To Understand The Oil Story, You Need To Understand Exports

September 15, 2015

Despite the attention-grabbing economic volatility that is grabbing headlines, it’s important to keep our eye on the energy story firmly in focus. This is especially true as the headlines we regularly read about Peak Oil being dead " are "manifestly false" according to this week’s podcast guest, petroleum geologist Jeffrey Brown. 

As concerning as the fact that global oil production has plateaued over the past decade, despite trillions invested in trying to goose it higher, are Brown’s forecasting model for oil exports. His Export Land Model shows how rising internal consumption can swing (and has swung) countries from major exporters to permanent importers within a dizzyingly short period of time:

The crucial issue to understand about what has happened after 2005 is that we’ve had a very large increase in global gas production and natural gas liquids, but a much slower increase in crude plus condensate. So, what I think has happened is the actual crude oil production has basically flatlined while the liquids associated with natural gas production, condensate and natural gas liquids, have continued to increase. So, we ask for the price of oil, we get the price of Brent or WTI; but when you ask for the volume of oil, you get some combination of crude, condensate, natural gas liquids, biofuels. So, the fact is that substitution has worked and is working in that they’re bringing on alternative substitutes, but they’re only partial substitutes. The actual, physical volume of crude oil production has probably been flat to down since 2005. Over the past ten years, it has taken us trillions of dollars, basically, to keep us on an undulating plateau in actual crude oil production. What happens going forward?

So, basically, the conventional wisdom is the fact that we’ve seen an increase in liquids production, seems there’s no evidence of the peak in sight. And, I think in regard to crude oil production, that argument is manifestly false. I think that we’ve probably seen a peak in actual crude oil production, 45 and lower API gravities, despite trillions of dollars of upstream capex expenditures.
I started wondering in late 2005 what happens to oil exports from an exporting country, given a production decline and rising consumption. And, so I just started, I just constructed a simple little model. I assumed a production of about two million barrels a day or so at peak, consumption of one, and assumed production falls about 5% per year, basically what the North Sea did, and assumed consumption increases to 2.5% per year. What the model showed was that exports, net exports would go to zero in only nine years, even though a roughly modest production decline. So, the easy way to state it is giving an ongoing, inevitable decline in production, unless an exporting country cuts their domestic oil consumption at the same rate as the rate of decline in production, or at a faster rate, it’s a mathematical certainty that the net export decline rate, what they actually ship out to consumers will exceed the rate of decline in production. And, furthermore, it accelerates. 

Click the play button below to listen to Chris’ interview with Jeffrey Brown (43m:48s)


Chris Martenson: Welcome to this Peak Prosperity podcast. I am your host, Chris Martenson. I want to refocus your gaze on energy, oil specifically. I know, I know, the world is awash in oil, so who cares, right? Well, everyone should care, because oil is currently selling for far less than the average cost to replace oil. So, understandably, oil projects are being delayed, slashed, and sometimes completely canceled. And, as sure as the sun rises, failure to invest today will result in oil shortages in the future. So, we have to look forward, too.

But, there are two other things even more powerful than simple production that we have to know about. One, of course, is the energy return on energy invested, or EROI, but that’s not the topic of today’s discussion. The other thing is how much oil is available for export. After all, if you’re an oil importing nation (and most are), then all you really care about at the end of the day is whether or not you can import as much affordable oil as your local economy needs. If so, great. If not, you’re in deep trouble.

On this front, to help us understand and appreciate the importance of export quantities, we have Jeffrey Brown with us today, a licensed professional geoscientist. He’s responsible for the discovery of several oil and gas fields in West Central Texas, and currently manages an exploration program searching for oil and gas fields in this region. Jeff has conducted analysis of peak oil issues for many years. I’m thoroughly familiar with his work, and he’s authored numerous article with a special emphasis, however, on global oil exports.

It was in early 2006 Jeff first proposed a simple, mathematical model for oil exporting countries called the "export land model," or ELM, which I featured in the Crash Course video series and book, because it’s essential to understanding the future of oil. I’ll let Jeff explain more, but it’s as simple as this: Oil importing nations are dependent on oil exports. Period. Shouldn’t we really be tracking export quantities as carefully, if not more carefully than anything else? Welcome, Jeff.

Jeffrey Brown: Thank you. I’m happy to talk to you today.

