Nice analysis as usual WT.
BTW - VenMex may be a bit more self descriptive than V&M...

2008 looks quite different in Q2. Katrina in red.

Source: EIA.

Enjoy.

Indonesia stopped being a net exporter in 2004 and UK in 2006, which is probably why neither of them are on the list. IIRC, 2005 was the last year UK was a net exporter.

As usual, Matt Simmons pointed out the difference in transit time, long before I did.

As far as transit rates go slow steaming is becoming increasingly common where ships slow down to conserve bunker fuel. Its easier to find info for container shipping but we would assume that oil tankers are also using the practice. This would work to increase transit times.

Dated but its the problem we face.

http://links.jstor.org/sici?sici=0160-5682(198211)33%3A11%3C1035%3ATEOOPO%3E2.0.CO%3B2-Z

http://seekingalpha.com/article/77472-teekay-tankers-limited-q1-2008-ear...

http://www.istockanalyst.com/article/viewarticle+articleid_1980755~zonei...

In any case this would put some pressure on tanker rates and show a bit higher amount of oil in transit.
But the truth is less oil is actually moving since all voyages are probably taking longer.

Interesting - who would have thought that transit times could also be such a major factor?

Well, let's consider our happy friend the oil tanker.

If he can make 4 trips from Mexico or Venezuela in 20 days, he hauls 4x his holding capacity in those 20 days.

If he can only make 1 trip from the ME in thise 20 days, then he can only haul 1x his holding capacity.

Now... If the company that owns him wants to maintain the same rate (4x in 20 days) then the company needs to have 4x as many tankers. This drives up the overall cost of shipping by 4x as well.

I think that it would be an interesting article to post that asks 'What if we only got oil from one or two parts of the world that were far from us?' i.e. for the US, if we could only get oil from the ME and not Mexico or Venezuela; For Europe, if we could only get oil from the ME (again) and not the North Sea. What does the supply chain look like? How vulnerable is it to natural or man-made disruptions? How expensive is it?

Good stuff...

Diesel and kerosene are the "essential" fuels, providing third world cooking and military, truck, farming and aviation fuel. They are very close together in the distillate column and I guess interchangeable to some degree at a refining level; and a greater degree when used. Gasoline is rediscovering its status as a by-product, albeit one that doesn't suffer any lack of demand.

An interesting analysis could be made of the worlds diesel/kerosene capacity. I bet it would provide a fascinating twist to the ELM model and governments are likely to exert some form of control over these supplies before gasoline. For instance, the US military recently standardized all its equipment on JP8. Diesel can be used too in many/most road vehicles, but in theatre they only need JP8. Guess who will get the last drops of the stuff?

Which means that you now need 4 extra tankers to maintain the same flow of crude.

Who exactly is building ships these days. Korea, China, India?

But how many next years do we have left before us?

Note that oil prices and the dollar are both going up this morning.

Has Venezuela peaked geologically?.. or is it more of an "investment" problem?.. or just mismanagement?

Probably all three (regarding at least conventional production), however, a key point (that Ron has pointed out before), oil production in Venezuela started declining prior to Chavez coming to power.

In any case, the EIA data show a 10 year net export decline that has been recently accelerating. Trying to model unconventional production is a problem, but the current trend suggests that Venezuela may be on track to approach zero net oil exports within 15 to 20 years.

or just mismanagement?

Or smart management, why sell the oil cheap today when you can sell it at a higher price in a decade?

Well, good (and bad) advice has no effect on your life, unless you act on the advice.

That was a net loss of about 4 mbpd. 2.24% however is close to what was taken off the market in 1979.

Yergin (sic) does a good job explaining that even worse than supply shortfall per se was the panic that ensued.

Taking extra supplies from elsewhere though would result in prices being bid higher, as someone else is currently using them.
It boils down to extra pressure on prices on top of that already in the system, presumably making a break for at least $160/barrel and perhaps $200.
Thanks for another great post, WT and Datamonger.

New MOL (Minimum Operating Level) Demand

GWB gets on his knees and begs the King for more oil. He gets 300,000 b/day (the King was in a good mood).

Assume that this replaces Mexican oil (3 days I think to Houston or New Orleans). 30 days from Saudi Arabia.

(30 - 3) x 300,000 = 8.1 million barrels to fill the longer pipeline. About 20% of one day's net world oil exports for this new demand.

Alan

On the bright side, if there is a revolution in the Kingdom of Oil, we will get to draw down this MOL oil when we need it most.

We need to keep the huge size of the V&M net export decline to US shores in perspective. The data table that Datamunger did showed that total worldwide net oil exports dropped by about one mbpd in calendar year 2007.

