December 09, 2007
New York Times Notices Oil Export Land Model Problem

When a tree falls in a forest where no human will hear it does it make any sounds? Yes, but some like to pretend no in order to make the point that without observers sounds might as well be absent. Well, previously I've highlighted work by Peak Oil theorists "Khebab" and "westexas" on how rapidly rising internal consumption is going to cut oil exports by big oil exporters. But the mainstream media hasn't paid much attention to this problem until now. So the writings of Peak Oil theorists have until now resembled trees falling in empty forests. Finally the trees are falling within earshot of people who matter. The New York Times has a story entitled Oil-Rich Nations Use More Energy, Cutting Exports:

The economies of many big oil-exporting countries are growing so fast that their need for energy within their borders is crimping how much they can sell abroad, adding new strains to the global oil market.

That crimping is going to get much worse.

Experts say the sharp growth, if it continues, means several of the world’s most important suppliers may need to start importing oil within a decade to power all the new cars, houses and businesses they are buying and creating with their oil wealth.

I like the "if it continues". Well, okay, we could get hit by a massive asteroid next year, wiping out the human race and ending the trend of domestic oil consumption growth by big oil producers. Or aliens might land and give us technology for making fusion energy workable for cheap. Or aliens might attack us and wipe us out. So the "if" part can be defended. But I think it safe to say those are pretty low probability events (and anyone with good outer space alien contacts please correct me in the comments).

We are effectively already at Peak Oil for the non-exporting countries. Think I'm just some crazy extreme loon nutjob? Well, maybe. But I've got the company of 7 NY Times reporters who contributed to their story:

Internal oil consumption by the five biggest oil exporters — Saudi Arabia, Russia, Norway, Iran and the United Arab Emirates — grew 5.9 percent in 2006 over 2005, according to government data. Exports declined more than 3 percent. By contrast, oil demand is essentially flat in the United States.

Cheap prices have been driving consumption increases in oil producing nations.

Saudis, Iranians and Iraqis pay 30 to 50 cents a gallon for gasoline. Venezuelans pay 7 cents, and demand is projected to rise as much as 10 percent this year.

Fatih Birol of the UN's International Energy Agency says between now and 2015 world oil production might increase 1.1 million barrels a day. That increase will get eaten up in producer countries while demand from India and China will grow by large amounts. The IEA is assuming 25 million barrels per day (mbd) of new production to offset declines of 23.9 mbd in existing fields. But that decline rate is probably optimistic. Some of the OPEC countries are hiding their real capabilities and painting an excessively rosy picture.

Oil consumption in the United States and other Western industrial countries will start declining before world oil production starts declining. Reduced exports by big producers will combine with increasing demand from India and China to push up oil prices and cut US, European, Austrialian, Canadian, and Japanese demand.

What should we do about it? Electrify everything. We do not face a shortage of fuels for generating electricity. To the extent that any activity can be shifted over to electrical power we need to find ways to do it. Liquid fuels are too valuable to be wasted on, for example, heating homes and commercial buildings. Oil for heating should be replaced with electrically driven ground source heat pumps which will actually lower the cost of heating. Vehicles that go shorter distances should be shifted to electric motors and battery power. We need better batteries to power vehicles for longer distances.

Update: Oil geologist Jeffrey "westexas" Brown was consulted by the NY Times writer who wrote their story.

Cliff and I had several conversations, but I am in no way taking any kind of credit for this story. This is his work, and I think that he did a very good job. I don't know what kind of discussions went on behind the scenes at the Times, but my guess is that trying to discuss the mathematical models of future exports was too complicated for an introductory article, and perhaps too scary.

My only real complaint is that I think that the MSM guys should reference the fact that Yergin's price and production projections have so far been way off the mark.

The NY Times should follow up with articles about expected rates of export decline for various oil producers.

Update II: Also see my post Wall Street Journal Takes Peak Oil Seriously. That's another sign that Peak Oil problems are entering mainstream discussion.