Chris Martenson: Well, all pleasure is ours. Thank you. First, as someone on the front lines of the oil story, how obvious is it to petroleum engineers and geologists that the age of cheap and plentiful oil is behind us—or is it?

Jeffrey Brown: Well, if you look at liquids production, I think a critical issue is to separate crude oil from crude condensate, natural gas liquids and biofuels. When people ask for the price of oil, what you get is the price of actual crude oil, which is most commonly West Texas Intermediate, WTI, or Brent, and that’s got an API gravity, American Petroleum Institute gravity in the high 30s average. The dividing line between crude and condensate is about 45 API gravity. The higher the gravity, the lighter the liquid. Now, condensate is basically natural gas lean, and it’s a useful product, but it’s got very little diesel component.

But, the crucial issue, I think, to understand about what has happened after 2005 is that we’ve had a very large increase in global gas production and natural gas liquids, but a much slower increase in crude plus condensate. So, what I think has happened is the actual crude oil production has basically flatlined while the liquids associated with natural gas production—condensate and natural gas liquids—have continued to increase. So, you want to ask for price of oil, we get the price of Brent or WTI, but when you ask for the volume of oil, you get some combination of crude, condensate, natural gas liquids, biofuels. So, the fact is that substitution has worked and is working in that they’re bringing on alternative liquids, partial substitutes. But, actual, physical volume of crude oil production has probably been flat to down since 2005.

Chris Martenson: Well, now…

Jeffrey Brown: So, then the question…

Chris Martenson: Well, since 2005, we’ve spent how many, what, I think, three, maybe four trillion dollars trying to get more crude out of the ground. You’re saying what we’ve really done is kept crude flat, but maybe gotten a little more of the other stuff.

Jeffrey Brown: Correct. So, it took trillions of dollars, basically, to keep us on an undulating plateau in actual crude oil production. So, what happens going forward with the ongoing reductions in drilling and reductions in upstream capex, you would think that the decline in actual crude oil production is going to be most pronounced. So, basically, the conventional wisdom is: the fact that we’ve seen an increase in liquids production, seems there’s no evidence of the peak in sight. And, I think in regard to crude oil production, that argument is manifestly false. I don’t think anybody argued that substitution would not be a factor. There are always some types of partial or full substitutes, and condensate natural gas liquids are partial substitutes. But, I think that we’ve probably seen a peak in actual crude oil production, 45 and lower API gravities, despite trillions of dollars of upstream capex expenditures.

Chris Martenson: It sounds like you’re describing to me, like a farmer, he grows potatoes… We love to measure potatoes, because that’s what everybody eats. But, somehow, over time, we’re not just counting the potatoes that comes out of the field, but any edible weeds that also happen to be grown, or something like that. I mean, we’re mixing substances at this point in time, whereas crude oil is the feedstock for all sorts of chemical processes. It gives us all the distillates we love. You get gasoline, diesel, heating oil, stuff like that, asphalt, all the by-products. But, now we’re starting to count this other stuff, which you say we can use partially. It’s a partial substitute, but maybe it’s not an ideal substitute. Is that fair?

Jeffrey Brown: Yes. The analogy I’ve used is it’s like asking a butcher for the price of beef, and he gives you the price of steak. If you ask him how much beef he has on hand, he gives you total pounds of steak, plus roasts, plus ground beef. So, I would argue that if you’re—the quantity of the item you’re pricing should relate to that item and not to the quantity of partial substitutes.

So, the condensate and natural gas liquids can be used as transportation fuel, and condensate is basically natural gasoline. So, they’re certainly useful products, but the key point is that the cornucopians are arguing that there’s no evidence of any kind of peak in sight, that liquids are going up in perpetuity. And, I’d argue that that’s manifestly false in regard to actual crude oil production.

But, the point is if crude oil production has flatlined, despite trillions of dollars in upstream capex, it’s when, not if, that natural gas and associated liquids, condensate and natural gas liquids also peak. So, it’s simply the crude oil peaked first. But, the fact we’re seeing still rising combination of crude and condensate and then a large increase in natural gas liquids, cornucopians argue there’s no evidence of a peak in sight. I’d simply argue that whether it was peaked first is actual physical crude oil, and all the refiners can process some condensate, although it’s basically, just generates gasoline. But, they need the crude oil, actual physical crude oil to provide the complete spectrum of refined products. And, I suspect the U.S. refiners probably hit the limit late last year of how much additional condensate they could take.