In a six month period, from 10/07 to 3/08, net oil exports from V&M to US shores fell by 414,000 bpd.

Also Hirsch, Pickens and Simmons don't seem to be saying much about it

Last month I had lunch with Matt Simmons during "Platts Securing Benchmarks and Supply: The Challenges for Crude Oil" in Vienna and as well as being very knowledgeable and friendly he also encourages openness regarding peak oil related issues.

In fact the beigest problem at the conference was that apart from Matt and Professor Kjell Aleklett from ASPO all the speakers appeared to be either ignoring or speaking against peak oil.

Matt and Kjell are forced to keep repeating the same BASIC message because peak oil is not recognised by the industry, even at this late date.

The export Land Model and E.R.O.E.I. are too advanced to discuss when the you can’t even get the rest of the speakers to acknowledge peak oil.

Current US extraction rates are at approx. 1950 level. Imagine the level of economic activity US had in 1950 and then factor in double the populace. Personally, I think the US can live well with its own current oil flow rate after considerable dislocation and resettlement and restructuring of the economy and vast alteration of personal behavior and culture. There's a lot of fat in the USA that must be lost through a crash diet.

What's the incentive for those with easier-to-get (relatively) oil to be in a big rush to bring it to the top?

In a word, cashflow.

"The incentives for taking oil out of the ground diminish when it's value goes up exponentially just sitting there."

On top of that, those incentives must have plunged on May 18, when GWB told leaders of ME countries:

"The rising price of oil has brought great wealth to some in this region, but the supply of oil is limited, and nations like mine are aggressively developing alternatives to oil."

http://thescotsman.scotsman.com/latestnews/You39re-running-out-of-oil.4095858.jp

I translate: “Keep in mind that just as you will be depleting your finite oil reserves, we will be turning more and more of our crops into biofuels, no matter what happens to people in food importing countries (like yours, BTW).”

If those leaders then had a look at what happened lately with the purchasing power of their dollar reserves in terms of grains, oilseeds, etc., courtesy of the current US monetary policy, the only logical response from them would be to cut down their oil exports to just cover their imports, so as not to add any further dollar to their fast-depreciating (in real terms) reserves.

I sent a private email to WestTexas asking him to recant his model so we could figure out real out production :)

I figured if the US congress can sue its suppliers then hey I might give it a shot :)

No your right at the moment its practically impossible to know what the real oil production is. In a sense export land has made the data set very noisy. But the problem with this is that we probably have also started into a fairly steep production decline and eventually it will show up in the data on top of export land.

I did a big long post on this but it boils down to Export Land and Production drops having a slightly different signature in price.

Export land is incremental pressure and would be steadily driving up the price. Dropping production regardless of the shell games people play eventually shows up as a steep drop in inventory delivery etc. You can hide it but not forever. This causes more of a surge in prices and price spikes.

Export land pretty much ensures that once new highs are reached because of production problems the lows won't be much lower.

So production declines are driving the highest high's and export land is driving the lowest lows for price.

So the recent price increase since last October have seem to indicated both processes are in play and we are past peak in production and export land is active. It may be six or more months before oil producers are forced to admit to production declines but eventually they will.

My stab is this should result in prices never dropping more than 10-15 dollars from the last highest high regardless of how high prices go.

Regardless of whether we are at peak or "peak-lite" (a term coined by Robert Rapier to describe the period shortly before peak), the key issue is that supply is not covering growing demand at current prices thus prices increase to constrain demand to the existing supply. It will, of course, be worse after peak than before.

Some of those who argue we are not yet at peak should take that prior sentence and think on it. If these are the sorts of economic dislocations and crude prices we are seeing before peak, what will it look like if oil supply begins to contract at a 4.5% annual rate? Anyone? Anyone?

I reddit.
But will it help?

Or a more likely scenario is that hordes of angry Formerly Well Off's go after the Peak Oil/Peak Export messengers with pitchforks and torches.

Nothing wrong with the ELM as it looks a lot like the leveling effect outcome of unconstrained globalization. Spreading the wealth as is promised by globalization allows the poor people to become more wealthy at the expense of the average wealthy, who will lose some share of economic resources. This basically shuffles the chairs on the deck. ELM does the same thing, but perhaps in reverse. It shows how certain countries will feel more pain than others but not necessarily how the collective will fare.

I have proposed Phase One and Phase Two net export declines.

In Phase One, cash flow from export sales increases, even as export volume declines, because rising oil prices more than offset declining volume.

In Phase Two, cash flow from export sales falls, as export volume declines, because rising oil prices can't offset declining volume.

