Oil Demand Seems to be Moving Up - Are Higher Prices around the Corner?

The recent run-up in oil prices to $84 barrel is being blamed on an increase in Chinese oil imports. In December, Chinese imports of crude oil rose to 20 million tonnes, or the equivalent of 4.7 million barrels a day. Recent purchases of African crude have been especially high, with purchases by Asian markets reaching 1.9 million barrels a day in early January, up from 1.58 million barrels a day in December.

Increases in Chinese oil demand shouldn't be too surprising, given how rapidly personal auto sales have been increasing. The Chinese purchased 13.6 million cars and light trucks last year, compared to 10.4 million for the USA--they are now the world's #1 auto market. We should not be surprised if this demand continues to grow and exert upward pressure on prices.

The increase in Chinese purchases has been clear for some time, as has their agreement with Saudi Arabia to increase purchase levels. As a result the world is rapidly returning to the production levels that were achieved before the financial recession.

If we go to the EIA web page, the figures released a couple of days ago (which are only compiled through this past October) show that peak world production was in July 2008. (Note that this counts all liquids, including ethanol, and natural gas liquids.) At that time, total production was 86.620 mbd, of which OPEC produced 36.412 mbd and the USA some 8.830 mbd. In January a year ago, production was at its lowest over the last couple of years at some 83.145 mbd; OPEC was at 33.402; and the USA at 8.731 mbd.

By October 2009, however, world production had returned to 85.302 mbd. This is very close to the average value for 2008, and some 1.3 mbd above the average, to date, for 2009. OPEC production was running at 34.381 mbd.

Non-OPEC production, which has been bouncing around 50 mbd since December 2003, and which has been predicted to be in terminal decline, did reach a new peak (according to the EIA) of 50.921 mbd in October. However, the general prediction for non-OPEC production relates to crude oil production, rather than all liquids, which is the EIA figure.

It would thus appear that we are within 1.3 mbd of reaching a new record for production (and this was for last October, and as I noted above, sales in December were significantly up in China).

The numbers for crude oil alone are obviously lower. In July 2008 world production was 74.746 mbd, with 33.138 mbd of production from OPEC; after a nadir of 71.430 mbd last May, when OPEC was at 30.399 mbd, by October production was back up to 73.121 mbd, with OPEC at 31.012 mbd. The difference between peak and October is 1.6 mbd.

Until now I have anticipated that we would not revisit the levels of production that we were at when oil reached $147 a barrel (which was in July 2008) for at least another year. Depending on how you view these levels of production, that pessimism about the growth or regeneration of the world economy for which this might be considered to act as a proxy appears that it might be too conservative a view. We may well exceed the current maximum values by sometime this summer, when we usually see peak annual demand.

The question will then become one of the availability of the market to meet the higher levels of demand, and can this be done without returning to the high prices that were encountered the last time around. And with those questions comes the slightly longer term one as to how much higher world oil production can be raised, before we bump into a physical production limit.

I tend to believe the generalized view that non-OPEC production is at a peak--if not, over a sustained period, just about past it. But even if non-OPEC overall production level is sustained or slightly increased, this will still throw the burden of meeting significant increases in global demand on OPEC, and this re-opens the debate over how much additional oil that they can bring to the market, given the slow release of the production quotas under which they have been operating for the past year. (Saudi Arabia, for example, which peaked at 9.7 mbd in July 2008 and dropped to 8.062 mbd in February of 2009, crept back up to 8.54 mbd in July and was at 8.34 mbd in October. Over this period Russian production has steadily increased, with October levels reaching 9.629 mbd. This contributes to the non-OPEC rise. USA production is also up recently, and North Sea production seems to be recovering from a dip.)

Well, those are the numbers. They are moving up faster than I had expected, and I’m afraid it will likely mean that higher gasoline prices will rise faster than I had expected to be the case. That is because you don't get these levels of production unless someone is buying and using the product. As demand rises, we will have the opportunity to see whether the claims that have been made about high global reserves being available to expand production are true. Also, if oil prices do rise, we can also see whether and when they impact the global financial recovery.

HO, we are living interesting times indeed !

And then we have, drumroll please, net oil exports.

Saudi Arabia (net) exported 9.1 mbpd in 2005, as they made good on their early 2004 promise to support the $22-$28 OPEC oil price demand, but starting in early 2006, they started delivering less oil to the market, as oil prices exceeded the $28 upper limit by more than 100%, a pattern that continued as annual oil prices rose to $100 in 2008, as Saudi Arabia (net) exported 8.4 mbpd (EIA).

Closer to home, three of the four largest sources of imported oil for the US--Canada, Mexico & Venezuela--went from combined net exports of 5.0 mbpd in 2004 to 4.0 mbpd in 2008, a net export decline which continued in 2009.