Reuters had in their article earlier this year where refiners are actually rejecting what they call these "dumbbell crudes." They were blends of a barrel of condensate and a barrel of heavy crude that had the high 30s average API. But, it was critically deficient in distillate content. So, they called it a toxic blend that didn’t meet their output requirements. So, refiners are basically increasingly rejecting condensate, 50% condensate, 50% heavy crude volumes.

Chris Martenson: And, hence, all the calls to export oil from the United States. Those are really, mostly calls to export all this condensate we’ve got, because we’re swimming in the stuff, more than we need. It doesn’t quite serve our energy needs, but it happens to come out as a consequence of certain wet shale gas efforts and other things like that. So, we’re swimming in one, just one cut, if you will, of the kind of oil that we’ve been living on all this time.

Jeffrey Brown: Well, and it actually may be a global phenomenon. If you look at global numbers, the best database we’ve got for an approximation of global data is OPEC. They report crude only, and EIA has crude plus condensate so you can subtract the two, the OPEC crude from EIA, crude plus condensate, you got an implied condensate number. And, so basically all the increase in OPEC crude plus condensate production since 2005 has actually been condensate. There are widespread reports that Iran’s got tens of millions of barrels in oil flooding offshore, but it turns out that the bulk of that is reportedly condensate, and they’re actually having difficulties getting rid of it.

Chris Martenson: Yeah, this is where the complexity that’s actually involved in the oil story is so important. And, what we get is really cartoonish headlines in the media. One of the things I say all the time is that the closer you follow the media on this story, the more likely you are to be misled, although with some notable exceptions. There are a few reporters out there doing some really good work right now. I’m thinking of Aslin [PH] Yoder [PH] out of Bloomberg does a good job, and Kemp out of Reuters also does a great job, I think, really nice.

Jeffrey Brown: Yeah, Kemp is a great reporter.

Chris Martenson: Yeah, really good. So, let’s turn to these oil exports then. Your export land model, what does the name mean?

Jeffrey Brown: Well, I started wondering in late 2005 what happens to oil exports from an exporting country, given a production decline and rising consumption. And, so I just constructed a simple little model. I assumed a production of about two million barrels a day or so at peak, consumption of one, and assumed production falls about 5% per year, (basically what the North Sea did), and assumed consumption increases to 2.5% per year. What the model showed was that net exports would go to zero in only nine years, even though a roughly modest production decline. So, the easy way to state it is: giving an ongoing, inevitable decline in production, unless an exporting country cuts their domestic oil consumption at the same rate as the rate of decline in production, or at a faster rate, it’s a mathematical certainty that the net export decline rate—what they actually ship out to consumers—will exceed the rate of decline in production. And, furthermore, it accelerates.

So, you look at exponential declines in oil production and hyperbolic—hyperbolic just means that the decline rate slows with time. Well, this is an accelerating decline rate. So, it’d start out like at 5% and then 10% and then 15% and 25%. Then if you further look at actual case histories, I summed the production consumption and net exports from six exporting countries that hit or approached zero net exports from 1980 to 2010, excluding China. I excluded China because they became a net importer prior to production peak, because their consumption grew so fast. But, in any case, the six countries basically showed exactly what the model predicted, and after a fairly modest production decline, they hit combined zero net exports in only 12 years once their net exports peaked.

Now, one of the stunning things about what I call net export math is depletion. If you look at that six-country case history, their net exports peaked in 1995. Their production actually was still increasing, but because the rate of increase and consumption exceeded their rate of increase in production, their net exports fell. But, in only four years, from 1995 to 1999, their production went up by 2%, their net exports fell, but they shipped more than half of their post-1995 cumulative supply of net exports. So, of all the cumulative net oil they would deliver to the global import market, they’d already shipped more than half in only four years after the net export peak.

Chris Martenson: Now, Jeff, how would you determine that? Because, a couple of big concepts, first, very simply the land model says, “Look, if your production is falling and your consumption is rising, you’re squeezing your available exports from two sides at once.” That creates a faster than you might intuitively expect fall. That seems very intuitive to me. This idea, though, that a country has cumulative net exports, are you making a guess as to how much they have available to export based on what data you can get. Or, how does that number—how did you derive that?

