Friday, May 4, 2012

Part 8: Inter-Regional Trade Movements of Petroleum to and from the former Soviet Union Region

In Part 6 we saw how petroleum imports from the Middle East (ME) to the European Region (EU) have gone down over the last decade with the difference being made up from exports from the former Soviet Union Countries (FS), and, in Part 7 we saw that the ME’s exports were shifting away from North America (NA) and EU to Asia, particularly China (CH), and other Asian countries (rAP), with declining exports to Japan (JP) and other regions as well.

Now it’s time to look at the FS directly.  As you will, see the petroleum trade between EU and FS is a co-dependency relationship, but this may be changing soon. 

Part 1, introduced the abbreviations, definitions, data bases and analysis methods used here. 

The former Soviet Union's Total Petroleum and Crude Oil Production and Consumption Rate Trends
Figure 1 presents FS’s total petroleum consumption rate (i.e., both domestic and imported petroleum) since 1980 as reported by the EIA or BP review (solid red circles and squares, respectively). 

Both the EIA and BP data set illustrate fairly stable consumption rate of 3 to 3.3 bby for a decade-long period during the 80’s.  Then after 1991, consumption collapsed, coincident with the dissolution of the Soviet Union in late 1991.  And then, consumption never came back—for instance, after hitting a minimum of 1.35 bby in 1999, consumption by 2010 was up to 1.5 bby, but that is still half of what consumption was in the 1980’s.

Figure 2 shows FS's total petroleum production rate (i.e., the entire region’s domestic production, solid blue circles and squares for EIA and BP data, respectively) and crude oil production (solid purple circles). 

In the 1980s, petroleum production, mostly crude oil, was about 4.4 to 4.6 bby, make FS a net petroleum exporter.  But similar to the consumption story shown in Figure 1, production dropped dramatically after about 1990, reaching a minimum of 2.6 bby 1996.  It took another decade until 2007 before production return to the Soviet-era production rate of 4.6 bby.  There are some signs that the rate of increase in the production rate is starting to plateau.  Indeed, in a previous Hubbert Equation analysis of these data over a year ago the best fit predicted that production would peak in 2012 at about 5 bbs/yr.  We will know in a few years time, I suppose.

What has made the FS a large and growing exporter over the past decade is that, after both consumption and production bottomed out in the mid-90s, the FS’s production rate recovered to its Soviet-era rate but its consumption rate did not.  Let’s look at those import and export trends more closely.

The former Soviet Union's Gross and Inter-regional Export and Import Rate Trends
Figure 1 also shows FS's gross and inter-regional imports of total petroleum, crude oil and petroleum products.  The EIA's import data (open circles) only runs from 1984 to 2008, while the BP review's import data (open squares) only runs from 2000 to 2010.  The same applies to the export data in Figure 2.

As illustrated in Figure 1, during the pre-dissolution Soviet era, petroleum imports, of any kind, were very small.  Even gross imports (open red circles) totaled only 00.9 to 0.14 bby prior to 1991.  But by 1992, there was a huge spike in gross imports, up to 0.92 bby.  It took several years for imports to go back down to 0.34 in 2000, and more recently, gross imports have gone up to about 0.5 bby.

For the last decade, at least, the portion of these petroleum imports that are from inter-regional sources (open red squares) is very small, less than 0.1 bby.

As illustrated in Figure 2, during the past several years, the FS’s gross (open blue circles) and  inter-regional exports (open blue squares) have dramatically increased, however.  For instance, inter-regional exports of petroleum increased from 1.56 bby in 2000 to 3.3 in 2009, although this is down slightly to 3.1 in 2010.  That is still about a doubling of inter-regional exports over the past decade. 

Figure 3 shows FS's total petroleum, crude oil and petroleum product imports relative to the respective gross and inter-regional global petroleum import pools. 

Prior to dissolution, the Soviet Union's gross imports (red circles), which includes intra-regional trade, only amounted to about 1 percent of the global petroleum import pool.  Immediately after the dissolution, in 1992, gross imports spiked up, to nearly 6 percent of the global import pool, before dropping down to below two percent in 1999.  These gross imports were mainly crude oil imports (brown circles) although there was also a spike in petroleum product imports (green circles).  The gross imports of the FS remained above 2 percent from 2001 to the last reporting year, 2008.

