Predicting Global and Regional Petroleum Consumption Trends Part 7: Europe

No lengthy introduction, just the analysis results.  I have one reminder: the term EU as used herein refers to Europe, or European Region, as defined in the BP review, and not European Union.

I refer readers to Part 1 for an introduction to the data bases, methods, abbreviation and definitions used in this series.

Europe’s production, consumption and net export trends: an ELM analysis

Figure 29 presents the reported production, consumption and calculated net exports rates (dark blue, bright red and dark green open circles respectively) and the corresponding nonlinear least squares analysis (NLLS) best logistic equation best-fit curves (solid lines with the same respective colors). 

 

Production rates in EU follow two distinct trend periods, which I modeled using two separate logistic equation fits to the BP review data for 1965-89 and 1990-2011, respectively.   Consumption rates in EU were modeled using two logistic equations fits to the data from 1965-82 and 1983-2011, respectively.

The best fit parameters of Q_o, Q_∞ and the rate constant "a" are summarized in Table 7 below:

Table 7 summary of best fit parameter for production and consumption for EU
	Qo (bbs)	Q∞ (bbs)	a (yr-1)
Production 1965-89	0.53	37	0.18
Production 1990-2011	14	72	0.14
Consumption 1965-1982	23	161	0.14
Consumption 1983-2011	159	539	0.043

As illustrated in Figure 29, EU’s annual production rate has been in steady decline since peaking at 2.54 bby in 2000.  For instance, in 2011 production rates were 1.47 bby—a 42 % decline in 11 years, or, -3.8 %/yr.  Of course, this reflects the continuing decline in petroleum production from the North Sea, mainly from Norway, UK and Denmark. 

The last two years of EU’s consumption rate has dropped more steeply compared to the early data.  Therefore the NLLS best fit to the consumption data for 1983-2011 suggests consumption declining more steeply than the comparable analysis in Estimating the End of Global Petroleum Exports, Part 3, using the BP review data up to 2009.  It looks like EU’s consumption rate peaked in 2006 at 6 bby.   In 2011, the consumption rate was 5.4 bby—a 10% drop in 5 years. 

The net export implication of these NLLS fits is represented by the difference curve shown as the dark green line: because domestic production is declining more steeply (e.g., about -3.8%/yr) than consumption (e.g., about -2%/yr), exports to EU would have to increase substantially in order to accommodate the gentle downwards red consumption rate curve. For instance, according to this ELM analysis, to support a consumption rate of 5.2 bby, EU’s net petroleum imports would have to be about 4.6 bby by 2018.  With an estimated production rate of only 0.81 bby in 2018, that means that 88% of Europe’s petroleum consumption would have to be imported.   That’s a substantial increase in the already high 72% of Europe’s petroleum consumption coming from imports in 2011. 

Unfortunately, EU’s recent petroleum import and export trends do not support such a scenario at all.  Rather, the triple combination of increasing petroleum exports from EU to other regions, decreasing petroleum imports to EU and decreasing domestic petroleum production rates, suggests a steep decline in consumption rates over the coming decades.    

Predicting Petroleum Export Rates from EU to other Regions

Figure 30 shows the relationship between petroleum production rates and export rates for EU, as already worked out in my previous study from a few months ago.   This is actual the same as Figure 3 in Part 1 of “Relationship between Petroleum Exports and Production.”

The proportion of EU’s total exports, expressed as a percentage of production (black Xs, rhs scale), is surprisingly large and growing larger.   Total exports are increasing at 1.7 %/yr (solid black line r²=0.88).   For instance, in 2000, exports corresponded to 28 % of total production—and by 2011 that number was up to 51 %.  Extrapolating this trend out to 2040 gives the surprising, and probably unrealistic result of 100% of EU's production being exports, although by, then EU’s domestic production is close to zero (0.03 bby according to the blue line in Figure 29).   

What is going on here—why would a region like EU, whose domestic production is in such steep decline, continue to export ever-increasing proportions of its petroleum to other regions?

As I illustrated in Figure 8 of “Part 6: Inter-Regional Trade Movements of Petroleum to and from Europe,” it is not so much that EU’s absolute exports have increased over the part decade.  Rather,  the absolute amount of exports have stayed about the same, during the steep decline in absolute production rates. Consequently, exports, as a percentage of production, has increased, as shown in Figure 30.
 

Still, why maintain your exports in the face of steeply falling production? 

A clue to the answer lays in the fact that, as pointed out in Part 1 of “Relationship between Petroleum Exports and Production,” the proportion of EU’s exports as petroleum products has been increasing.  Apparently EU has found value in processing its own crude oil production, and probably some of its crude oil imports, and re-exporting a portion of this, as petroleum products, to other regions.   So then, could EU, by 2040, be exporting more than it products?  Yes, maybe, if like Japan, it can still import crude oil, convert that imported crude into to petroleum products, use some of these products domestically, and the re-export the rest (see analysis for JP to follow in Part 8).    

Looking at the individual export destinations for EU’s exports, NA is the primary destination, although this export trend seems to have turned around sharply after 2007, giving a flattening trend.  The recent decline in exports to NA is counteracted by sharp increases in exports to AF (r²=0.75) and rAP (r²=0.56), with smaller trends for increases in exports to SA and JP. 

Figure 31 shows the predicted absolute regional exports from EU to the other regions, based upon the combination of the production rate trends shown in Figure 29 and the export trend lines shown in Figure 30.