Jeffrey Brown: Well, for the six-country case history, that’s all historical data. We just looked at the total petroleum liquids production and liquids consumption, and we just did a data table looking at it by year. So, these are all hard numbers for the six-country case history.

It’s exactly what the model says, and the only way that you’re not going to see an astronomical depletion rate like that is if they cut consumption at the same rate that production falls.

Chris Martenson: Well, then how many countries actually have—are past peak at this point? What I’m trying to counter here for any of our listeners who have been following the media, is this idea that the world is awash in oil, that there’s just lots and lots out there, that there’s a huge oversupply and all of that. From that, you might get the impression that any country that wants to can increase its oil any time it wants. How many of these countries now are past peak?

Jeffrey Brown: Well, as far as net export peak, what I looked at, my global database, is the top 33 net exporters in 2005. I just simply update that database year-by-year as we get additional EIA data. Off the top of my head, I think roughly 20 out of 33 have shown a decline in net exports since 2005. In aggregate, they fell from—their combined net exports fell from 46 million barrels a day in 2005 to 43 million barrels a day in 2013. We don’t have complete annual data for the 2014 consumption yet.

BP has some partial data out. For example, Saudi net exports fell from 9.5 million barrels a day, total petroleum liquids in 2005, and they fell to 8.4 million barrels per day in 2014.

Chris Martenson: And, this is with them pumping near 10 million barrels a day?

Jeffrey Brown: Correct. Now, they’re up, they’re showing a year over year increase for 2015, so we’ll have to see what 2015 shows. But, I seriously doubt if they’re going to exceed the 2005 net export rate. I think it’s very likely that Saudi Arabia will show ten straight years of net exports below their 2005 rate.

But, the critical question is depletion. I’ve got a little mathematical concept I call the export capacity index, or ECI ratio. I just divide the production by consumption, and it’s roughly analogous to gross income to expense ratio.

Chris Martenson: So, if I’m pumping ten million, but consuming two and a half, I’ll get a four. So, I have…

Jeffrey Brown: Correct.

Chris Martenson: …I have, yeah, I’ve got headroom to export, okay, yep.

Jeffrey Brown: So, it’d be like if you had ten million gross income, two and a half million expense, it’d be an income to expense ratio, four to one. If that ratio’s declining, if the production’s falling and consumption is flat or increasing, the ratio falls, or if the rate of increase in consumption exceeds the rate of increase in production—which is where we’ve seen Saudi Arabia—the ratio falls. But, in any case, you can extrapolate that ratio out to where it’s 1.0. So, it’s where production equals consumption, or it would be 1.0 income to expense ratio, where income equals expense. So, it’s at that ratio of 1.0, net export equals zero, net income equals zero.

Chris Martenson: So, nothing to export, nothing on the world market at that point in time. It’s all being consumed domestically by whoever’s producing it at that point.

Jeffrey Brown: Yeah, theoretically.

Chris Martenson: Yeah, all right, so if you draw that straight line, what kind of a year do we come to, like some year like 2128?

Jeffrey Brown: Yeah, based on the 2005 to 2013, it’d be 55 years. So it’ll be the year 2060. But, the key point of the depletion is it’s front-end loaded, so roughly, a rough rule of thumb is about one-third of the cumulative net exports are shipped—I’m sorry, about one-half are shipped one-third of the way into the decline period. So, taking 30 years to hit zero, by the ten-year mark, you have already consumed half of cumulative net exports. Now, when you extrapolate that decline ratio out based on Saudi data for 2014, it suggests that they’re already approaching the 50% depletion mark. I suspect that Saudi Arabia may have already shipped close to half of all the cumulative net exports of oil that they will ever net export.

Chris Martenson: Half.

Jeffrey Brown: They’re already half-depleted.

Chris Martenson: And, so that depletion being front-loaded like that, it means that we’re depleting a little bit more rapidly on the front end of this than the back end on a percentage basis?

Jeffrey Brown: Yeah, and not only that, it’s an accelerating rate of depletion. At high rates of consumption, it’s basically a mathematical certainty, whether you’re talking the total remaining reserves or total remaining exportable reserves. At high rates of consumption, what we’re dealing with is an accelerating rate of depletion. So, we’re consuming remaining resources at a faster rate.