The FS's inter-regional imports (red squares) has been a fairly steady 0.3 to  0.2 percent of the inter-regional global import pool, and these inter-regional imports are almost totally petroleum product imports (green squares).

Figure 4 shows FS's exports relative to the respective total gross and inter-regional global petroleum export pools, which, of course, is about the same size as the global import pool.  

Note the three times larger vertical scale of Figure 4 compared to Figure 3, signifying the FS’s important role as a major petroleum exporting region. 

Figure 4 shows that FS's gross export troughed in 1992, spiked up in 1993, and then declined to a trough of about 8-9 percent of the global pool for several years in late 90s before really taking off over the last decade.  This increase is mainly due to inter-regional exports (blue squares) and specifically crude oil (brown squares).  In 2009, FS supplied nearly 20 percent of the inter-regional export pool, 15 percent of that being crude oil and the remaining 5 percent being products. 

This is still far less than the 41 percent of global inter-regional exports that came from the ME in 2010, but still, it has been the FS that is responsible for much of the increase in the global inter-regional export pool over the last decade, because ME's absolute exports have been flat during this period (see Part 7)

Former Soviet Unions Intra-regional Export and Import Trends
The difference between the gross and inter-regional imports or exports, shown in Figures 1 and 2, respectively, should correspond to intra-regional trade movements of petroleum.   For the reasons presented in Part 3, I think that these differences are only rough estimates of intra-regional imports and exports.  But still, I continue to show the differences because they illustrate the intra-regional trends for each region. 

Figure 5 shows the differences between the gross and inter-regional total, crude oils and petroleum product imports, which should equal the intra-regional import values for these quantities. 

The difference between gross and inter-regional total petroleum imports (red triangles 0.3-0.5 bby) is larger than the inter-regional imports (less than 0.1 bby; Figure 1: open red squares), suggesting more intra-regional imports than inter-regional imports.  I can't speculate where these intra-regional imports are going to or from within the FS, but, they appear to be mainly crude oil imports (brown triangles) probably for refining into products.

Figure 6 shows the differences between the gross and inter-regional total, crude oil and petroleum product exports, which should equal the intra-regional export values for these quantities. 

Figure 6 shows the same trends as in Figure 5, but with the usual broader fluctuations—intraregional exports (blue triangles) in the range of 0.3 to 0.8 bby.

Trade movements of total petroleum between the Former Soviet Union region and other regions
Figure 7 was intended to show the specific quantities of petroleum, in units of bby, imported by FS FROM each of the eight other regions, and also shows the sum of FS's total inter-regional petroleum imports from all eight of the other regions (black "Xs"), which is the same as presented in Figure 1 (red open squares).

However, like the ME, there really are no substantial inter-regional imports that the BP review’s data base captures at level of individual regional level.  Indeed, the FS’s total imports, ranging from 0.04 to 0.05 bby over the past 10 years, is only about half of the ME’s total imports. 

Figure 8 shows petroleum exports from FS TO each of the eight other regions and again, for reference, I show FS’s total exports (black “Xs” corresponding to the blue squares in Figure 2).  Again note the much larger vertical scale as compared to Figure 7, illustrating the FS’s role as a large net exporter of petroleum. In essence, because its imports are so low, Figure 8 corresponds to the FS’s net exports and total exports.

The black X’s in the figure illustrate the strong upwards trend in FS’s total exports over the last decade.  The figure also illustrates that a large portion of those inter-regional exports have been going to the EU region (blue squares).  For instance, in 2000, of the total exports of 1.56 bby, 1.21 bby or 78 percent went to EU. In 2010, of the 3.12 bby in total exports, 2.18 bby or 70% went to EU. 

I think that you can get the sense from Figure 8, however, that there is a trend for FS's exports to diversify away from EU to other regions.  That is, the proportion of the FS’s exports to EU has been going down slightly over the last several years in favor of several other regions. 