Going forwards, despite exports rates, as a proportion of production, going up as shown in Figure 30, the trend is for absolute exports to go down.  That is, EU’s sharply declining production rate swamps out the increase export rate tread in the long run.  Therefore, assuming these trends hold, absolute exports to NA will go down steeply over the next two decades, and exports to AF, rAP and SA will also decline but not as fast the decline in exports to NA.  Still, after 2030, EU’s exports are predicted to be quite minimal at about 0.1 bby, mainly due to EU minimal production rate at that time. 

Predicting Petroleum Import Rates to EU from other Regions

Figure 32 shows the sum (black line), and individual import contributions, predicted for each of the other eight regions, to EU.

Like NA, EU has a several times disparity between the total amount of petroleum exported (e.g., about 0.8 bby in the mid-2000s) and the total amount imported (e.g., peaking at about 4.8 bby in 2008).  In fact, you might by surprised that absolute petroleum imports into EU are about 1 bby higher that absolute imports into NA (comparing Figure 32 to Figure 27 in Part 6).  

Unlike NA, however, EU’s domestic production rate has been steeply declining for over a decade.  Moreover, as illustrated in Figure 32, imports from two of EU’s biggest three suppliers have gone down (ME, bright blue line), or, have plateaued (AF, brown line) over the last decade.  And, exports from ME and AF to EU are predicted to steeply decline over the next decade.  

As I showed in Part 2 of this series (Figure 2 and 3) over the last decade, ME's petroleum exports overall have been in decline, and, these declining exports have been shifting away from NA, EU and JP towards rAP and CH.  Moreover, over the coming decades, exports are predicted to further decline, as ME’s production rate declines. 

As I showed in Part 4 (Figure 13 and 14), although AF’s overall exports have trended upwards, exports to EU are flat to trending downwards, and going forwards exports from AF are predicted to steeply decline due to steep declines in domestic production.

It is mainly the increased imports from the FS over the past decade that has prevented EU from seeing an overall decline in its total imports, due imports from ME and AF flatteningg or declining.  However, imports from FS to EU are also predicted to peak in about 2011-2012.  As shown in Part 3, FS has started to shift its exports towards NA and CH, and going forwards, FS’s absolute exports are predicted to decline as it’s domestic production rate declines.  

What this means for EU in the long term are steep declines in imports from its three main suppliers FS, ME and AF.  For instance from 2012 to 2030 EU’s total imports are predicted to decline from about 4.7 bby to 1.4 bby—a 70 % percent decline.   I find it interesting that EU’s imports are not predicted to go to zero mainly because of the long, slow, trend for NA’s production and exports to continue.  For instance, as predicted in Figure 32, NA’s exports to EU eventually overtake FS’s declining exports to EU in about 2035.  This trend might occur earlier if FS, as discussed in Pert 3, FS cuts back its exports in order to delay its own domestic consumption rate from going to zero.  

Predicting Consumption Rates for EU based on the PIE analysis

Well, I imagine that by now, you can see the disaster prediction coming from the “triple whammy” of trends of decreasing domestic production and imports, and, increasing exports.  But let’s go through the numbers.

I applied my normalization to EU in the same manner as done for NA, SA and AF.  For EU, the average calculated consumption rate, based on the summation of production plus imports minus exports for the 2001-2011 time range, was 0.113 ± 0.181 bby higher than the reported consumption rate for EU as reported in the BP review.  Therefore my normalization for EU consisted of subtracting 0.113 bby from the predicted future consumption rate and adjusting total net exports upwards by this same amount.  And, like NA, SA and AF, I did not attempt to distribute this correction proportionally among the individual absolute exports and absolute import to and from each of the other regions.

Figure 33 shows the production, consumption and net export data, and corresponding best fit curves, the later two now shown as dashed lines.  Added is the predicted net export (light green solid line representing total absolute exports minus total absolute imports plus the +0.113 bby correction) and consumption (blood red solid line) prediction curves, based on my PIE analysis (exports minus imports plus the -0.113 bby correction). 

The results presented in Figure 33 suggest that if EU’s production rate follows the decline trend predicted by the logistic equation best fit (solid blue line), and EU’s export and import rates continue along the trend lines shown in Figures 31 and 32, respectively, then the predicted total net export rate curve (solid light green line) is not going to continue to grow more negative as suggest by the ELM analysis in Figure 29 or the dashed green line in Figure 33.  Rather, EU’s net exports will become increasingly less negative—although they always stay negative.  That is EU looks destined to stay as a net importer. 

PIE analysis predicts a very steep decline in the domestic petroleum consumption rate for EU (solid blood red line)—even steeper than that predicted for NA in Part 6, and much steeper than that suggested by the logistic equation fit to the consumption rate data (dashed red line in Figure 33).  For instance, according to the consumption rate decline predicted by the PIE analysis, EU’s consumption will go from its peak of 6 bby in 2006 to 1.35 bby in 2030—a 78 % decline or -32% per decade or -3.2% per year.  That’s almost 1.5 times steeper that the consumption decline rate of -2.2 %/yr predicted for NA.  

As I pointed out earlier, EU’s annual production rate has been drooping by about -3.8 %/yr and its annual consumption rate has been dropping by about -2 %/yr.  I expect that the consumption rate decline will accelerate when, as discussed above, the imports from FS start to plateau and then decline, and as imports from ME and AF continue to decline.  For instance, the predicted consumption rate for EU shown in Figure 33 (solid blood red line) suggests consumption declining from 5.27 bby in 2011 to 1.26 bby in 2031—a 3.8 %/yr decline rate.  