Chris Martenson: When you draw that line out—to ask the question when does consumption and when does production equal one, so they’re matched and there’s allegedly nothing left for export, that’s for the 33 countries, I assume, that are on your list. But, we have, how many countries are importing? So, what happens when we take the increase in imports from other countries, and we start to weld those into that model, which you said you straight-line it out, gets you out about 50 years from now. But, I’m thinking about China and India, obviously.

Jeffrey Brown: Oh, yeah.

Chris Martenson: And, in 2014, I read that China became the largest net importer of crude oil, and I just read, I think it was just yesterday that China’s use of gasoline was up by a stunning 17% in the first months of 2015 as compared to the same period in 2014. So, how long would it be at current rates of import growth before China and India are essentially consuming 100% of what you would determine are the globally available world crude exports?

Jeffrey Brown: Well, you can do the same thing, what I call available net exports, which is global net exports less China and India’s net imports. That metric fell from 41 million barrels a day in 2005 to 34 million barrels a day in 2013. So 41 to 34, and again, we don’t have complete data for 2014 yet, but the pattern, apparently, continued in 2014. And, by all available data suggests it’s continuing in 2015.

Now, the math is quite similar. The problem is given an inevitable decline in global net exports, which we have seen since 2005, unless China and India cut their net imports at the same rate as the rate of decline in global net exports, the resulting rate of decline in available net exports to other importing countries—other than China and India—will exceed the rate of decline in global net exports and the rate of decline in available net exports will accelerate.

Now, for example, the observed rate of decline in global net exports was 0.8%, slightly less than 1% per year from 2005 to ’13. But, the rate of decline in available net exports was almost 2.3% per year, three times higher than 2005 to ’13. So, it’s a mathematical certainty that the only way that the volume of oil available to importers other than China and India will not show an accelerating rate of decline is if they cut their net imports at the same rate as the rate of decline in durable net exports or at a faster rate.

Chris Martenson: Well, they’re not going to do that willingly, obviously. No country would. India’s already on record saying, “Hey, you Westerners had your run at this energy story. We still have a big chunk of our population without electricity, without cars. We’d like to get them access to that. Then we can talk about these other issues you might want to talk about.” But, what you’re saying is that available net exports are declining by, what, 2.5 percent per year, rounding a little bit, and so if we just follow that math out, how long is it before just China and India are consuming 100% of available world exports?

Jeffrey Brown: Well, if you extrapolate, what you can do is do an ECI ratio, but it’d be the global net exports divided by Chindia’s net imports. I call it the GNE over CNI ratio. If you extrapolate that out, they would be theoretically consuming 100% of global net exports around the year 2032. So, basically 17 years from now.

Chris Martenson: Yeah, and obviously, that’s not going to happen. I think other countries would have a say in that, because, obviously, Europe, very heavily dependent on oil imports. The United States is, too, to many people’s surprise, to discover we still import a lot of crude oil in this country. And, of course, by 2032, I think we’ll be importing even more if we had our druthers, EIA reports of massive and steady oil output until then notwithstanding. So, it seems likely what you’re saying is that there’s this idea that exports really matter if you’re an importing country. Almost all countries are importing countries, and somewhere between here and 17 years from now, we’re going to have to find a new way of divvying up the oil that is available. Otherwise, what, conflicts? I mean, this either gets resolved through price or by some other form of rationing, I guess.

Jeffrey Brown: Yeah. The optimists would say that continued falling solar costs and increased electrification is going to save our bacon. But, the problem is that the aggregate increase in liquid transportation fuels from fossil fuel-powered cars is so high, even as electric vehicles as a percentage increases. But, I think the estimate for 2015 was something like one-half of one percent of total vehicle sales worldwide would be electric or plug-in hybrid. So, it’s 99 to 99.5% of vehicles are still powered by gasoline or diesel or some other fossil fuel.

Chris Martenson: Yeah, and obviously, it takes energy to make an electric car in the first place. So, leaving that—well, I guess I just heard on the radio today, I haven’t looked into the details, but California, apparently, has a goal to cut its gasoline consumption in half, by 50% by 2030. Now, I haven’t looked at the details, and I’m going to have to do that, because I would think that that would be really stunning for a nation state, if you could call it that, as large as California with 34 million people in it, would be able to cut its gasoline consumption in half in just 15 years. Have you seen that plan?

Jeffrey Brown: No.