The other regions that have been getting larger amounts of the FS’s exports include: NA (0.29 bby in 2010, up from 0.02 bby in 2000), CH (0.25 bby in 2010, up from 0.04 bby in 2000), rAP (0.20 bby in 2010, up from 0.05 bby in 2000) and JP (0.11 bby in 2010 uo from less than 0.01 bby in 2000).  Still the total exports to these four other regions only amounted to 0.85 bby or 27 percent of FS’s total exports in 2010. 

Figures 9 and 10 present the same data as shown in Figures 7 and 8, respectively, but expressing FS's petroleum imports or exports, to or from each of the eight other regions, as percentages of the total global inter-regional petroleum import/export pool (global inter-regional imports and exports are the same).  For reference, I also show FS’s petroleum imports and exports as percentages of the global petroleum import/export pool (“Xs” right vertical axis; note the different scale).

Additionally, I have taken all of these data and made linear extrapolations of the 2000 to 2010 data (via linear regression analysis) out to 2021. 

Figure 9, like Figure 7, is not much of a story, because imports from the other eight individual regions are not reported in the BP reviews.  There really is no trend for the FS’s total inter-regional imports to be increasing or decreasing based on the last 10 year’s worth of data reported in the BP reviews  (r2=0.001).

Figure 10 shows the decade long trend for the FS’s total exports to be increasing (r2=0.94), a large portion of this being increased exports to EU (r2=0.78).

 The relative exports to all of the other regions are relatively smaller, therefore, to better illustrate these trends, in Figure 10a, I expanded the vertical scale of the same data shown in Figure 10.

As Figure 10a illustrates there are similar strong trends for increasing exports to NA (r2=0.94), CH (r2=0.93) and JP (r2=0.81).  There is a weaker trend for increasing export to rAP (r2=0.35). 

Figure 10a also shows two negative trends of decreasing exports to SA (r2=0.81), and to the infamous UN (r2=0.61).  As I discussed in Part 6, “UN” is defined in the BP review as “Unidentified,” and this includes “changes in the quantity of oil in transit, movements not otherwise shown, unidentified military use etc.”  Where ever this quantity of petroleum has been going to, from the FS, the trend is for this to be going down over the last decade (e.g., 0.17 bby in 2000 to 0.06 bby in 2010).  Maybe this decline just signifies an improvement in BP’s ability to account for the quantities of petroleum being exported around the world, but, that is just speculation on my part. 

Figures 11 and 12 show these percentage changes in FS's import sources and export destinations, respectively, as a percentage of the FS's total exports or imports in the years 2000 and 2010, and, as predicted in 2021, from the linear regression trend lines shown in Figures 9 and 10.

Again there is essentially no regional story in Figure 11, because the FS's imports of petroleum from the individual other eight regions is negligibly small.

As you can see in Figure 12, exports to EU as a percentage of FS's total exports have been fairly steady at about 75 percent of FS total exports. 

That is, from the perspective of the FS, its proportion of exports to EU have stayed constant, even though the absolute amount of petroleum being exported has gone up (e.g., Figure 2, open blue circles).  However as discussed in Part 6 from the EU region's perspective the proportion of petroleum from FS have gone up as the ME's exports to EU have gone down.    For instance, as discussed in Part 6 by 2021 when EU may no longer be receiving any the ME's petroleum exports (see also Part 7, Figure 10), the EU region would be receiving about 77 percent of its imports from FS.

Figure 12 also illustrates the trends for increase exports to NA, CH, rRAP and JP and declining exports to SA and UN, although all of these individual inter-regional exports compared to EU are quite small.  Still the trend is ther for increases to NA, rAP, CH and JP.

Summary and Conclusions
Although the analogy is not perfect, the relationship between the former Soviet Union region and the European Region reminds me of the relationship between Canada and the USA. 

Both Canada and the former Soviet Union region are large geographic areas with relatively low populations and net exporters of most their petroleum to one regional destination. 

Using EIA data, I estimated a few years ago that Canada exports about 75 percent, and increasing, of its petroleum production to the USA, which is about the same percentage of petroleum production that the former Soviet Union exports to the Europe (Figure 12).  So, just as Canada is the USA's major petroleum import source, so too does the former Soviet Union serve Europe's major petroleum import source.  The analogy tends to break down, however, when you compare the larger import trends for Canada as compared to the former Soviet Union.  The latter's total global imports (0.04 bby) only amounted to about 2.5% of its total consumption in 2010 (Figure 1).