Final thoughts

This analysis suggest that, even more than North America, Europe’s petroleum consumption rate and therefore its GDP are in for a very steep decline over the next two decades.   If it was hard imagining how North America’s economy could grow in the face of a -2.2 %/yr decline in petroleum consumption, then it is even harder to imagine the same for Europe with a  -3.2 %/yr to -3.8 %/yr decline rate in consumption.  

With a consumption rate of about 5.4 bby and population of about 0.6 billion, Europe in 2011 had a per capita petroleum consumption rate equal to about 9 barrels per person per year (bpy).  Now consider the prediction of a consumption rate of 1.26 bby in 2031 and of 0.8 bby in 2040 (from Figure 33).  This is quite troubling.  Even if Europe’s population just stays about the same, this would mean a per capita petroleum consumption rate of 2.1 bpy in 2031 and 1.3 bpy in 2040, whcih is lower than the 2011 per capita rate of consumption of about 4 to 5 bpy for South America or the former Soviet Union, or, even China’s 2011 per capita rate of about 2.5 bpy.  

At least for North America, there was some suggestion of a light at the end of 20 years, in that it could become a net exporter of petroleum.  This does not seem likely for Europe, because it primary petroleum resource, North Sea Oil, has been in decline for the last decade, and I see no signs in the data of this being mitigated.  If the trends shown in this analysis continue, Europe will become somewhat like Japan, being almost totally dependent upon foreign sources of oil, mainly from the former Soviet Union and North America.  

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Next time, I will turn my attention to Japan. 

Predicting Global and Regional Petroleum Consumption Trends Part 6: North America

Last time in the series, I mentioned that there is data (in the BP review) which supports the idea that North America (NA) could become a net petroleum exporter in less than 20 years from now.

I also said that this would not occur in the way you might think, so, I want to note at the outset that this suggestion is not based on the need for NA to dramatically increase its production rates to equal and then surpass present levels of consumption, and, thereby become a net exporter.  There are people who suggest such a scenario.  For instance, just last July 2012, Mark Mills was suggesting that NA could become becoming the largest supplier of fossil fuels to the world by 2030 mainly though accelerated production of its vast resources of fossil fuels (see Unleashing the North American Energy Colossus: Hydrocarbons Can Fuel Growth and Prosperity).  Mills’s article relies heavily on two recent reports from Citi group (Energy 2020 North America, the new Middle East) and Wood Mackenzie (U.S. Supply Forecast and Potential Jobs and Economic Impacts (2012-2030)). 

I am quite skeptical of scenarios, such as Mills’, which suggest greatly enhance petroleum production, e.g., due to NA’s exploitation of vast resources of tar sand, Alaska/Arctic Oil, deep water oil in the Gulf of Mexico, oil off the West or East coast, or shale oil and oil shale extraction.  The main reason why I am skeptical is that the proponents of these scenarios seem to confuse or conflate the differences between resources, which may be very large, and economically recoverable resources and actual identified reserves, which are always much smaller than the base resource.  They also ignore the problem of considering what amounts of net energy (or net barrels of oil if you will) that can actually be obtained from places like tar sands or oil shale, e.g., because the oil or pre-oil kerogen has to be unlocked from tons of rock and thermally treated using highly energy consuming process.   Usually they vaguely refer to technological advances as being able to solve these present real-world problems again by conflating technological advances in other areas (e.g., information technology) with hoped-for advances in the geological sciences. Perhaps it is not surprising that the ones suggesting that it would so easy to increase production rates by 50 or 100 percent, are typically non-geologists. 

If you need to educate yourself on these issues, I recommend Dave Cohen’s 2006 article on the oil drum, Cornucopians-A Guide for the Perplexed, or, to some retired geologists like David (Heading Out) Summers Bit Tooth Enrgy blog posts on Tar Sands Mining or his review of the Citi Group report suggesting that NA’s production will rise to that of ME, or David Hughes’ 2011 PCI article, Hydrocarbons in North America, or Art Berman’s ASPO webinar, Shale Oil in Perspective. 

Contrary to suggesting that NA’s production rate will rise, the analysis to follow suggests a flat production rate trend.  This flat rate, coupled with trends of declining import rates (e.g., in favor of imports to Asia) and increasing export rates, means that NA’s consumption rate will decline.  The declining consumption rate crosses the flat production rate in about 2028-2029, making it possible for NA to become a net exporter, if the decline in consumption rate were to continue.

As usual, I refer readers to Part 1 for an introduction to the data bases, methods, abbreviation and definitions used in this series.

North America’s production, consumption and net export trends: an ELM analysis

Figure 24 presents the reported production, consumption and calculated net exports rates (dark blue, bright red and dark green open circles respectively) and the corresponding nonlinear least squares analysis (NLLS) best logistic equation best-fit curves (solid lines with the same respective colors). 

Production rates in NA follow three distinct trend periods, which I modeled using three separate logistic equation fits to the BP review data for 1965-76, 1977-90, and 1991-2011, respectively.   Consumption rates in the NA were modeled in Figure 24 using two logistic equations fits to the data from 1965-82 and 1983-2011, respectively.