In most cases, we would probably expect to see a positive feedback loop in Phase One, causing an even faster rate of increase in consumption, e.g., Saudi Arabia. I suspect that by the time that an exporter gets in Phase Two, what they do regarding consumption won't matter a whole lot. And I have tried to use the term "approaching zero net oil exports." We may see a lot of world trade being reduced to net food exporters largely trading with net energy exporters.

Also, if you look at the original ELM, I used a consumption increase of +2.5%/year, which with the production decline resulted in Export Land going to zero net exports in nine years. If they had no increase in consumption, they would go to zero in 14 years, not a really big difference.

To add a bit.... if the US was experiencing a special net import supply problem (beyond the world situation) i think one would expect to see WTI spike much higher than Brent...

Could you give a link to the EIA monthly data ? I scanned their site and it did not jump out at me.

I know where to get the weekly data, which is rushed out 4.5 days later with estimates, etc.

The monthly data is much better quality, but slower.

Thanks,

Alan

To add one more fun fact...

Feb & March of this year were the first two back to back months of US consumption below 20 million barrels per day since May and June of 2003

yes, i'm a baseball fan :)

That is a supply graph (as you can read in the parenthesis). Of course, it is also a demand graph, since demand is supply.

The price going up is what tells how scarse oil has become, not supply (demand) graphs. Also, US net imports decrweased because production decreased (or demand decreased, if you want to make things look confusing) and other countries are overbiding the US.

Inventories may be falling because people think that it is a temporary price peak, and things will get into normalcy again. Or, maybe because people are burning monetary savings to survive, thus selling the oil to customers sooner.

Well, first and foremost, Mexico is on the fast track to oblivion regarding net oil exports.

Regarding Venezuela, the recent data are a continuation of a 10 year trend of declining oil exports. Part of the decline in Venezuelan exports to the US may be them choosing to send their oil elsewhere, but the decline in what they are sending us is pretty clear.

Also, why favor oil exporters 30 days away over exporters 5 days away, unless oil companies had no choice?

And the year to date numbers show a year over year decline of about 450,000 bpd in US consumption:

http://www.eia.doe.gov/pub/oil_gas/petroleum/data_publications/weekly_pe...

One key point to remember. The US is showing a long term production decline. If we want to keep our net oil imports flat, we have to reduce our consumption at the same rate that our domestic production declines.

I'll not repeat my previous post on US demand but the demand drop is entirely consistent with the tanking of the US housing industry and probably is not directly related to changes in oil prices.

http://europe.theoildrum.com/node/4007#comment-353037

Building houses is not surprisingly a big user of fossil fuels and since the newest houses are farther out VMT increases stop building houses and demand flattens.

It seems to me that's a graph of supply, not demand. If prices didn't go up, it might be demand.

Anyway, about the 414 kbd. I have a question. If stocks were down 15 Mbbl over the last two weeks, divide by 14 and you get a little over 1 Mbbl/day shortage. If demand was constant we're talking a lot more than 414 kbd decrease. Is the difference equal to the increased transit distance?

Second question. Assuming 400 kbd lower shipment from V&M, and a VLCC holds 2M bbl, then we need an addition 400x7 = 2.8Mbbl/week or roughly 1 VLCC shipment every 5 days. Assuming there are plenty of VLCCs available, but the round trip time increases from 12 days to 48 days (increase of 36 days) So for the static case we need 48/5 or about 10 new tankers in transit to/from the ME plus a few more quickly to make up for any current shortfall. Assuming we dispatched some of these when we first found out about the V&M shortfall, we'd have a gap of about 36 days during which we have to live on 2.8M bbl/week less.

Is this the general thinking?

Given we seem to have a shortage of more like 8M bbl/week for the last two weeks, and it doesn't seem to be due to fog, is it reasonable to assume our real shortage is a lot more than 400 kbd ?

Chris

having thought about it a little more, I think I can summarize

The decline in net exports is a world problem, not specifically local, since we have a world market and oil is fungible

US net imports are declining (6% approx) at a faster rate than the decline in world net exports (2 1/2% approx). This additional decline (3 1/2%) isn't forced on us since the markets are open for biz if we want to buy more

we don't

Not at current price

So the additional decline in net imports is a demand thing, we are cutting back
(used less last winter than in 1978)

So, how can the current decline in gulf coast imports be a big additional crisis?

These Fed officials think up to a 20% drop in consumption over the next 10 years will be the effect of current prices staying the same

http://dallasfed.org/research/eclett/2008/el0805.html

If so, refineries and other types of oil related facilities are going to close. Inventories will drop big. Net exports will plunge maybe 30% assuming domestic production holds up ok.