An issue which I am currently focusing on is Cumulative Net Oil Exports (CNOE). I have frequently cited the example of Indonesia, UK & Egypt (IUKE). Their combined production peak was 1996, and in just the first three years after 1996, their post-1996 CNOE depletion rate was 25%/year, although the annual rate of decline in the volume of net oil exports was only 3%/year. Let's think about this for a moment. They were depleting their post-1996 cumulative supply of net oil exports (basically analogous to a gas tank) at the rate of one percent every two weeks (these are actual EIA numbers, not projections), while the volume of net oil exports was falling at only one percent every four months.

In my opinion, a plausible estimate is that net oil importers are currently burning through the post-2005 CNOE global supply at the rate of about one percent every two months--basically taking one percent out of the net export "gas tank" every two months.

I stand by my forecast. Wall Street consensus said oil will be 85 this year. I say it will be double that. I just don't know for how long.

Remember this is the year of Matt Simmons bet he made in 2005:
$10,000 says oil will be over $200 in 2010
I think the bet says it has to average $200 plus for the entire year, in 2005 dollars. That will be a stretch

A group of Peak Oilers contemplates the consequences of Peak Exports:

I am beginning to think that Net Export Math is so scary that it forces most Peak Oilers into a state of denial.

Net oil imports in Japan were seldom described in your import-export commentaries based on EIA analysis.

Companies have been trying to sell off assets after binging on leasing large natural gas rights and taking on debt. It is harder to hedge production high these days. I recall day after day hype about high first year decline rates of NG shale wells. With multi-stage fracing the IP #'s of NG wells have increased greatly. LNG capacity has seen phenomenal growth. The increase of the numbers of NG fueled autos on world roads were increased 100's of percent in the past decade.

It is scary for some generation might run out of oil and that oil exporting countries will be better able to afford cars, yet some were already switching to NG in order to save money. Where auto fuel costs are low compared to annual income and labor costs are high there is little incentive to retrofit cars to burn NG. UPS and some city bus departments already use natural gas. The D.C. metro area buses burned NG.

Perhaps one of these days we will figure out how to maintain a virtually infinite rate of increase against a finite fossil fuel resource base.

Ah WT, you've already solved it - virtual is the key word - virtual reality, virtual oil, virtual infinity, virtual solutions.


Peak Oil math tries to address the question of 'how many seats are left?', while Net Export math tries to go a step further and address the question of 'who gets a seat when the music stops?'. Anyone who thinks the US will get a seat (or as many as it is accustomed to) is certainly in denial.

I think the markets have internalized, for the time being, the notion that certain price levels (perhaps $80+/bbl) are risky territory. The stakeholders are calibrating more carefully than usual to avoid sudden moves either way. IMHO, if there is a spike next year, it will be event-led (Iran crisis, Nigeria shut-in, etc.) rather than market-led as we saw in 2008.

Anyone who thinks the US will get a seat (or as many as it is accustomed to) is certainly in denial.

Oh... we'll "get a seat" one way or another. Mostly likely, Iraq-style. The world's largest military (run by the world's most entitled nobility) doesn't go quietly into the night without a fight.


With apologies to Maurice Sendak

Nice!! Y'know, creating an illustrated children's book on net exports might be the only way to get J6P to actually learn about this stuff.

Only if they show it during WWE or at a Nascar race.

Are you suggesting that J6P comprehends the average children's book?

It's sad but true that in terms of energy enlightenment J6P may actually hold a doctorate in finance, medicine , or law.

The concept of sneaking in a little knowledge by burying it in a children's book is a good one.

I would like to be able to buy a giant electronic billboard located on a major freeway subject to lots of traffic jams and just use it to publicize undisputed facts such as the date oil peaked in Pennsylvania, Oklahoma, Texas, etc.right on thru the North Sea and Alaska for a week.

The next week , list the countries that used to be net exporters, followed by the year the became net importers...

And so forth , repeating after maybe a few months.

No editorializing-just in disputable facts.

Such a bill board might get , probably would get, millions of dollars worth of free publicity in the msm for peak oil.

LOL! You guys are so, so cynical. And right.

So I think I've got it... Goldilocks is the USA (or is the USA the big bad wolf?) the bowl of porridge that is "just right" is light sweet crude, the Papa Bear is Saudi Arabia, the Mama Bear is The Oil sands, the Woodsman is Exxon (or are Exxon the big bad wolf? Gotta work this wolf thing out....or maybe the Three Little Pigs is a better choice...nope, the USA is the wolf again...)

Very informative post. Thank you very much.

Humble Question - is there a word typo in the last paragraph?