Chris Martenson: No, me neither. I’m going to trust it’s got a lot of wishful thinking in it, because it’s extremely hard. Here’s the only thing I’ve seen in the data so far, and correct me if you see it differently, the only thing I’ve seen that cuts gasoline consumption is a recession.

Jeffrey Brown: Well, and price, but that’s kind of the two sides of the same coin. What cuts consumption is the fall in demand. So, the question is: what calls the demand to fall? It’s inability to afford it, and that’s… There’s a New York Times article from years ago that looked at what caused people to actually curtail gasoline consumption in the first half of 2008. And, basically, to a 90% probability, it’s they reduced their gasoline consumption when they were physically no longer able to afford to buy it. So, as economists accurately argued, demand is what you want and what you can afford to buy. So, people want a lot of things, but they can’t afford to buy them all. So, the fall-off in demand would certainly reduce consumption. But, it’s got to be either inability to buy it because they don’t have the money, and/or basically the price is too high. So, it’s basically two sides of the same coin. They just basically can’t afford it. And, the only way to do that, of course, is with much higher fuel consumption taxes.

Chris Martenson: Well, I guess, I was astonished to see that in—I guess it was the last quarter of 2014, the three most popular vehicles were all SUVs or trucks. And, so that was after oil had been falling and gasoline prices had lagged it a bit. So, I think we’d only had three or four months of really obviously falling gasoline prices, and all of a sudden, we were right back to Chevy Tahoes and F-150s and so on. So, it would take a really, pretty stunning price increase that was persistent, I think, to really change people’s behavior.

Jeffrey Brown: Yes, and well, of course, you see it in Europe. They’ve got far smaller cars, very small engines, much more efficient, but of course, a lot of places you see, or did see until the price decline, six, seven, eight-dollar per gallon equivalent to gasoline prices. I’m sure it’s probably still five or six dollars in most parts of Europe.

Chris Martenson: Absolutely. Well, they also have access to better vehicles than we do in terms of mileage. It’s astonishing what they are able to buy that literally we’re not able to for reasons that still escape me. They say it’s air quality, but I don’t buy it.

So, all due respect, it’s a very simple model. It seems easy enough to calculate for any country. You’ve got production and you’ve got consumption, and look where those two things are tracking and you can make some pretty profound conclusions from that. Who else, besides people in the peak oil community, are asking you about the model and reviewing your data and trying to incorporate it into their thoughts and planning?

Jeffrey Brown: Well, probably the most illustrative comment was a meeting a group of peak-oilers had with senior EIA personnel and Department of Energy personnel, I guess, I think it was, it was either 2012 or 2013. Steve Coppitz [PH] was there, I was there, a couple of other geologists, and a couple of other _____ [0:31:06] people, and I gave a very brief—and, we had the director of the EIA there—and I gave a very brief export presentation and asked the question: Is anyone at the EIA modeling future exports globally, assuming a gradual decline in demand and gradual increase in consumption in the oil exporting countries? And, the answer was: no. I think it’s a question that they don’t want to ask, because they don’t want to see what the answer is.

Chris Martenson: Well, I’d be surprised if the military isn’t doing that, because they don’t seem afraid of these things. Their joint operational threat assessment every year is a real tour de risks. They’re out there looking at everything. They talk about economic collapse, peak oil, all of that. So, it seems the military side at least is ready to look at these sorts of things. I don’t know if they’ve looked at this export issue yet. I think they might’ve, given how concerned they are about liquid fuels going forward and the efforts they’re taking.

But, on the civilian side, on the EIA side, you’re saying they’re—they said "no," and not only "no," but "no and we’re not going to," because there’s been no follow-up, right?

Jeffrey Brown: I’ve had some email conversations, but certainly nothing really inquiring about, doing anything official on forecasting exports.

Chris Martenson: Yeah. Well, it’s not that surprising.

Jeffrey Brown: Yeah, well, it’s, if you don’t want to know the answer to the question, most people tend not to ask the question.

Chris Martenson: Absolutely. No, I get it. And, we don’t have—politically, there’s no Plan B that’s been floated yet to say what we would do if we got that answer. Plan A is: we’re clever, there’s a lot of shale oil, we’ll be able to get as much from that as we want for as long as we want, and that’s our plan. And, at least that’s what I saw under the last two presidents, and I would be surprised to see any difference under the next one. It seems to be the state of things at this point.