The best fit parameters of Q_o, Q_∞ and the rate constant "a" are summarized in Table 6 below:

Table 6 summary of best fit parameter for production and consumption for NA
	Qo (bbs)	Q∞ (bbs)	a (yr-1)
Production 1965-1976	31	127	0.15
Production 1977-1990	55	193	0.11
Production 1991-2011	701	1590	0.013
Consumption 1965-82	45	253	0.11
Consumption 1983-2011	189	787	0.045

As illustrated in Figure 24, NA’s annual production rates have increased in each of the last three years.  Especially the up-ticks in 2010 and 2011 have caused the logistic equation best fit to the production rate data for the 1991-2011 time range to predict a much flatter trend than the declining production rate trend I predicted in Estimating the End of Global Petroleum Exports, Part 3, using the BP review data up to 2009.  The NLLS best fit parameter, Q∞, suggests a very large ultimately recoverable reserve, albeit being produced at a very slow rate of 1.3%/yr (a=0.013).   The NLLS best fit to the consumption data for 1983-2011 suggests consumption declining more steeply than the comparable analysis in Estimating the End Part 3.  For instance, now consumption is predicted to dip below 7 bby in 2031 instead of 2039.   This, of course is due to the down-ticks in 2010 and 2011 consumption rate compared to the peak rate of 9.1-9.2 bby in 2005-2007.  NA consumption rate of 8.4 bby in 2011 is about -9% down from that mark.

Thus according to this ELM analysis, even with the decline in consumption rate, depicted by the red curve, and the very gradual decline in production rate represented by the blue curve were to be followed, these two lines still cross in 2045 at 4.9 bby, implying that NA would be a net positive exporter thereafter.    

However, as I have repeatedly pointed out in the earlier parts of this series, the ELM analysis doesn’t consider the trends for changing exports and imports into and out of NA and how these would impact consumption rates.  Rather ELM just assumes static import/export behavior.

As illustrated in the PIE analysis to follow, exports and imports into and out of NA having been changing quite dramatically over the past decade and if these trends consider consumption rates in NA will drop much more steeply than depicted in Figure 24. 

Predicting Petroleum Export Rates from NA to other Regions

Figure 25 shows the relationship between petroleum production rates and export rates for NA, as already worked out in my previous study from a few months ago.   This is actual the same as Figure 1 in Part 1 of “Relationship between Petroleum Exports and Production.”

The proportion of NA’s production being exported still small, but growing from 6.9 percent in 2000 to 14.7 percent in 2011 (rhs scale, black line regression trend line, r²=0.92).  I should point out that the bulk of the exports from the USA are petroleum products, but, there are inter-regional crude oil exports from Mexico and Canada.  The total export trend is driven by the strong upward export trend to SA (line green line r²=0.92) .  However there are also substantial upward export trends to EU (blue line r²=0.56), AF (brown line r²=0.86), CH (pink line r²=0.56) and rAP (blood red line r²=0.46).  The proportion of exports to EU, CH and rAP are all up.  For instance, in 2011, 42% of NA's exports went to SA, 32% went to EU and 11% went to rAP.

Figure 26 shows predicted absolute regional exports from NA to the other regions, based upon the combination of the flat production rate trends shown in Figure 24 and the increasing proportion of production being exported according to the trend lines shown in Figure 26.

Because NA’s production rate is predicted to be flat to slowly declining, but, the export trend is strongly upwards (black line in Figure 25), NA’s total absolute exports are predicted to steadily rise over the entire study period to 2065.  As illustrated in Figure 26, SA and EU are the major beneficiaries of NA’s exports.  For instance, by 2020, SA and EU are receiving 0.44 and 0.29 bby respectively, and this grows to 0.6 and 0.36, respectively, bby by 2030.

Predicting Petroleum Import Rates to NA from other Regions

Figure 27 shows the sum (black line), and individual import contributions, predicted for each of the other eight regions, to NA.

Over the past decade, NA imported about 7 times more than it exported, although I think that situation will dramatically change over the next decade.  Over the last decade, total imports to NA initially increased, but then started to drop. 

This is due to two counteracting trends. 

On one hand, imports from ME, SA and EU have been falling.  For instance, in 2000, the sum of petroleum imports from these three regions equaled about 2.6 bby.  But, by 2011, the sum of petroleum imports from these three regions equaled about 1.8 bby, a -0.8 bby difference. 

On the other hand, imports from AF and FS have been increasing.  For instance, in 2000, the sum of imports from AF and FS equaled 0.7 bby, but this was up to 1.2 bby by 2011, a +0.5 bby difference. 

Consequently, because of the substantial “replacement” petroleum imports from AF and FS, what would have been a -0.8 bby decrease in imports (from decreases from ME, SA and EU) is only a decline of about -0.3 bby. 

Still, after imports to NA peaked in about 2007, they started to go down again.  This was mainly because imports from AF started to go down again.  In Part 4, I predicted that this downward trend will continue because AF’s production rates is peaking and subsequent production will decrease quite rapidly thereafter.  Similarly, as shown in Part 2 for FS, although the export trend to NA, EU and other regions is up, because FS appears to be reaching peak production, the absolute amounts of exports from FS to other regions will be going down in the future.  However, NA’s imports from FS still have a ways to go up, as they are not predicted to decrease until about 2017, assuming FS follows its predicted production and export trend.

As you can see from Figures 26 and 27, at some point in the mid 2020s, the increasing export rate will come up to meet and exceed the declining import rate.  