Update III: We need to build up nuclear plants and wind towers rapidly so that we can stop using natural gas and coal to generate electricity. This would free up the natural gas for fleet vehicle fuel and the coal to use to convert for liquids to power vehicles as well. This is not politically possible yet because Peak Oil is not yet an accepted event. Once it becomes accepted conventional wisdom remember that we need to reserve fossil fuels for transportation and plastics. Wasting them on heat and electric power generation is stupid.

Share |      Randall Parker, 2007 December 09 12:40 PM  Energy Fossil Fuels


Comments
Greg said at December 9, 2007 6:21 PM:

"Experts say the sharp growth, if it continues, means several of the world’s most important suppliers may need to start importing oil within a decade to power all the new cars, houses and businesses they are buying and creating with their oil wealth".

I'm just wondering: how these today's suppliers - and tomorrow's consumers are going to pay for oil imports? OK, Venezuela can do it with cocaine money. But what about Russia and Iran, or Saudi Arabia? What else do they produce that can be exported?

Randall Parker said at December 9, 2007 6:44 PM:

Greg,

They can experience rising export income and declining export volume of oil at the same time. Why? Rising prices.

Granted, at some point their export income starts declining eventually. So that might prevent some of them from totally halting exports. But countries with substantial economies separate from oil can stop exporting entirely. That's what the US, Britain, and many other countries did.

Just how far down their exports will go depends on how high oil prices can go. The higher oil prices go the more substitutes become usable for more things that oil gets used for. Also, higher prices suppresses economic activity in importing countries and therefore suppresses total energy demand.

Greg said at December 9, 2007 6:53 PM:

Oil prices cannot go much higher than they are now. I don't even think that current price level is sustainable, as substitutes are quite profitable now - and some of them are scalable (CTL, for example). It's only a matter of time for them to become produced on mass scale.

Mthson said at December 9, 2007 8:04 PM:

Venezuelans pay less than 2.5% of the gas prices in the U.S... that seems to be a pretty inefficient market distortion. It seems the masses of impoverished people in Venezuela could use other things more than they could use (comparatively) free gas.

odograph said at December 10, 2007 5:37 AM:

I think it would be nice if we could get ahead of the curve a bit on alternative energy (and conservation) but my feeling this morning is that it is "natural" that we are not.

We are slowly, at a human pace, moving from the mindset of an oil producing nation to that of an oil importing one. We don't have oil subsidies as high as in Venezuela or Iran, but neither to we have conservation measures as high as in Germany or Japan.

I think we are on our way to policies like those in the last two countries, but we have a lot of inertia to overcome. Some people fear that we'll never get there. They cite Jevons' paradox as a reason we "can't" reduce our consumption. I don't think the situation is that dire. Japan and Germany show that a net decrease in oil consumption is possible.

... it will still be some time before American society truly accepts that such changes are necessary.

auntulna said at December 10, 2007 6:32 AM:

Someday soon, I hope very soon, we will all be listening to our dynamo hum.

John Brothers said at December 10, 2007 7:31 AM:

I heard a segment on NPR that there's a company that will replace the engine in your car w/an electric engine for $7000 or less. No need to scrap your current car.

I found these guys, whose price is higher, but there's no reason this couldn't be a growth industry:
http://www.electroauto.com/catalog/price-pts.shtml


Assuming you get 15 mpg, and you drive 12000 miles per year, and afterwards you'll get 50 mpg...

right now you use 800 gallons, and afterwards you'll use 240, so you'll save 560.

At $3/gallon, that will net you ~1700/year
At $4/gallon, 2200
At $5, 2800
At $10, 5600

So at somewhere between 4 and 5, it becomes cost-effective to switch out, assuming a 3 year or 4 y ear desired payback. This is assuming the MPG is right. There are a lot of variables. The good news is that conversion is more "within reach" both technically, temporally and financially than it might seem otherwise.

k said at December 10, 2007 8:37 AM:

Why do you label oil as a fossil fuel? Hydrocarbons are not fossil fuels. For example, the space probe CASSINI found large hydrocarbon lakes on Titan. How is this possible, given the idea that hydrocarbons are formed by decaying fossils? Were there great lakes of algae on Titan, especially in the polar regions?

