Stories from Saudi Arabia today show that we may be at peak oil exports even if we haven’t yet reached peak oil production. For oil importing countries like the US, the price for our imports is dependent on the balance between aggregate demand from net importers and aggregate supply offered to the global oil market. One of the key issues that has exacerbated the global oil supply stagnation of late, is the fact that oil exports have been generally falling since 2005. Match that up to increased demand by fellow importers in China, India and other fast-growing economies and voila — a balanced market requires rising prices.
A number of analysts have been closely following this trend of falling exports over the years and post their information here. They report that the top 20 oil exporters, which make up ~93% of global exports, reached maximum net exports in late 2005 at ~43 million barrels per day (~50% of oil production). But since then exports have fallen more than a million barrels per day due to increased consumption in oil producing countries such as Saudi Arabia, Russia and Iran. For instance, Saudi Arabian demand has been increasing by over 6% per year over the last few years. If they continue such a pace, even the planned increase of around 1.5 million barrels over the next few years would be mostly consumed by their own people. So, while large net export declines are almost guaranteed in countries of falling production like Mexico, Norway, and the UK — it seems even top producers will have trouble offering much more to the world market. With China and India likely to keep increasing their demand substantially, the probable source of that oil “new” oil is by pricing out competitors through a longterm bullish trend in prices. Those competitors will probably include some of the global poor who increasingly face serious mobility challenges and middle class Americans who will make rational changes to increase efficiency and recreationally drive less.
A concrete example of declining exports was reported today by India’s Economic Times. The country will discontinue exports of fuel oil this Fall because their domestic needs have grown. Consumers throughout the Gulf are consuming 8% more electricity every year due to swiftly increasing incomes on the back of astronomical oil revenues, requiring more of the fuel oil and natural gas they produce to stay at home. New refineries are being built in Saudi Arabia and Kuwait, helping domestic users have easier first access to their resources at heavily subsidized prices before the leftovers go international. I do not mean to judge this domestic use of one’s own resources, but it is an important reality that has huge implications for our future. Even if global oil production can keep climbing a little each year, it’s price may continue to climb because us importers will be competing for a smaller pie.
Peak oil analyst Jean Laherrere would say even that is optimistic. The Oil Drum website published his estimates that Saudi Arabian oil production will probably plateau around current levels through 2020 (not grow substantially as the EIA predicts!) and then decline. In other words, he predicts net exports to decline over the next several years. Others like Matthew Simmons even believe Saudi production will decline through 2020 — with evidence of depletion that a doubling in the number of oil rigs in operation since 2005 has not increased production.
Whichever way you slice it, the reality of little growth prospects in net oil exports and US production that has been in decline for almost 40 years makes demand reduction our most effective tool to get our energy bills back to stability.
Tags: Middle East, Oil, Saudi production