Predicting Consumption Rates for NA based on the PIE analysis

I applied my normalization to NA in the same manner as done for SA and AF.  For NA, the average calculated consumption rate, based on the summation of production plus imports minus exports for the 2001-2011 time range, was 0.618 ± 0.129 bby lower than the reported consumption rate for NA as reported in the BP review. Therefore my normalization for NA consisted of adding 0.618 bby from the predicted future consumption rate and adjusting total net exports downwards by this same amount.  And, like SA and AF, I did not attempt to distribute this correction proportionally among the individual absolute exports and absolute import to and from each of the other regions.

Figure 28 shows the production, consumption and net export data, and corresponding best fit curves, the later two now shown as dashed lines.  Added is the predicted net export (light green solid line representing total absolute exports minus total absolute imports plus the -0.618 bby correction) and consumption (blood red solid line) prediction curves, based on my PIE analysis (exports minus imports plus the +0.618 bby correction). 

The results presented in Figure 28 suggest that if NA’s production rate follows the flat trend predicted by the logistic equation best fit (solid blue line), and NA’s export and import rates continue along the trend lines shown in Figures 26 and 27, respectively, then the predicted total export rate curve (solid green line) transitions from negative to positive around 2028-2029.  The year to reach zero net exports is shifted by about 4 years as compared to from the mid-2020s cross-over, suggested by comparing Figures 26 and 27, due to the -0.618 bby normalization applied to the net export rates. 

The consequence of this PIE analysis is the prediction of a steeply declining domestic consumption rate for NA.  The consumption rate decline predicted by the PIE analysis (solid blood red line)—is much steeper than that suggested by the logistic equation fit to the consumption rate data (dashed red line).  For instance, a decline in NA’s domestic consumption rates from about 9 bby in 2008 to about 5 bby in 2029 represents a 45 percent decrease, or about -22.5 percent per decade or -2.25 percent per year. 

That sounds like a lot, but, as I pointed out earlier on NA’s consumption rate in 2011 was already down by about -9% down from its high point in 2005-2007.  So, NA may be right on track with this trend.

Some implications from this analysis

I (here and here) and others have suggested there is a strong correlation between petroleum consumption rates and GDP.  Therefore, the prediction of a declining petroleum consumption rate also implies that the economy will decline, roughly in proportion to the consumption rate decline.  Maybe the relationship is not 1:1, but, I think at least the direction of change would be the same.   That is, it is hard to imagine a growing economy while at the same time petroleum consumption rates are declining on average -2.2 percent per year for 20 years in a row.

Most people living in NA would be depressed to think of another two decades of economic decline about the same as what has been experienced over the last 4 years.  This would mean an entire generation of diminishing educational and work opportunities, high unemployment rate, declining purchasing power and the political unrest associated with these trends.

How could people in NA survive such a 20 year down trend?  

And what about after 20 years, when NA has the potential to becomes a net petroleum exporter?

As far as surviving a decline rate in petroleum consumption, we already have some regional examples to look to for guidance. 

As you have already seen in Part 3 of this series, the FS’s petroleum consumption rate declined by about by 53% over 7 years from about 3 bby in 1990 to 1.4 bby in 1997—that’s a -7.5 %/yr decline.  Of course, the concurrent economic crash was terrible, but people still survived.  But Soviet Union did not.  Following this rapid decline, petroleum consumption rates have subsequently come back slightly, but present petroleum consumption rates as nowhere near the pre-crash consumption rates.  What did go up dramatically for the former Soviet Union countries are net petroleum exports.

Additionally, as you will see later on in this series, JP’s petroleum consumption rate has declined by about by 24% over the last 15 years, from a peak of about 2.1 bby in 1996, to 1.6 bby in 2011—that’s a -1.6 %/yr decline.  The 1990s has been called Japan’s “lost decade,” but this has really stretched into a lost two decades.   The purchasing power of the Japanese has dropped from USA levels in 1991, to below Western European levels today (see e.g., The Japanese tragedy).   However, despite the declining GDP, decreasing hours worked per capita, high unemployment, especially among the young, JP has coped (Japan's Lost Decade: All Too Real).  That’s good, because I see no abatement of this trend for Japan for the next 20 years. 

I think that North America will experience something similar to Japan’s lost two decades, although there are aspects of the former Soviet Union’s experience that are also likely. 

Like Japan, North America will likely see the same declining GDP and purchasing power as experienced by Japan.  Also similar to Japan, are the demographic trends of aging and retiring baby boomers and their likelihood to consume less, and, trend of high youth unemployment rates. 

It is important to keep in mind, however, that like Japan in the early 1990s, North Americans are wealthy, by global standards, and therefore even a -22.5 percent per decade in petroleum consumption rates and GDP, would still only put North Americans at about the level of Europeans today.  For instance, at a population of about 0.46 billion in 2011, NA’s average per capita petroleum consumption equals 18.3 barrels per person per year (bpy).  If the consumption rate trend line shown in Figure 28 is followed, and the present population growth trend for NA continues, then by 2029, per capita petroleum consumption would be 8.7 bpy.  That is about the same as EU’s per capita petroleum consumption rate of 9 bby in 2011.

Like the former Soviet Union, North America has substantial petroleum resources.  What this means is that by 2029, when consumption crosses below production, North America has the potential to become a net exporter.  That would mean that at least some of the positive economic benefits that Mark Mills, Citi group and Wood Mackenzie are suggesting may still occur. 