None of this would have to be attributed to an additional supply crisis. prices jsut have to stay the same.

Yes, beside the net oil imports then we need to add in the refined petroleum we are importing as well...is this what you are saying? I read that you are suggesting to subtract out the US exported refined petroleum. Of course, that needs to be done as well.

The EIA defines Net Oil Exports and Net Oil Imports as the (positive or negative) difference between Total Liquids Production less Total Liquids Consumption.

Assume Production Land, with production of two mbpd, with no refinery capacity, and with consumption of one mbpd.

Refinery Land has two mbpd of refining capacity, but no production, and with consumption of one mbpd.

Let's ignore refinery gains.

Production Land exports two mbpd of crude oil to Refinery Land. Refinery Land exports one mbpd of refined product back to Production Land, consuming the other one mbpd.

So, Production Land has two mbpd of gross oil exports, one mbpd of net oil exports.

And Refinery Land has two mbpd of gross oil imports, but one mbpd of net oil imports.

The energy intensity of the U.S. economy has dropped at least in part because we've been riding on the backs of the Chinese. They're doing the manufacturing, which takes all the energy, but we get something like 90 cents of every dollar for the products they make. Our economy's share of those dollars goes to marketing people and financiers and corporate honchos.

With wages in China going up, and with the cost of transporting goods going up, and with profits getting squeezed as consumers opt for lower-priced brands, our GDP's share of the sales price of Chinese goods is shrinking at a good clip.

So, either we will start doing more of our own manufacturing, which means our energy use per unit of GDP will go up, or we will continue buying fewer and fewer goods from China, which hurts us at a rate of 90 cents for every 10 cents it hurts China--meaning our GDP per unit of energy use goes down.

Either way, I see the energy intensity of our economy getting worse, at least over the intermediate term, rather than better.

Good luck cutting the largest industry left in the US building houses is pretty much already dead and this has resulted in basically flat to slightly declining demand. The next big one is commercial real estate but this does not have the same consumer side demand component. I.e if they don't build the new mall you have 10 others to go too. Or the 50'th redundant strip mall with a nail saloon. So tanking commercial real estate and consumer purchases should have a lot lower impact on oil usage vs housing.

Almost all our so called conservation was from offshoring of industries to Asia so the combined demand has actually grown dramatically its just arbitrary accounting by dividing the real economy which is China/India/US/Europe that gives you conservation in one place and growth in another.

In my opinion once the housing industry is dead we have very little left to cut without introducing major lifestyle changes and any further offshoring simply moves demand around.

In any case the largest fuel intensive industry in the US has collapsed and people are excited about the 400kbpd drop in demand. If we have to crash other parts of our economy to get similar savings I'd dare say we are in a bit of trouble.

Hi wokman,

Thanks for sharing your firsthand experience.

I'm curious - do you know where each of those kinds of onions are grown?

http://graphoilogy.blogspot.com/2008/01/quantitative-assessment-of-futur...

This paper has a plot of the year over year changes in net oil exports for the ELM, the UK and Indonesia. We plotted from the first year of decline to the final year of net oil exports. Note that a constant exponential decline would plot as a flat line, parallel to the horizontal axis. What the plot shows are accelerating net export decline rates.

From everything that I have read, Cantarell is crashing, which means that Mexico is on the fast track to zero net oil exports.

BTW, the ELM, Indonesia and the UK were all consuming about half of their production at final peak, and the time periods from final peak to zero net oil exports were 9, 8 and 7 years respectively.

Mexico, at what appears to have been their peak production rate in 2004, was consuming about 50% of their production. This is why I view 2014 as the outer limit for Mexico approaching zero net oil exports.

I mentioned that same story in a prior Drumbeat and the point is - no fog. No reason is given for the cancellations but fog was assumed by many investors. The reality is something else. We do not yet know what that something else is, but WT's ELM is a better candidate than fog!

The actual decline in Gulf Coast crude oil imports last week was relatively small. The much bigger declines were in the prior weeks.

The last four weeks (ending May 23rd) of crude oil imports from all sources into the US Gulf Coast were as follows (mbpd):

6.683
6.130 (down 553,000 bpd)
5.173 (down 957,000 bpd)
4.996 (down 177,000 bpd)

IMO the cutbacks will come after a major price drop, putting a floor under the oil price and thus encouraging the speculators/investors to stay long. If I was advising OPEC, I would tell them to act like the PPT or the Fed and show speculators/investors that you will protect a floor-that way you have all the investors/speculators working with you doing the heavy lifting.

Hi future,

1) TODer Andre' (aangel)has a nice summary of articles on economic impacts at
http://www.inspiringgreenleadership.com/blog/aangel/estimating-economic-...