Nevertheless, just as Europe is dependent on the former Soviet Union region for its oil, so to is the former Soviet Union region depends on Europe as its export destination.  And just as Canada wants to diversify its export destinations away from the USA, so too would the former Soviet Union region benefit by diversifying its export destinations away from Europe.   There has been much talk and debate about Canada's desire to build the Keystone XL pipeline and Gulf Coast Pipelines so that Canada could deliver its oil to the Gulf Coast where it could, turn export to Europe and South America, or, the Enbridge Northern Gateway pipeline so that Canada could deliver oil to Asia. 

But, in contrast to Canada's talk and debate, actual pipelines have been built, and are being built, to deliver increasing amount of oil from the former Soviet Union region to China, Japan and other Asian destinations. 

For instance, after resolving a number of border disputes between China and several former Soviet Union countries, a pipeline between Kazakhstan and China was completed in 2005, and is now carrying 2 mbd (0.73 bby) with an expected doubling in capacity in 2012 (see e.g., A new silk route to China).  Construction of the Russian Eastern Siberian-Pacific pipeline is underway and expected to deliver 3.6 mbd (1.3 bby) by 2016, and 6 mbd (2.1 bby) by 2025, to China, Japan and other Asia-Pacific countries.  China is also trying to lock-in a long term contract with Russia to import all 30 million Tonnes per year (4 mbd or 1.5 bby) of oil shipped through the Eastern Siberia Pacific Ocean pipeline.  Previously, about 60 percent of that oil has been exported to Japan, South Korea and North America.  But there is no guarentee of that continuing in the future. 

If all of the planned contracts and pipelines come to fruition, then they will potentially deliver increased quantities of up to 2-3 billion barrels per year from the former Soviet Union region to China, Japan and remaining Asia-Pacific region.  And, from Figure 2, it is clear that the former Soviet Union region's total yearly inter-regional exports for the past fours years have only been only slightly above 3 billion barrels per year, and that these are all-time export highs.  This implies that the mechanism will be in place for the majority of the former Soviet Union's petroleum exports to shift from Europe to Asia, if that is what was more profitable. 

Plus, I don't expect the former Soviet Union's production rates to increase by very much in the coming years. Indeed, the trend in Figure 2 is that production rates are starting to top out (solid blue circles).  Nor do I expect a decrease in regional consumption—rather, the domestic consumption trend shown in Figure 1 show a slow but steady increase in consumption rates (solid red circles). 

So, unless there is a dramatic turn around in these regional trends, something will have to give in the export trends shown in Figures 10 and 10a.  In my opinion, the trend looks clear: those new pipelines to Asia are going to get used.  And, that means that exports to Europe will decline in favor of increased exports to Asia. 

It is interesting to contemplate what consequences will this have for Europe. 

Even if I just assume that the linear trends of increasing exports to China, Japan and the remaining Asia Pacific continue, and, that the former Soviet Union, Middle East and Africa all somehow maintain their same production levels, then by 2021, a total of 0.9 bby of petroleum exports would be exported from the former Soviet Union region to these Asian destinations—an amount that is up from 0.56 in 2010.  As discussed above, I expect the bulk of this difference, 0.34 bby (or 0.93 mbd), to come from declining exports to Europe.  And, if the trend of declining exports from the Middle East, and flat exports from Africa, to Europe also continue, then I estimate that Europe would be getting about 1.4 bby, from the Middle East and Africa, down by about 0.4 bby from 2010.  

Overall then, exports to Europe by 2021 could easily drop by 0.74 bby.  This is probably optimistic, because I expect production from all of the former Soviet Union, Middle East and Africa be down from their present levels, and for domestic consumption to increase.  This means that the amounts of available petroleum exports will also decline.  Coupling shifting imports trends away from Europe, decreasing global export pool, and the trend of declining domestic production Europe's petroleum consumption, makes it highly likely that Europe's future consumption of petroleum will on a strong downward trend.

Next time, I am off to Asia to describe China’s petroleum Export and Import Trends. 

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