Improved trade deficit?  Yes definitely, especially when you consider that the net export outlook for FS, AF and SA are all down substantially by 2029.  In fact, according to the ELM analysis increased domestic consumption rates will drive all three of these regions to zero net exports before 2029.  The PIE analysis is a little more optimistic that these regions will still have net exports by 2029 but the net exports are all down substantially from 2011 levels. 

In either case, it probably means that in 2029 the other regions, like rAP, CH, EU and JP that needing to import oil will be willing to pay a high premium for it.

Increased government tax and lease revenues? 

Maybe, if the price of oil was substantially higher than today, and, I think it will be because the down turn in net exports from the traditional exporting regions. 

Increased employment rates?

No, I doubt that employment would decline overall, because the economic downturn associated with lower petroleum consumption rates would overwhelm any job increases in the energy sector. 

Will North America then become the next Middle East?

No, probably not, at least in terms of net exports.  As suggested by the analysis in Part 2 of this series, production rates in ME could be down from 2011 levels of 9.5 to 5.9 bby by 2029.  And, depending on whether you tend towards the ELM or the PIE analysis, net exports could be down to 1.4 to 2.9 bby, down from about 7 bby in 2011.  According to Figure 28, it would take until 2042 before NA’s net exports got up to +1 bby, and this would mean a continuing drop in the domestic consumption rate down the equivalent of a per capita consumption rate of 6.5 bpy. 

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Speaking of regions that will be desperate for imported oil by 2030, next time, I will turn my attention to the European region.  

Predicting Global and Regional Petroleum Consumption Trends Part 5: South America

South America’s production consumption and net export trends

South America (SA) is the smallest of the four net petroleum exporters in my nine-region analysis, behind the Middle East (ME), the former Soviet Union (FS) and Africa (AF), and as you will see, an important importer to North America (NA), although that is changing in favor of increasing imports increasingly, to China (CH), the remaining Asia-Pacific region (rAP) and European region (EU).  SA bears some similarity to AF in than its petroleum consumption rate trend is following an unsustainably rapid growth curve, and, so like AF the ELM analysis and PIE analysis provide contrasting predictions of consumption and net export rates.

Figure 17 presents the reported production, consumption and calculated net exports rates (dark blue, bright red and dark green open circles respectively) and the corresponding nonlinear least squares analysis (NLLS) best logistic equation best-fit curves (solid lines with the same respective colors ). 

Production rates in SA follow two distinct trend periods, which I modeled using two separate logistic equation fits to 1965-78, 1979-2011, respectively.   Similar to ME and AF, consumption rates in the SA are well-modeled using a single logistic equation fit to the entire 1965-2011 time span.

The best fit parameters of Q_o, Q_∞ and the rate constant "a" are summarized in Table 5 below:

Table 5 summary of best fit parameter for production and consumption for SA
	Qo (bbs)	Q∞ (bbs)	a (yr-1)
Production 1965-1978	16	48	0.14
Production 1979-2011	20	183	0.060
Consumption 1965-2011	23	380	0.033

The logistic equation best fit to the production rate data for the 1979-2011 time range suggests that production rates peaking in about 2013 at about 2.8 bby and declining thereafter.  The logistic equation best fit to the consumption rate data for the 1965-2011 time range suggests that consumption rates continuing to climb until it peaks in 2048 at about 3.1 bby, that’s about 36 percent larger than SA’s consumption rate in 2011, from the data in the BP review.  The consumption line (red line) crosses the production line (blue line) in 2022, and therefore according to the ELM analysis, in 2022 SA would become an ex-net exporter and either live within its own production means, or, transition into becoming a net importer in an attempt to meet its predicted future increasing consumption demands suggested by the red line. 

The prediction of zero net exports in 2022 is four years later than the prediction of zero net-exports in 2018 made in my earlier analysis, Estimating the End-Part 3, about 1.5 years ago.

The present analysis which includes the 2010 and 2011 data from the BP review suggests that both production and consumption rates have increased at a faster rate than in the past, but, production has increases a little bit faster, and therefore, the time to hit zero-net exports, according to the ELM analysis, is extended by 4 years. 

What does my PIE analysis do with the data for SA? 

Predicting Petroleum Export Rates from SA to other Regions

Figure 18 shows the relationship between petroleum production rates and export rates for the SA, as already worked out in my previous study from a few months ago.   This is actual the same as Figure 2 in Part 1 of “Relationship between Petroleum Exports and Production.”

SA’s total export rate, expressed as a percentage of it production rate, is in a flat to slight increasing trend (black linear regression trend line, r²=0.39).  The proportion of SA’s production that presently gets exported is not as high as AF’s but it is still high, in a range from 44 to 51 percent of total production over the last decade (black Xs, right hand side axis).   Like AF, SA has been a major exporter to NA sending 40 to 30 percent of its production to this one region.  But in contrast to AF, only a small proportion of SA’s exports have gone to EU, or any other region, for that matter.  Also in contrast to AF, SA’s proportions of exports to NA is a downwards trend (green line, r² = 0.61).  The proportion of exports to EU, CH and rAP are all up.  Indeed the magnitude of combined upward slopes for CH and rAP (pink and blood red line) is just slightly greater than the magnitude of the downward slope for NA.  In other words, the proportion exports from SA to NA are decreasing in favor of increasing exports to CH and rAP. 

Figure 19 shows predicted absolute regional exports from SA to the other regions, based upon the combining the production rate trends shown in Figure 17 with the export trend lines shown in Figure 18.

