At the recent (2010) ASPO-USA conference, we reviewed, in our presentation on net oil exports, two examples of production peaks in oil producing regions. We also reviewed “Net Export Math” and we looked at some examples of net export declines. Finally, we reviewed our projections for net oil exports from the top five net oil exporters in 2005, followed by two scenarios for global net oil exports. In this paper we will briefly review the highlights of our presentation.
Peaks Happen: The Texas & North Sea Case Histories
Figure One shows the 1972 Texas oil production peak lined up with the 1999 North Sea oil production peak (crude + condensate in both cases). These two regions were developed by private companies, using the best available technology, with virtually no restrictions on drilling, yet both regions show clearly defined production peaks. Furthermore, the initial declines in both cases corresponded to sharply rising oil prices. These two examples, which jointly accounted for about 9% of global cumulative crude oil production through 2005, show that, contrary to conventional wisdom, Peaks Happen, even in the best of circumstances.
Figure Two shows the exponential rate of change in production in Texas (black) and the North Sea (blue), by year, relative to their respective production peaks, in 1972 and 1999. Texas production fell at 3.7%/year from 1972 to 1982, which caused a simple percentage decline in production of 31%, from 1972 to 1982. North Sea production fell at 4.8%/year from 1999 to 2009, which caused a simple percentage decline in production of 38% from 1999 to 2009.
In early 2006, we started investigating what happens to the net oil exports from an oil exporting country, given an ongoing production decline similar to what we have seen in Texas and the North Sea. Note that Net Oil Exports are defined as domestic total petroleum liquids production in an oil exporting country less domestic total petroleum liquids consumption in that country.
The “Export Land” Model (ELM)
There are three principal factors that control a net export decline: (1) Consumption as a percentage of production at a production peak (C/P); (2) Rate of change in production and (3) Rate of change in consumption. We constructed a simple model, for a hypothetical exporting country called “Export Land,” to illustrate how these factors interact to control the resulting net export decline.
The assumptions for the Export Land Model (ELM) were that production falls at 5%/year, about the same rate as the North Sea, that consumption grows at 2.5%/year and that consumption as a percentage of production at the final production peak was 50%. By the end of year nine of the net export decline, the region is still producing 1.3 mbpd (million barrels per day), but consumption has grown to 1.3 mbpd, eliminating all net oil exports. In the following year, year ten, the region would become a net oil importer. Because of this rapid decline in the volume of net oil exports, the rate of change graph for net exports from “Export Land” looks remarkably different from the single digit production decline rates that we saw in Texas and the North Sea.
Figure Three shows the rates of change in production (green), consumption (red) and net oil exports (black) by year, relative to “Export Land’s” production peak. Note that the net export decline rate exceeded the production decline rate, starting out in double digits, at 12.8%/year, and accelerated to close to 30%/year at the end of the net export decline period. Furthermore, the bulk of post-peak Cumulative Net Exports (CNE) were shipped early in the decline period.
Given an ongoing production decline in an oil exporting country, based on the ELM we can conclude that unless consumption falls at the same rate as, or at a rate faster than, the production decline rate, the resulting net export decline rate will exceed the production decline rate, and the net export decline rate will accelerate with time. Furthermore, in the case of the ELM more than half of post-peak CNE were shipped only three years into a nine year net export decline.
Two Scenarios For Global Net Oil Exports
We reviewed production, consumption, net exports and the C/P ratios for the top 33 net oil exporters, which comprise 99%+ of global net oil exports, from 2005 to 2009 (principally BP data base, with minor contributions from EIA data). Note that we have seen a slight decline in global net exports in 2007 and 2008, relative to the 2005 and 2006 levels, despite steadily rising oil prices. Also note that we have seen a steady increase in the C/P ratio for global net oil exporters, from 26.1% in 2005 to 29.1% in 2009, and we have seen a steady increase in Chindia’s net imports as a percentage of global net oil exports, from 11.3% in 2005 to 17.1% in 2009.
In our ASPO-USA presentation, we looked at some near term scenarios for global net exports, out to 2015. We constructed two scenarios. For both scenarios, we assumed a slight 2005-2015 production decline of 5% (0.5%/year) among the top 33 net oil exporters, and we assumed that Chindia’s 2005 to 2009 rate of increase in net oil imports continued out to 2015. The only variable was consumption in the top 33 net oil exporting countries.
For Scenario #1, we assumed no increase in consumption among the exporting countries, from 2009 to 2015. For Scenario #2, we assumed that the exporting countries’ 2005 to 2009 rate of increase in consumption continued out to 2015.
Under Scenario #1, global net oil exports in 2015 would be down by 9.6% from the 2005 level, while the volume of “available” net oil exports, i.e., the volume of net exports not consumed by Chindia, declined by 28% from 2005 to 2015, from 40.8 mbpd (million barrels per day) to 29.5 mbpd.
Under Scenario #2, global net oil exports in 2015 would be down by 14% from the 2005 level, while the volume of “available” net oil exports, i.e., the volume of net exports not consumed by Chindia, declined by 33% from 2005 to 2015, from 40.8 mbpd to 27.4 mbpd.
To summarize Scenario #2, if we extrapolate the 2005 to 2009 rate of increase in consumption by the exporting countries out to 2015 and if we extrapolate Chindia’s 2005 to 2009 rate of increase in net oil imports out to 2015, and if we assume a slight production decline among the exporting countries (0.5%/year from 2005 to 2015), then for every three barrels of oil that non-Chindia countries (net) imported in 2005, they would have to make do with two barrels of oil in 2015.
The Chindia consumption increase is not unique. Many developing countries have shown significant increases in oil consumption, relative to their late Nineties consumption levels, despite large increase in oil prices. Our forecast for the US and for many other developed OECD countries is that we are well on our way to becoming free of our dependence on foreign sources of oil–just not in the way that many people anticipated.
About the authors:
Jeffrey J. Brown is a graduate of Texas A&M University, and he is a licensed Professional Geoscientist in the State of Texas. He has written and coauthored several articles on Peak Oil related topics, with a special emphasis on global net oil export capacity. In 2007, 2009 and 2010 he delivered papers to the Association for the Study of Peak Oil & Gas–USA, presenting the work that he and his frequent co-author, Samuel Foucher, have done on the 2005 top five net oil exporting countries.
Samuel Foucher has a PhD in Remote Sensing and an MS in Physics. He has been a researcher in Computer Science since 2001, and he has been heavily involved in the quantitative analysis of global oil production since 2005. He is also a contributor to The Oil Drum blog.