"""""In my opinion, a plausible estimate is that net oil importers are currently burning through the post-2005 CNOE global supply at the rate of about one percent every two months--basically taking one percent out of the net export "gas tank" every two months."""""

Do I understand your opinion correctly - and with regard to oil matters I deeply respect your opinion - that you believe that, at current rates, there are 200 hundred months of exportable oil left? In other words, that, at current rates of exportation (which obviously are likely not sustainable with current technology), there are about 17 years of exportable oil left, after which it's all domestic use?

Regarding (net) importers, they are the ones consuming net oil exports. And as net exporters, e.g. Indonesia, UK, Egypt, US, China, etc., slip into net importer status the demand for net oil exports increases.

Regarding the numbers, I realize that they are stunning, but let's focus on the (2005) top five--Saudi Arabia; Russia; Norway; Iran and the UAE. If Sam uses is most optimistic production scenario and lowest projected rate of increase in consumption, he predicts that these countries will (net) export a total of 132 Gb after 2005, i.e., their post-2005 CNOE.

Sam is also projecting (best case) that their combined net export volume in 2013 will be down to 87% of their 2005 rate, which is a net export decline rate of 1.7%/year. Doesn't sound so bad, but remember the IUKE case history (initial post peak net export depletion rate was 8 times higher than the volumetric decline rate). Sam is also projecting that the top five post-2005 CNOE will be 52% depleted at the end of 2013, which is a post-2005 CNOE depletion rate of 9%/year (about five times the net export decline rate).

The top five account for about half of global net oil exports, so my guesstimate is that global post-2005 CNOE are being depleted at about 5% to 7% per year. If we pick 6% (overall global post-2005 CNOE depletion rate assumed to be two-thirds of best case projected top five depletion rate), that is one percent every two months.

One key caveat, given the nature of net export math and given the very slow rate of increase in unconventional production, I am not giving much weight to unconventionally sourced net exports. In any case, as noted above, Canada, Mexico and Venezuela have shown a combined 20% decline in net oil exports in just four years.

Here are the three key characteristics of net export declines:

(1) The net export decline rate tends to exceed the production decline rate;

(2) The net export decline rate tends to accelerate with time;

(3) Net export declines tend to be front-end loaded, with the bulk of post-peak net exports being shipped early in the decline phase, i.e., initially low annual volumetric net export decline rates are highly misleading. A rough rule of thumb may be that one half of post peak CNOE are generally shipped one third of the way into the net export decline phase (from final production peak to zero net oil exports).

Westexas I've mentioned it a few times but no one really seems to catch on.

There are two export lands for the oil industry. The first is oil and the second is finished products such as distillates and gasoline.

So you have next exports of oil to refining countries followed by exports of finished products to the rest of the world.

It stands to reason that oil importers like oil producers cannot export product and leave shortages in the home markets i.e they will also service local markets first before exporting.

Thus one would expect with this double export land models that exports/imports of gasoline and distillates will tighten even faster than oil exports.

You need not wait till oil exports become critical before we face serious problems as product exports
become problematic well before oil exports.

In many cases these exports often go back to the original oil producing countries for example Mexico and Iran amongst others. Obviousily cutting these is difficult leaving the cuts of product exports concentrated in non oil producing countries.

The US as a large net importer of products also falls into this class of countries and is obviously wealthier than most.

Thus we should see serious product import problems in countries that are not oil producers effectively any day now as the moment oil exports are stressed product exports literally plummet.

Its hard to figure but 30-50% annual decline rates seem to make sense depending on the scenario you use.
If not higher a 75% annual decline in product exports is reasonable if you assume they decline at 2-3 times the rate imports are declining as local demand is met first.
For all intents and purposes they basically go rapidly to zero zooming product prices and resulting in some very large differentials between product prices in importing countries and those with refineries.

It gets nasty fast. Of course the interesting thing is the US is right there with all the generally third world nations stuck in this situation.

Actually for 2008 the average value for products exported increased from 2.36 kb/d to 19.94 kb/d. As of this date the EIA data on exports is still limited to a handful of nations, basically the OECD. The big gainer for 2008 was who else but the US.

Will have to take a closer look at the EIA data. They have numbers for exports/imports of any individual refined product; wonder if it all jibes with the numbers for production-consumption?

Well you would generally need product imports for the poorer countries. A substitute is of course watching the news for shortages which are starting to show up if you look.

Other than that I don't have a good way to know for sure you can look at OECD product export and imports the difference is going outside the OECD.
Although India is a rising exporter having expanded refining capacity and also a lot of the third world exports of finished products originate in ME refiners.

I don't have a good handle on it and often given these countries are poor cargo's are bought on the spot market. And of course they are used to shortages the poor quality of the infrastructure and distribution networks with lots of black market issues ensure shortages are considered normal.