Something about Peak Oil theory smells really funny.

odograph said at December 10, 2007 9:32 AM:

k, you've just got things reversed a bit. Not all hydrocarbons are fossil fuels. But all fossil fuels are hydrocarbons.

Steve Funk said at December 10, 2007 10:11 AM:

Doesn't anyone remember the mini-lecture on the fallacy of extrapolation that one of your high school English teachers gave you? Trends do not continue indefinitely. Saudi Arabia can never go to zero exports because they they need to export at least 10% to pay the cost of getting oil out of the ground. They might wish to expand their oil consumption indefinitely, but they also need to eat, and Saudi Arabia is not self sufficient in food. In fact, they are not self sufficient in anything, since oil and petrochemicals are almost all they produce. This doesn't apply to countries with a varied economy such as Great Britain and Norway, but most of the current net oil exporters are third world countries with little else but oil going for them.

odograph said at December 10, 2007 10:58 AM:

I'm with you Steve. It seems like a lot of observers fall into a static world view, or a world on a fixed trajectory. I don't. My favorite metaphor is that history moves like a slime mold. By that I mean that it moves organically, and not in a direction that is obvious to the observer. We need time-lapse ;-)

When I said "it will still be some time" ... I kind of expected to see change, in time.

Brock said at December 10, 2007 1:45 PM:

Randall -

You need to be careful with those alien references. Otherwise some MSM reporter will source you as "blogger Randall Parkman, a Peak Oil proponent and occasional alien contact theorizer, says that ..."

You know I'm right. ;)

steam punk said at December 10, 2007 7:56 PM:

The problem with peak oil is is that its real and not real. The world is not going to end. Civilization will adapt. People will lose money. Others will make a fortune. It's hard to cut the meat from the nuts to mix some kind of metaphor. There is no nice and easy replacement for the SUV that drives 45 minutes to work every morning. But if you can take a scooter, moped, public transport, car pool, walk, blah, blah, blah things will be just fine. Her in the USA we don't need energy to make manufacture, except perhaps cement for export to China. So if you are in service biz, just put on another sweater and keep at it.

The big q is who will make money. First we look at the opposites - who is going to lose money.

Well the the big three (or how ever many) car makers are not to fast at adapting. I would suspect that a rival with a safe family friendly alt fuel vehicle could clean up in the next few years.

Home heating oil delivery (usually a mom and pop here in the NE) will be dead. Conversion to non-oil home heating will be HOT. Geo thermal is a nice bet. Who makes that stuff? Do they have a certification program for contractors?

It's no secret that Bio research takes big government money. Here's some news for readers of this blog - that's been drying up. The NIH has not been very generous lately and that spells bad news in general for the bio pharm industry.

On the plus side nuclear is gone hog wild. This is a heavily regulated area so no start ups and therefore no innovations. Not good for us go getters.

For the enterprising a scooter or moped biz might pick up. I was in Japan a few years ago and they had these cool three wheel scooters with covers for bad weather. Made by Honda. That's a dealership that will make money when the price of gas is up. How do you deliver a pizza? Get to work when it sleets?

This crap I've seen elsewhere (alter net maybe??) about no Internet, no TV, Learning to play the banjo for entertainment. Okay we know that's just some nut job. But could cinema make a comeback? The force against it is faster and faster DVD releases, but There is a segment of the population that will not have 42 inch plasma screens ( the price will not drop forever) that will go to movies with their favorite stars. I see this already in advertisements on public transport.

But where is the big growth? When the Internet came along it topple the giants. The change in energy will do the same thing. Who are the little guys that will benefit? That's what I am interested in.