Because SA’s production rate is predicted to peak soon, in 2013, but, the export rate trend is upwards (black line in Figure 18), SA’s total exports are predicted to peak a few years later in about 2017 (black line, Figure 19).   

As you can see SA’s flat to slowly declining exports NA over the last decade are predicted to accelerate downwards over the next and future decades.  This trend is due to the cooperation of the two trends shown in Figures 17 and 18: declining production rates after 2013 and continuing declining proportions of exports going to NA.  In contrast, the export trends for EA, CH and rAP show continued increases until the mid 2020s to early 2030s, after which exports to these regions also declines.  These trends are due to the conflict of two trends shown in Figures 17 and 18: declining production rates after 2013 but continuing increasing proportions of exports going to EU, CH and rAP. 

Predicting Petroleum Import Rates to SA from other Regions

Over the past decade SA has received about the same amount of imports from other regions as AF has, although as you will see, the predicted future trajectory of those imports are quite different than for AF.

Figure 20 shows the sum (black line) and individual import contributions, from each of the other eight regions, to SA.

Over the last decade, total imports to SA have been about one-third the size of SA’s total exports.  In 2000, exports from ME and AF were about as larger as imports from NA, and, imports from FS were also fairly large.  But in the future, SA will be much more dependent on exports from NA.  For instance, according to the trend lines shown in Figure 20, by 2020, also 70 percent of SA’s total imports of 0.65 bby are predicted to come from NA. 

Imports from NA, and to much lesser extents from CH and rAP, are predicted to increase because of the exports trends and continued production from both of these regions (to be shown in futures installments of this series).   However, absolute imports from ME and FS rapidly declined over the decade 2000-2011, due to declining proportions of exports coming for these regions (see e.g., lime green lines in Figures 3 and 8, in Part 2 and Part 3 of this series, respectively; these lines are barely visible in the lower left corners of the figures, because ME’s and FS’s exports to SA are quite small compared to several other regions). 

This downturn in exports from ME and FS was partially mitigated by increased exports from AF to SA.  But this is predicted to have peaked around 2009 and decline thereafter, due to the predicted declining production rates from AF as discussed in Part 4 of this series.  SA does get some increasing rates of exports from EU, but, this is also predicted after 2011, due to the continued declining petroleum production rate from this region (to be shown in futures installments of this series).

Predicting Consumption Rates for SA based on the PIE analysis

I applied my normalization to SA in the same manner as done for AF.  For SA, the average calculated consumption rate, based on the summation of production plus imports minus export for the 2001-2011 time range, was 0.123 ± 0.085 bby lower than the reported consumption rate reported in the BP review. Therefore my normalization for SA consisted of adding 0.123 bby from the predicted future consumption rate and adjusting total net exports downwards by this same amount.  And, like AF, I did not attempt to distribute apply this correction proportionally among the individual absolute exports and absolute import to and from each of the other regions.

Figure 21 shows the production, consumption and net export data, and corresponding best fit curves, the later two now shown as dashed lines.  Added is the predicted net export (light green solid line representing total absolute exports minus total absolute imports plus the -0.123 bby correction) and consumption (blood red solid line) prediction curves based on my PIE analysis (also with the +0.123 bby correction). 

The results presented in Figure 21 suggest that if SA’s production rate follows the logistic equation best fit (solid blue line), and SA’s export and import rate trends continue along the lines shown in Figures 19 and 20, respectively, then the predicted total export rate curve (solid green line) is extended beyond 2022 into the 2030s before hitting zero in about 2037. 

This is very analogous to the PIE results reported in Figure 16 for AF in Part 4 of this series.  And like AF, SA predicted future consumption is very much curtailed as compared to the logistic equations extension of SA’s current consumption trend.  Rather, petroleum consumption rates stay pretty flat over the next decade, as do net exports.  Then in the mid-2020s as SA’s domestic production rates start going into serious decline, net positive exports steadily decline until hitting zero in 2037 at which point SA becomes a net importer.    The decline in SA’s predicted consumption curve looks like a much softer landing than any of the net-exporting regions because the steadily increasing import rates from NA and CH buffer the decline.  Nevertheless, there would still be economic fall-out associated with the lost revenues from declining exports and increasing cost to import petroleum. 

Half-time Summary: a brief look at the four net exporting regions

Now that I have finished my survey of the four net exporting regions (ME, FS, AF and SA), I am about half-way through this series.  So, let’s step back and look at the production, consumption and net export trends of these four region as a whole.  

Figure 22 shows the best-fit trend lines for each of the four regions and the sum of all four regions—I have kept the same color codes for product, consumption and net predicted by the ELM and PIE analysis. 

The lines shown in Figure 22 are simply the sums of the each of the individual lines for the four regions shown in Parts 2-4 of this series.  Additionally, I only show the predicted net exports until they hit zero—as discussed in Parts 3 and 4, AF and SA have a history of receiving imports from other regions, as so it is possible the net exports for these four regions as a whole could turn negative.  However, for the purposes of the present discuss I just want to focus on the time up to hitting net zero exports for these four regions as a whole, and the implication this may for these regions and the rest of the world. 

The sum of the predicted petroleum production rates (blue line) shows a peak in 2009 at about 20.5 bby.  That is equal to roughly two-thirds of the world’s total production rate of about 30 bby in 2009. 

Figure 22 nicely illustrates the contrasts between the predicted consumption and net export rates resulting from the assumptions inherent in the ELM analysis versus the assumptions inherent in the PIE analysis. 