Jeffrey Brown: Well, the conventional wisdom now is that we’ve got virtually infinite fossil fuel supplies, while as I said, I think the reality is that all this is based on an accelerating rate of depletion, both remaining crude oil reserves and the reserves of all type, but especially remaining cumulative net exports.

Chris Martenson: Well, here’s the funny thing, Jeff, for me, is that even the EIA, who I think is a little—I think they’re being a little generous—but, let’s even use the EIA’s data. They were saying that shale oil was going to peak in the year 2020. As a father of now three teenagers, I can tell you time passes quickly, and so that’s like five years from now. It’s really coming very soon. My question to you then is that that lack of current capital expenditures by the oil companies that I opened with—do you see that as a potential future trouble spot, or is that potentially just a bit of bother about nothing? We’ll just dial up our expenditures later and won’t be a problem?

Jeffrey Brown: No, I think it’s going to cause an overall net decline in global crude plus condensate with virtually all the decline coming on the crude side. And, I would think that, probably not 2015, but probably certainly 2016, we’re going to see an overall net decline in crude plus condensate.

Chris Martenson: And, that’s simply because of projects that were deferred, delayed or otherwise not prosecuted and so A.) we have depletion going on, or decline I should say, well, both. We have decline going on, and output from existing fields, many of which are aging, that has to at least be offset by new discoveries. And, then if we want output to grow, of course, we need even more than that. Where do you—you’re saying that our level of investment won’t even be sufficient to offset the declines you anticipate.

Jeffrey Brown: Correct. And, I would guess with any observed decline in crude plus condensate globally, it probably, starting in 2016, would be probably 90% crude oil, actual crude oil, 45 and lower API gravity. So, I think you’re going to have refiners really start scrambling, trying to get sufficient crude oil supplies and they’re going to have to start bidding the price up. And, so the problem is the bulk of the stuff being produced in the U.S. is 45-plus. I think the EIA estimated that the increase from 2011 to ’14 was a million barrels per day of the increase is actually just condensate and the rest was a small increase of 45 or lower, or actual crude oil.

Chris Martenson: Right. So, for people listening who are not versed in this, it just, again, you explained it, Jeff, that this 45 and above is very light stuff, it’s like natural gasoline, which explains why when these trains that are carrying this stuff, say from the Bakken formation, when they derail, why they explode so violently. It’s not, they’re much more combustible than your standard train full of crude oil. It’s actually kind of hard to get crude oil lit on fire. You can do it, it’s not easy. Gasoline, totally easy. So, that’s what’s happening, that’s the direct reflection. We’re seeing this really, really light stuff coming out of those shale plays, Bakken in particular, Eagle Ford as well, and that, at least, in part explains the exploding train car phenomenon.

Jeffrey Brown: Correct.

Chris Martenson: In your mind as you look into this, what decisions have you come to, given the information that you have? And, how does this play into your thinking about how you personally—I don’t know—are preparing yourself, your family, your children, grandchildren, for—what future do you think is coming based on this?

Jeffrey Brown: Talk about a complex subject. I’m an energy producer and I plan to spend the rest of my career looking for oil fields in West Central Texas at shallow depths. We’ve got low drilling completion costs, low operating costs, and so I kind of compare myself to a small organic farmer. A small organic farmer can’t make a material impact on the food supply, but he can be a net producer and he can feed his family and put people to work. So, I’m basically doing the same thing.

But, as far as broader advice, I had a little essay I wrote years ago called, “Economize, Localize, Produce,” and advised people to economize, to try to live on half or less of their current income and localize, minimize distance between home and work to as close to zero as possible. Ideally live in a walkable urban community along a mass transit line. And, P is produce; try to work for, become, invest in providers of essential goods and services, ranging all the way from food producers to energy producers to solar, wind power, alternative energy suppliers.

Chris Martenson: Boy, we’re…

Jeffrey Brown: So, try to prepare yourself. One way I think I’ve phrased it before is that cheap is the new chic. So, prepare yourself for a different future. I think you’ve got to plan on a much more austere lifestyle in the years ahead.

Chris Martenson: We’re just totally on the same page on that, and that’s some advice we’ve been giving as well, which is not only should you probably cut your consumption down now on your own terms, but if you do that you save a bunch of money. It’s probably good for the environment overall, and you’ll be less exposed in the future if either things become expensive or unavailable, all of that.

