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Economist Jeff Rubin and the Export Land Model (ELM)


(2 October 2007)
Khebab writes:
Jeff Rubin, CIBC World Markets chief economist, is explaining the Export Land Model as well as Jeff Brown would have done it. CNBC’s talking heads remained speechless!

I tried to link to the original CNBC site, but the segment didn’t load.

UPDATE: Email from Jeffrey Brown:
It was a little uncanny seeing my words come out of Jeff Rubin’s mouth. (Having said that, I started paying attention to net exports because of prior work by Matt Simmons.)

In any case, unless I missed it, I don’t think that Rubin is emphasizing the key point that net export declines tend to accelerate with time.

Declining net oil exports–a temporary decline or a long term trend?

Jeffrey J. Brown, Graphoilogy
To answer the question in the title of this paper, we believe, for reasons outlined below, that the current decline in world net oil exports is probably the start of a long term trend, as a result of declining production and/or increasing consumption in key exporting countries.

EIA data show a small decline in world net oil exports from 2005 to 2006, led by a 3.3% per year decline rate in net exports from the top three net oil exporters–Saudi Arabia, Russia and Norway. Furthermore, recent data suggest that the net export decline is continuing, and probably accelerating.

In previous articles posted on The Oil Drum we outlined a simplistic export model for a hypothetical country with Ultimate Recoverable Reserves (URR) of about 38 billion barrels (Gb), labeled the Export Land Model (ELM). The model showed the effect on net exports of a country that hit peak production and started declining at 5% per year. The exporting country consumes 50% of its production, and that consumption is increasing by 2.5% per year. The 5% decline rate is loosely based on the post-peak Texas decline rate of about 4% per year. The ELM is shown graphically below, Figure One.

… While overall world oil production is important, oil importers are focused on two things: their domestic production and world net oil export capacity. In our opinion, we should base our plans on the very real possibility of a rapid decline in world net oil exports.
Jeffrey J. Brown is a Dallas-based independent petroleum geologist.
(25 September 2007)
One of the most recent posts by Jeffrey J. Brown (westexas) on the Export Land Model (ELM). Jeffrey has been arguing for the ELM on The Oil Drum, Energy Bulletin, and elsewhere for several years. It looks like the mainstream energy economists are starting to listen. -BA

America’s top oil suppliers tightening taps on exports: CIBC World Markets

Press release, CIBC via CNN Money
Global supply gap, surging prices will shift attention to oil deposits north of border

NEW YORK, Oct. 2 /PRNewswire-FirstCall/ – CIBC – Six of the largest oil suppliers to the US are poised to cut their global exports by nearly 2 million barrels a day by 2012, ramping up pressure on supply and price, and intensifying the focus on one of the last great deposits open to private investment: Canada’s oil sands.

The projected cut, amounting to seven percent by Mexico, Saudi Arabia, Venezuela, Nigeria, Algeria and Russia, reflects the growing struggle in these countries to grow production and manage their own soaring rates of oil consumption, says Jeff Rubin, chief market strategist and chief economist, at CIBC World Markets, who will discuss his latest findings at the firm’s Industrials Conference in New York City.

The trend of oil producing countries becoming major oil consumers extends beyond the top US suppliers, says Mr. Rubin. When similar conditions are factored in among the other major oil producers including OPEC, the supply crunch deepens to 3 million barrels a day, or an eight percent cut in global exports. “Soaring domestic demand is cannibalizing export capacity, and will increasingly do so as productions plateaus or declines in many of these countries.”

Last year, OPEC members, along with independent producers Russia and Mexico, consumed over 12 million barrels of oil a day, roughly 60 percent more than China and slightly more than all of Western Europe says Mr. Rubin. As a group, they now are second only to the U.S. in terms of market size. Much of the demand in these countries is driven by heavily subsidized prices that keep a barrel of oil down to a cost of between US$10 and US$20. “The cheap supply is fuelling some of the fastest growth in domestic demand anywhere in the world,” says Mr. Rubin.

Russia, now the world’s largest oil producer, has filled the oil supply gap in recent years. However, internal demand there is growing at about twice the pace of production, and is claiming all of the country’s production gains.

Mexico faces even great obstacles in maintaining its export levels. Production in the giant Cantarell field, home to half of the country’s 3.5 million barrels per day of crude production, is already in the throes of rapid depletion. With production diminishing and internal demand growing, the country’s export capacity looks to be lethally challenged. Mexico’s crude exports have already been falling since 2004 and could well become insignificant by 2012 – a loss of some 1.5 million barrels per day to world markets.

Mr. Rubin says diminished global supplies and resulting higher prices will lead the markets to rely more on higher cost unconventional deposits, like the Canadian oil sands which he believes will surpass deep water wells as the single largest source of new oil exports by decade end.

“Canada’s oil sands will become increasingly coveted as they represent one of the last great reserves of supply open to private investment,” says Mr. Rubin. He estimates they represent anywhere from 50-70 percent of the world’s oil reserves open to private investment, depending on one’s view of the investment climate in Nigeria and Kazakhstan.

“For multinational oil firms, the world is rapidly shrinking,” say Mr. Rubin. “Increasingly they are shut out of the backyards of all the state-owned oil patches and then have to bid against those state firms in places still open for investment. Canada remains one of those few places where governments have been content to take their share of economic rents through royalties and not be concerned about the ownership per se.”

Mr. Rubin’s keynote remarks on oil supplies are a highlight of today’s CIBC World Markets Industrial Conference where more than 50 firms spanning the aerospace, defense, industrial services, chemicals, building products, steel, industrial multi-industry and industrial diversified sectors are gathered for meetings with institutional investors.
(2 October 2007)

OPEC’s Growing Call on Itself
Jeff Rubin and Peter Buchanan, CIBC World Markets
The call on OPEC has long been referred to as a measure of pressure on world supply, being the difference between world demand and non-cartel production. But increasingly, what bears watching is OPEC’s growing call on itself, which is simply the difference between what OPEC produces and what it consumes. Not only is the cartel, along with other key producers like Russia and Mexico, struggling to grow production, but at the same time their own internal consumption rates of oil are soaring. So much so that crude exports from the group as a whole, accounting for roughly 60% of current world oil production, are likely to fall by as much as 2.5 million barrels per day by the end of the decade-resulting in significantly higher oil prices.

Higher global oil prices and the growing move to limit greenhouse gas (GHG) emissions may be keeping a lid on fuel consumption in North America, Europe and Japan, but these economies are no longer driving the bus when it comes to growth in global crude demand.
(10 September 2007)
Occasional Report #62. Six-page report in PDF.