2) A slightly different question is: What is the specific change that might occur as a result of being "ELM aware"?, i.e., what is the possible chain of reasoning that connects the "awareness" to the action ("react differently")?

Or, to put it another way, how does/would the "awareness" affect the dynamic of needing cash v. oil?

3) How do you define "dictatorship"?

(said w. a tenuous and slightly sad :)).

1) Nobody knows (AFAIK), it'll be a fun little surprise

2) They will hold back as much as they can without causing an oil war?

3) Some will, Totalitarian rule will mean they are much faster at decision making and have more power to implement policy, however, if they implement the wrong policies they won't do to well. On average they will probably be better off than the United States as far as working with what they have. Congress is full of clueless people which is a trend I don't see dissipating soon. Obama and McCain have both admitted that they don't understand economics very well.

TOD Editor Stuart Staniford did such an analysis in years past. I don't recall the exact details or have the specific URL handy but I believe Stuart estimated 8% decline to be the breaking point beyond which society had no chance to survive. That doesn't mean society will make it at lower rates, just that we have a chance to make it.

Stuart also assessed the economic impacts of oil shocks that cause price increases throughout the economy in Inflationary Collapses, or The NPV of Grandchildren.

So if that's true, we might expect that a biosphere constraint (along with other resource constraints like peak oil) will tend to cause inflation. In the current economic consensus, the correct central bank response to that will be to increase interest rates with a view to throttling the economy back and reducing inflation.

And the problem with that is those higher interest rates will sway the balance of decision-making towards less sustainable management of the biosphere.

In other words, it appears to me that there is a potential for a nasty positive feedback here that could promote a downward spiral. One might call it an inflationary collapse: the harder the resource constraint bites, the more tendency towards inflation in the economy, the higher interest rates will go, and the less incentive anyone will have to manage their piece of the biosphere sustainably.

If I can find the other article by Stuart that attempted to assess the decline rate problem I will post the link to that as well. Those articles are by no means definitive but since I've seen few other attempts to tackle that problem, I still reference Stuart's work.

"What percentage decline rate in exported oil is too sharp for the Western industrialized economies to handle the decline in an orderly fashion? "

Well, I saw a recent study which estimated that 40% of US workers could telecommute, though only 4% actually do so. The remaining 60% could carpool, and cut down their consumption by at least 50%, so the US could easily reduce commuting oil consumption by 50%, under emergency conditions.

Vacation fuel consumption would be easy to cut: just vacation in one's own state, instead of driving across country - the only loss would be a slight reduction in vacation novelty. Deliveries and shopping fuel consumption could be greatly reduced by online shopping and trip planning & sharing.

I think the US could cut fuel consumption by 25% in 6 months with only relatively small costs in convenience. I suspect it could reduce 50% in a year, and still manage to provide all essential economic functions (I'm not including tourism and entertainment as an essential).

Carsharing (as in zipcar.com) and carpooling would allow the sharing of scarce hybrids and PHEV/EV's (the average US vehicle is only 1% utilized, European utilization rates are probably lower).

"Will countries that change into dictatorships do better "

WWII style emergency management isn't quite the same as dictatorship. People will do extraordinary things, if only they believe they're necessary.

But the numbers of the last few weeks are not representative of that decrease.

It would be more accurate to say that we don't know if they are representative or not. We do know that the V&M accounted for more than 20% of total US imports in 10/07, which was probably more than 40% of imports into the Gulf Coast. And we know that Mexico is on a fast track to zero, with Venezuela showing a net export decline that would, at the current rate, result in a 50% decline in 10 years.

Correct so supply problems tend to result in sharp increases in price while base export land is a relentless constant force. Of course its almost impossible to figure out the cause of the supply problems completely.

But the direct result of supply problems is buying more oil on the spot market forcing prices up.

Export land acts to destabilize longer term contracts as refineries have to look for different suppliers this also can lead to supply disruptions and new contracts have to be created. One of my contentions is that the overall oil market gets even more opaque then it already is as we have had massive amounts of uncertainty injected into the system.

For example given all the information I've been able to gather I cannot even begin to predict what gasoline imports into the US will be this summer. The only thing I'm pretty sure of is they probably won't be higher then in the past. But with all the changes that are happening it seems that the answer is we simply don't know. And I don't think thats a result of lack of information I think they are really not known by anyone.

The full impact of falling VenMex production is a lot larger than simply lower imports into the Gulf coast its rippling out through a heavily strained oil industry.

Canada actually showed a net oil export decline last year, about -1.3%/year, and I wouldn't be surprised to see more and more unhappiness in Eastern Canada.