OPEC, Russia and Mexico must be increasingly called into question. These trends are likely to result in a sharp escalation in world oil prices over the next few years."

He noted that while he expects today's US$80 barrel of oil will reach as high as US$100 a barrel by the end of 2008, consumers in many major oil producing countries pay nothing near the global price for crude. He finds that highly subsidized gasoline prices are often a significant factor in surging rates of domestic oil consumption. In many countries prices are as little as US$10 a barrel.

With exports from OPEC, Russia and Mexico expected to decline by seven per cent over the next three years, markets will seek greater reliance on higher cost unconventional deposits. He expects that Canadian oil sands will surpass deep water wells as the single largest source of new oil exports by decade end.

Governments of many big oil exporters sell petroleum products for a loss in domestic markets. They use lower prices to buy domestic support for their governments. So gasoline is cheaper in Venezuela, Iran, Saudi Arabia, and Russia than in the oil importing countries. As a result domestic demand for oil products is growing more rapidly in the oil exporting countries than in most of the rest of the world. This has hugely important implications. Oil exporters will reduce their oil exports years before their domestic production peaks. Also, once their domestic production peaks their oil exports will decline much more rapidly than their production.

Rubin sees Canada has holding over half the oil that private investors can bring into production.

NEW YORK, Sept. 27 /PRNewswire-FirstCall/ - CIBC - Six of the largest oil suppliers to the U.S. are poised to significantly cut exports by 2012, ramping up pressure on supply and price, and intensifying the focus on one of the last great deposits open to private investment: Canada's oil sands.

The forecasted cuts by Mexico, Saudi Arabia, Venezuela, Nigeria, Algeria and Russia are the subject of a keynote address that Jeff Rubin, chief market strategist and chief economist at CIBC World Markets will deliver at the firm's Industrial Conference Oct. 2 in New York City. In his remarks, Mr. Rubin will share his latest research on the global oil supply/demand balance, with specific focus on the size and scope of the oil supply crunch facing the U.S. over the next five years.

On the bright side, Americans can downshift to much smaller cars. Our profligacy makes it easier for us to adjust to oil shortages. We have that so much energy usage that is easy to curtail. If we were already all driving European sized small cars with diesels we wouldn't be able to downsize as easily as we can now.

This argument is similar to the argument made by The Oil Drum bloggers westexas (Jeffrey J. Brown) and khebab (Samuel Foucher). In a recent post they elaborate on their Export Land Model of how the big exporters will gradually stop exporting due to growing domestic demand coupled by stagnate or declining production.

The current top five net oil exporters--Saudi Arabia, Russia, Norway, Iran and the UAE--account for about half of world net oil exports. From 2000 to 2005, they showed a combined 3.7% per year increase in consumption.

From 2005 to 2006, their combined consumption showed an accelerating rate of increase, to +5.3% per year. From 2005 to 2006, the top five showed a net export decline rate of -3.3% per year. Based on year to date data, it is a near certainty that this net export decline rate will accelerate from 2006 to 2007.

Basically, khebab and westexas divide the world into Export Land (e.g. Saudi Arabia, Russia) and Import Land (e.g. the United States, European countries, Japan, China). They see the supply of oil for Import Land countries dwindling much more rapidly than the total world production of oil. While some dispute their time scales (e.g. when exactly will world oil production peak?) it is harder to dispute the logic for their argument. The exporters will cut their exports more rapidly than they cut domestic consumption and their domestic consumption will even continue to rise beyond the point in time when they start reducing exports. That's a big "ouch" for the rest of us.

As I see it the world is in a race between declines in oil exports on one hand and the development of non-oil methods do to things that we now do with oil. Most notably, we need non-oil ways to power transportation and cars in particular. When will workable batteries for cars become available? If the Export Land Model is correct then the answer to the battery question is enormously important.

Share |      Randall Parker, 2007 September 28 01:46 PM  Energy Fossil Fuels


Comments
Sumyung Guy said at September 28, 2007 6:37 PM:

Randall,

lithium-ion battery for plug-in hybrids that will cost $1,500

this bit of news is probably not news to you, but it may be a hopeful sign. This battery is probably just the 10 mile range, but even with that at least a PHEV could cut out a lot of waste that occurs when commuters are stuck in traffic not moving. MPG for an ICE that's just sitting stuck in traffic and idling...

And you're right about the waste as far as fuel burned. I see a LOT of folks around where I live now driving 15mpg SUV's and trucks. Commuting to work in those things, sometimes 30 miles one way. Gas gets to $5 per gallon, they can save a lot of the gas consumption by buying a used Toyota Corolla.

Randall Parker said at September 28, 2007 9:29 PM:

Sumyung Guy,

I can't evaluate the claims of some of these battery companies. However, with so many trying to solve this solvable problem and with such a huge market beckoning I figure some will succeed.

Since I expect oil prices will continue to rise the incentive to develop better batteries will continue to rise as well. I just can't figure out how big the disruption will be during the shift to battery-powered cars. Will they become ready soon enough to make the transition easy?

Even without the batteries in the United States we have to switch to small diesel cars ala Europe. Plus, motorcycles and scooters and bicycles and living closer to jobs.

Brett Bellmore said at September 29, 2007 5:05 AM:

And we need some reform of building codes, too; To a great extent, they're driven today by the need of local, property tax financed governments to force people to build expensive homes, and make small, energy efficient homes illegal to build. As well as protecting established builders from competition with new entrants using non-conventional construction techniques.

When I moved out on my own, I built a house three times the size of the one I'd grown up in, and not particularly efficient, either. This was the smallest house I was allowed to build in the area, and the size, combined with being forced to use conventional construction, did not leave me with the budget for energy efficiency.

Left to my own, the house would have been half the size, and used a tiny fraction of the energy.

Greg said at September 29, 2007 6:28 PM:

What is funny is that with oil at $100 per barrel, steam coal-fired locomotive becomes more cheap to operate than diesel locomotive, even if it is an old-fashioned piston steam engine, not a MUCH more efficient turbine. As to home heat, coal as energy source is equivalent to heating oil at $1.00 per gallon. Certainly, it is much less convenient, but given the price difference... some people might consider it.

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