Randall Parker said at December 10, 2007 8:32 PM:

Steve Funk,

The extrapolation doesn't have to go all the way to 0 exports for life to become very unfun. Just a cut of exports in half will make living standards go way down.

steam punk,

Yes, there will be winners and losers, more losers than winners.

Over the long haul the end of oil will matter little. Living standards will rebound as substitute technologies mature. But the transition period will cause a lot of wrenching readjustments.

Good ideas for go getters: I constantly watch for them. Some of the areas I can see taking off are handled by existing mega-corps that have many product lines including a few product lines whose sales will grow. I think the biggest ground source heat pump maker was bought by a much larger corp. Is there a good pure stock play in ground source heat pumps?

John Brothers,

What I really want to know: How fast will the electric car technologies advance and lower costs? Cheap batteries for cars would make the transition a lot easier to get thru.

Tom said at December 14, 2007 3:35 AM:

Steve - I think you're right, but you may be understating the case. "Exportland" has two forces to balances when deciding how much of their oil to pump: The amount they can get from selling it abroad, vs. the temporary stability they can get by selling it domestically at a sub-market price. Currently, they take an opportunity cost hit of $90 or so a barrel to sell it domestically. As the domestic demand rises, so does that opportunity cost. Eventually, "the powers that be" are going to decide that the current level of subsidy is unsustainable if they want to keep their export economy going, at which point they'll cut some or all of the subsidy. And, of course, when the price goes up in exportland, demand will fall (and riots ensue) in exportland, and exports to us will rise.

cancer_man said at December 14, 2007 6:27 AM:

Randall and some others really are missing two key points everytime there is a post on something peak oil related,

New technology drives new discoveries (Brazil last month) and more renewables so that oil will be needed less in the not so long run. There will never be "wrenching adjustments"

Peak oil is a myth spread by people who don't understand technology, economics or both.

Randall Parker said at December 15, 2007 9:32 AM:

cancer_man,

The problem is that high prices, yes, do provide a big incentive for innovation. But in spite of those high prices we are still experiencing rising energy prices and rising general commodity prices. Incentives do not always work fast enough when the rate of change of some condition is high. Some technological innovations take many years.

Technological understanding: I've worked in technological research projects that were started a couple of decades before I joined. I've watched very high IQ people try to solve all the problems that were standing in the way of using some new technology. Look at all the minds who have fought cancer. That's a hard hard problem. There are huge amounts of money to be made. But it still isn't solved. Necessity isn't always instantly the mother of invention - or at least not enough invention to come up with the final solution quickly.

Brazil: You are the one who lacks understanding. Their Tupi discovery is about 8 billion barrels or 91 days at current world consumption rates. If their Sugar Loaf (another newly reported field) really has 21 billion barrels (and that's an optimistic guess at this point) then add another 247 days. Still not a whole year's worth of world supply at current consumption rates (and demand rises as Asian industrializes) and in most years fields as big as Tupi and Sugar Loaf are no longer found. That's the problem. The rate of discovery has fallen well behind the rate of consumption and this condition has been the case for a couple of decades now.

I report on lots of energy technology innovations. I think in the long run we will not have an energy problem as solar photovoltaics become cheap (Nanosolar might solve it) and nuclear becomes cheaper. But in the short to medium run we most certainly have worsening energy problems, especially for transportation.

cancer_man said at December 15, 2007 9:23 PM:

Randall, responding to youur points in order:

The problem is that high prices, yes, do provide a big incentive for innovation. But in spite of those high prices we are still experiencing rising energy prices and rising general commodity prices. Incentives do not always work fast enough when the rate of change of some condition is high. Some technological innovations take many years.
-----
But all economies keep growing strongly despite $90/barrel oil. The U.S., Japan and Europe have all grown even more quickly during the 2004 to 2007 oil increase. China and India haven't slowed down a bit. These higher prices are also open up more tar sand areas while ultra deep drilling is very new.