Turning first to the ELM analysis, the sum of the assumed continued predicted consumption rate trends (bright red line) for the four regions suggests continuing increasing rates of consumption until peaking in about 2040  at about 10.7 bby, followed by a slow decline.  This results in the sum of predicted net exports (dark green line) rapidly declining and hitting zero in about 2033.  There is a widening discrepancy between the declining production rates and the still-increasing consumption rates after 2030.  Indeed, by the time we reach the predicted peak in consumption rate, in 2040, the difference between predicted production minus predicted consumption equals about -5.5 bby.   The difference gets wider by 2050 (-7.5 bby) and even wider by 2060 (-7.8 bby).  I do wonder: where in the world these four regions would be able import such large quantities of petroleum from, and, what they would pay the imports with, since a large fraction of the income from these regions comes from the sale of petroleum exports. 

Turning now to the PIE analysis, the assumed continued export and import rate trends for the four regions suggests declining net exports, but, net exports do not reach zero until after 2050.  The resulting sum of predicted consumption rates suggests a peak in 2010 followed by gradual decline thereafter. 

In my opinion, the scenario suggested by the PIE analysis seems much more tractable than the scenario suggested by the ELM analysis because the yearly changes in consumption rates and net-export rates are more moderate, or at least, the time for the occurrence of large year-to-year changes is substantially delayed. 

Figure 23 further illustrates this point by presenting the year-by-year percentage changes in the production, consumption, and net exports rates following the production peak in 2009.  Again, I am keeping the same color scheme for product, consumption and net predicted by the ELM and PIE analysis. 

As you can see production rates declines at between 0 and -5 percent per year (%/y) from 2010 until about 202,5 at which point, the decline rate increase slightly to about -6.3 %/y. 

In contrast, according to the ELM analysis, consumption rates stay positive, ranging from +2.3 %/y in 2010 to 1.2 %/y in 2025, and then gradually declining to 0 %/y until the peak in 2040.  The consequence of this assumption is that the change in net export rates rapidly plummets, reaching -15 %/y by 2025, and, decreasing by even greater yearly relative amounts.  This illustrates the rapid and immediate decline in export income that these four regions as a whole would suffer.

On the other hand, the PIE analysis predicts a more moderate decline in exports rates.  By 2025 the decline rate has only reached -6.7 %/y.  The export decline rate eventually hits -10 %/y—but not until 2034, and even then, the decline rate stays in the range of -10 to -11 %/y until 2042.  Thereafter the decline rate accelerates until 2055—this is the point when net positive exports from the ME final hits zero.  The decline rate of -12 %/y thereafter is just reflecting declining export rates of small amounts of petroleum from the sole remaining exporter of the four regions—FS.  What consequence does the PIE analysis export scenario have for the consumption rate for these four regions as a whole?  The PIE analysis predicts that after 2010 yearly consumption rates decline immediately, but the yearly change never exceeds -3 %/y for the next 40-50 years.  

So there you have it: the ELM analysis’ assumption of continuing increasing consumption, which drives net exports to zero by the early 2030s in order to sustain continued increases consumption rate until 2040, but only if supplemented by serious amount of imports, versus the PIE analysis’ assumption of continuing the current export/import trend, which still results in declining rates of net exports but at a slower rate, and, at the cost of immediately decreasing domestic consumption rates. 

Which do you think is more likely?

As I already mentioned, I favor the PIE analysis because of its prediction of more moderate decline rates in net-exports, which is an important income source for these regions.  However, this is at the cost of declining consumption rates.   Although the decline is consumption rates of less than -3 %/y for these for regions, as a whole, looks tractable, this may not be the case for some of the individual regions, in particular FS and AF.  As I discussed in part 3, the PIE analysis’ assumption of continuing the present export/import rate trend, drives FS consumption rate to zero in 2028.  Making the same assumptions for AF nearly drives, AF’s consumption rate to zero by the early 2030; the only reason it doesn’t go to zero is because of the trend lines predicting continuing imports from NA and CH.  Of course, neither of these scenarios are very realistic—perhaps even more unrealistic than the ELM analysis’ prediction of consumption rates following the best-fit logistic equation, at the cost of rapidly hitting zero exports by 2027 and 2018, respectively.   I would expect that before allowing domestic consumption rates to reach zero, the governments in these regions would intervene, and keep at least enough domestically produced petroleum to sustain the government infrastructure, food production and transportation networks.  

Just what would this intervention scenario entail, when would it start and how long could it forestall consumption rate dropping below some critical level? 

I have some very definite ideas about the answers to these questions—in fact I have already run the scenarios.  But first, I need to finish this nine-region survey!

One final note, regardless of whether one accepts as most likely, the scenario suggested by the ELM analysis, or, the scenario suggested by the PIE analysis, net exports from these four net exporting regions is on a serious down-hill slope. 

For instance, consider the length of time to reach 50% of the predicted peaking net exports of about 13 bby from these four regions in 2007-2008. According to the ELM analysis, net exports drop by 50% to 6.5 bby in about 2019-2020, and according to the PIE analysis, about 5 years later in 2025. 

Of course, this would have dramatic worldwide effects, but, the net-importing regions most affected would be those that are most dependent upon getting their imports from one or more of these four net-exporting regions.   Europe and Asia, I am talking to you.   

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Next time, I will turn my attention to North America, a region that is presently a large net petroleum importer, but, which could become a net exporter in less than 20 years from now—although probably not in the way that you may think. 

Post #100--yeah!