But here’s the mystery thing that I discovered in my life, Jeff, was that when I cut my standard of living on my own terms, when I cut that in half, my quality of life actually doubled. So, my commute involves walking from one building to the next on my property right now. And, I produce a lot of my own food in my own garden, buy from local farmers otherwise. I’ve got wood stoves, solar thermal hot water panels, solar photovoltaics, all that. So my future expenditures—my cash flows out to keep myself fed and heated—are lower.

But, here’s the best thing, my house is more comfortable, I’m eating better food, I really love my local relationships. So, to me, that’s the bright side of all this, such as it is, is that these changes that I think we really should make so that we’re more resilient, more insulated, are also changes you might want to make if you want to be—if you just want to live better anyway. So, yeah, once I was able to cut that cord between standard of living and quality of life, which, frankly, Jeff, it got sold to me and I bought it at an early age. Once I cut that, lots of things opened up, possibilities were much more, shall we say flexible than I thought they would be.

Jeffrey Brown: I agree. And, especially as people age, I think in these suburban communities, the people that live that are more connected, the more walkable communities, as they lose their ability to drive, the ones that are in the more walkable urban communities are psychologically far healthier. The rates of depression and suicide tend to go up much higher in people that are in isolated little suburban enclaves, especially as they lose their ability to drive.

Chris Martenson: Yeah.

Jeffrey Brown: And, I think, basically, sort of the Main Street, U.S.A. lifestyle, there’s a lot to be said. It hearkens back to all of Jim Kunstler’s work that he called suburbia the biggest misallocation of resources in the history of the world.

Chris Martenson: Yep. I mean, he’s right. And, it wasn’t always the most beautiful allocation of resources, so absolutely.

I think you’re doing—I really love your work. It’s why I featured it. I think it’s a really important concept. We have to be looking at exports and that’s quietly trundling along and I wanted to raise that at this point for people. Because, I think with all the world stuff going on with China and the emerging market disasters that are unfolding, this idea of oil gets lost in the shuffle, particularly given what I’ll call the marketing campaign—as generous as I can be—to convince us that the world is awash in oil, there’s nothing to worry about. I’m really worried about the steep decline in capex that we’ve seen in the oil business. I know that we’re, in a couple of years, that’s going to bite us in terms of supply. And, that’s coming right at the same time that we have a number of other issues coming up, not least of which is this idea that decline and overall depletion of existing reserves is ongoing. Your model points out why that’s important, plus everybody who can produce oil seems to want to consume it themselves, too. That’s happening as well. So, really important concept. So, I just wanted to shine some light on that and thank you for your work in bringing that to us.

Jeffrey Brown: You’re very welcome, and happy to talk to you.

Chris Martenson: And, if people want to follow more or read more about that, where’s the easiest place for them to do that?

Jeffrey Brown: Well, actually, I don’t have a blog, and I don’t—I really don’t even have any current papers right now. I’m waiting for the EIA data to come out with the 2014 data. When they do I’m going to update our global data. But, tell you what, when I do that, I’ll actually just, when I get the paper done, I’ll just shoot you a copy and then you could post it on your website if you want to.

Chris Martenson: All right. Well, very good, I’d love that. Thank you much, and I do follow you, such as it is, on That’s a place that you drop a few a comments and it’s a site I visit all the time when I want to know what’s going on with the data. Because, the data here is still vitally important. So, again, Jeff, thank you for your time today. Thank you for your work, and I look forward to work from you whenever it’s done.

Jeffrey Brown: Yes, sir. Will do.

Chris Martenson

Chris Martenson, PhD (Duke), MBA (Cornell) is an economic researcher and futurist specializing in energy and resource depletion, and co-founder of (along with Adam Taggart). As one of the early econobloggers who forecasted the housing market collapse and stock market correction years in advance, Chris rose to prominence with the launch of his seminal video seminar: The Crash Course which has also been published in book form (Wiley, March 2011). It's a popular and extremely well-regarded distillation of the interconnected forces in the Economy, Energy and the Environment (the "Three Es" as Chris calls them) that are shaping the future, one that will be defined by increasing challenges to growth as we have known it. In addition to the analysis and commentary he writes for his site, Chris' insights are in high demand by the media as well as academic, civic and private organizations around the world, including institutions such as the UN, the UK House of Commons and US State Legislatures.

Tags: EROEI, Export Land Model, global oil production, peak oil