In 1920, the U.S. Geological Survey stated that the world only had 60 billion barrels of oil left.
In 1950, geologists estimated that the world had 600 billion barrels of oil.
In 1970, scientists estimated that the world had 1,500 billion barrels of oil.
In 1994, the U.S. Geological Survey estimated that the world had 2,400 billion barrels of oil.
In 2000, the U.S. Geological Survey estimated that the world had 3,000 billion barrels of oil

see a pattern here?
------------------------
Technological understanding: I've worked in technological research projects that were started a couple of decades before I joined. I've watched very high IQ people try to solve all the problems that were standing in the way of using some new technology. Look at all the minds who have fought cancer. That's a hard hard problem. There are huge amounts of money to be made. But it still isn't solved. Necessity isn't always instantly the mother of invention - or at least not enough invention to come up with the final solution quickly.
-----------------------
I doubt there is a final solution, but several which keep improving as computer power increases exponentially.
Some lternative energies have become exponentially cheaper, like solar, as you mention.

----------
Brazil: You are the one who lacks understanding..... The rate of discovery has fallen well behind the rate of consumption and this condition has been the case for a couple of decades now.
-----------

I am aware of how many days of the world's supply the new finds represent. But there was the Gulf of Mexico find last year, and ultra deep drilling has only been around a few years.

Like I said, peak oil is believed by those who either don't get the economics or changing technology. Usually both.

Randall Parker said at December 15, 2007 10:10 PM:

cancer_man,

The US economy is slowing. The economy is not immune to rising costs of inputs. At an annualized rate the producer price index was up over 7 percent last month. The effects of the last 6 months of big price increases take some time to play out. That's happening.

What the USGS said when they knew far less and the world was much less explored is not relevant. As for today's USGS estimates: They are uncritically accepting the reserve claims made by Saudi Arabia and other OPEC members. Those OPEC members started systematically lying about their estimates in the 1980s in order to win bigger quotas inside of OPEC to export oil.

Regarding the Jack-2 discovery in the Gulf of Mexico: The estimate of as much as 3 to 15 billion barrels applies to the entire Lower Tertiary and not just to the Jack-2 area. The amount has not been proved as yet. But even if we take the upper estimate we are still at less than a half year of current world oil consumption.

You are simply asserting that peak oil is believed by those who don't get the economics or the technology. But the people who are making these claims know both far better than you do. ConocoPhilips CEO James Mulva says the world will never see an oil production rate above 100 million barrels a day. So does Christophe de Margerite, CEO of the French oil company Total. The International Energy Agency's chief economist, Fatih Birol, expects flat oil production between now and 2015. If all projects in the pipeline come thru on schedule and if the claims of the Saudis that they are not peaking in Ghawar are believed then Birol expects 1.1 million net increase in world production by 2015. That's the optimistic scenario.

The problem with your argument is that the rate of discovery is still running well below the rate of consumption. This has been the case for a couple of decades. The Jack-2, Tupi, and Sugar Loaf discoveries do not change this. Also, the OPEC reserve estimates are not credible. Matthew Simmons has demonstrated why we can't believe those estimates. You can read extremely skilled people on the problems with Ghawar (and also here). You can read petroleum engineers, oil field geologists, oil industry physicists, and the like on the problem. Jeffrey Brown who I mention above runs a drilling partnership and he has engineering training in what he does. His co-author for some of his analyses is a Ph.D. physicist. And yet you claim the Peak Oil crowd lacks business or technological knowledge. Um, no.

Also on Brazil: The Brazilians have been working for years to get at Tupi. They had to develop the tech to do so first. But they didn't just discover Tupi. That's the problem. If the tech was letting them discover fields brand new we'd be in better shape and I could see reason for optimism. But you are determined to persist in your optimism about the prospects for more oil production I would suggest look at Saskatchewan. Maybe it has 3 years of world oil production. Then again, maybe not too.

Post a comment
Comments:
Name (not anon or anonymous):
Email Address:
URL:
Remember info?

                       
Go Read More Posts On FuturePundit
Site Traffic Info
The contents of this site are copyright ©