Sunday, April 10, 2011

Estimating the End of Global Petroleum Exports Part 1 Introduction and Method

I and others have made the fairly safe, and perhaps too obvious, prediction that the effects of an end in global petroleum exports will likely happen much more sooner, and, have a much greater impact than peak oil itself.  

The economies of all developed countries in the world are highly dependent on the readily available “liquid energy” that petroleum provides.  Most developed countries import far more oil than they actually produce domestically.  Consequently, all facets of modern life:  transportation, agriculture, manufactured good (plastics), pharmaceuticals and other medical products, high technology goods, are heavily dependent upon this continued flow of petroleum imports.   I believe that what happens to global petroleum exports will strongly affect the economies of all countries of the world, but especially the economies of the heavy importers, and, your standard of living.  

In a previous series, I performed an export land model analysis for the USA which considered the petroleum export trends of the top ten exporting countries to the USA.   I estimated this to amount to about 57% of the total world supply of exportable oil (as discussed in part 3 of the series). 

In the present series, I have expanded my analysis to consider petroleum production and consumption trends for the entire world to quantify the regional global pool of exports and to predict how this will change over time.

Just to save some people the time, here’s the “tweet: version of my analysis which I will lay out in several parts over the coming days:

My modeling for 7 regions of the world predicts that net global exports
end in about 2030 or 2035, depending on the assumptions I make.

Okay, if there is anyone left whose attention span lasts longer than 140 characters, I’ll explain my methods, reasoning and the implications of my findings over the next few posts.

Data Sources and Data Analysis Methods

As in past articles, all production, consumption and export rates (dQ/dt) are reported in units of billions of barrels per year (bbs/yr).  I used the production and consumption data (production minus domestic consumption) to calculate a “reported” net exports (or imports).

I relied on the petroleum production and consumption data from the BP Statistical Review.   I have ranted previously about the limitations of the publically available data sources.  The BP data set has the advantage of presenting data from 1965-2009, but, it only presents production and consumption data for selected countries, and the production and consumption data often are not for the same countries.  

However, at least the BP data set consistently reports production and consumption data for six global regions: the Middle East (ME), Africa (AF), North America (NA), South America (SA), Asia-Pacific (AP), and a sixth region called, “Europe-Eurasia” (E-E), which BP defines as "all countries listed above under the headings Europe and the Former Soviet Union".  To me the E-E region doesn’t make much sense, as this is a collection of very diverse countries with very different economic and petroleum production and consumption histories.  So, I elected to split E-E into two more historically coherent groups: the Former Soviet Union (FS), which is also presented in the BP data set, and Europe (EU), which I calculated as E-E minus FS (e.g., EUproduction = E-Eproduction - FSproduction). 

I fit a logistic model (often referred to as the Hubbert Equation) to the petroleum consumption and production data reported for each of these seven regions (ME, AF, NA, SA, AP, FS, EU).  I used non-linear least squares (NLLS) analysis to obtain the best fit of the logistic equation to these data. I have talked about the details of this type modeling at length in past posts on this blog, and I refer the interested reader to the series: Refining the peak oil rosy scenario for further details.  

As you will see in future posts, for almost all of these regions, to improve the fit, and hopefully the predictability, I often fitted two or more Hubbert Equations to separate time spans of the production or consumption date sets.  Finally, I estimated the future export (or import) trends as the predicted production rate minus the predicted consumption rate for each of these regions.  

My Regionalism and Fungibility Assumptions

There are two assumptions inherent in my model that I want to note up front.  

1) Regionalism assumption: This analysis estimates net exports for several continent-sized regions.  This means that for each of these regions, the internal consumption needs for the region are assumed to be entirely met by internal production within the region before there are any net exports outside of the region.

2) Fungibility Assumption: If there are net positive exports for a region, this analysis assumes that that this portion of exportable petroleum is distributed to the other regions with complete fungibility.   

I realize that this is not exactly how petroleum is circulated in the real world.  For various reasons of refining capabilities, logistical considerations and political reasons, some countries export their oil to other countries that are far outside of their particular geographical region, and countries next door to them, in turn, import oil from other countries far away (think of the consequences of past bans on importing Libyan and Iranian oil).  Other countries might simultaneously export oil to the country next door, and import oil from other countries that are far away (Canada is my favorite example of this). 

Nevertheless, I do think that the regionalism assumption is reasonable, because in general, it should be less expensive to ship oil to the country within a continental region than elsewhere.  Actually, I think that this will be a growing trend, to promote regional political and social stability as exports from outside of a region dry up and become unaffordable.  For example, consider the countries surrounding Saudi Arabia in the ME that are rapidly headed to ex-exporter status: Bahrain, Oman, Syria, and Yemen.  It will be in the best interests of Saudi Arabia and the remaining oil major exporters of the ME to supply these countries with their needed difference in petroleum, to maintain local political stability.  For example, Venezuela already sells its oils at a discount rate to some of its neighbors in Latin America (Latin America's New Petro-Politics).  For example, (not withstanding the NAFTA violation) think of the problems that Canada would face if it choose to export its oil to other countries, and the USA, was unable make up for this in the export global market.  Think of the problems that the USA will face, if Mexico becomes an ex-exporter and it can’t afford to import its oil.  The USA and Canada exporting oil to Mexico? Yes I do think that this is possible.  We shall see soon enough, as Mexico seems to be rapidly headed to net zero exports.  

I also think that the fungibility assumption is reasonable because, despite various bans in the past and present, a valuable commodity like oil will eventually find a buyer.  For example, US and EU sanctions against buying Iranian oil doesn’t stop China and Malaysia from filling in the gap (Is the U.S. Bullying Europe into Cutting Ties with Iran?).  Of course, the oil that China and Malaysia would have bought from non-Iranian export sources get bought by someone else and the ban has little impact on Iran.  That's fungibility.

Okay that’s enough for today, next time I will start to present the results of my analysis of the regional production, consumption and export trends.

1 comment:

  1. This is going to be ugly, but can't wait.



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