Regardless eventually they will see serious and persistent shortages that cause much more serious problems.

Once product imports drop below a certain level then competition will as I said get nasty.

In 2008 we saw symptoms of this for distillates for example esp in that case in South America.

Google for Argentina diesel shortages

This is a good general link.


Note in third world countries secondary and even primary electrical generation often is based on fuel oil so electric issues can be linked to product imports.

Another good place to look is bunker fuel which should respond in a manner similar albeit different from internal consumption in some countries. South Africa bunker fuel supplies are one I watch for example.

The US does not import much finished motor gasoline at all in comparison to crude oil. In 2008 the US imported 110 million barrels of gasoline and 3.5 billion barrels of crude oil. If anything, I would say that this phenomena you describe benefits US consumers.
US Imports Refined Gasoline

US Imports Crude Oil


What about if we got zero gasoline and distillate imports ?
It does not matter how much oil we import if we must import gasoline and distillates to meet demand then we have to compete on the world market.

Plus we also export distillates to Mexico for example along with other products.

Think about what happens when many countries in Africa, Asia and South America cannot get oil product imports because there simply are not enough to go around.

Are you going to give up on driving as much so some poor person in Africa can get diesel to take food to market ? And by you I mean your average American. If they cannot compete on price and obviously they cannot they will do without or perhaps to some extent the tables will turn and we will do without regardless your looking at serious disruptions to the world economy well before oil production and oil exports become a serious factor.

When and how it works I don't think enough data exists to know but its fairly easy to run a few scenarios.

If exports to nations with refineries are down 1mbd for oil then oil product exports would fall by a similar amount adjusted for cheap products I use 50% so they would drop by 500kbd.

Say for example your product exports are 2mbd of various product and they decline by 500kbd then they fall by 25% if your total imports are 10mbd then your imports have fallen by 10% while product exports fell by 25%.

Now say you lose another 1mbd this comes right out of exports and 500kbd/1.5mbd = 33%.

As with the oil export land model you see a rapid drop in product exports and hopefully you can see it gets very nasty fast a 20% reduction in oil imports could easily result in a 50% or higher reduction in product exports it all depends on how much refining capacity is devoted to the export market in a particular country vs its internal markets.

In general for oil and oil products I use a decline of about 10% to represent a market thats lost enough oil or oil product imports that its having structural problems i.e endemic and persistent destabilizing shortages. Thus a 5-10% reduction in global exports of crude is more than enough to cause a serious crisis in the world of secondary product imports.

Now I might as well go ahead and explain my submission to the oildrum given its lost somewhere in the email queue. Its hard for me to talk without referencing it.

Basically what I did was deduce world oil production from global C02 emissions allowing me to calculate world oil production without a strong dependency on published oil production claims.
One day I'll either get feedback for the Oildrum staff in regards to it and it will show up here or if its rejected I'll post on some blog so its public.

Regardless the premise is dead simple and given the explosive growth in Chinese coal production and the way C02 levels have risen peak oil is almost certainly in the past and has been for some time.

I have us off peak production by about 16% and about 13 mbd.

This is of course so serious its capable of crashing the global economy.

Hmm well we know whats happened don't we.

As far as oil export land goes a good bit of this real decline is actually hidden in inflated internal consumption claims esp for KSA which has a non-linear increase in consumption.
In any case "traditional" export land as WT does it cannot simply be overlayed on top of this decline as its a good bit of double counting of fake increases in consumption that are actually declines.

It does not really matter either way as export land holds in either case its just its a bit more advanced then what WT would get using official numbers.

Obviously this means that product export land is in a crisis and even with the recent economic crash it really was not ameliorated.

Now with that said its primarily a diesel game not gasoline third world nations can deal with gasoline shortages while diesel is critical.

The rapid drop in diesel usage in the US associated with the collapse of housing construction.
Laid out well here.


Literally saved the world for a brief period of time.

Of course I don't believe the amounts but small wonder that we are seeing large hoards of distillats being created. Offshore and in the US.

Of course they will only delay the eventual resurgence of crisis. But suffice it to say we already have passed the point where TSHTF. Global distillate exports will again become a serious problem but this time we don't have any bubbles to pop capable of adding a significant fraction of distillates onto the market.

For the US gasoline imports will decline sharply as the world turns towards trying to maintain distillate production.

Oh wait ...

What do we know thats already in the past now also.

Eventually of course regardless of what the US claims it historically imports both gasoline and distillates to meet demand thus it will be forced to import distillates putting serious pressure on the global distillate market.

Well dang what do you know ...

Thats already happened also.

Of course at first oil refining nations will do their best to continue to export distillates so
the last shoe to drop would be a sharp rise in oil prices esp during a period when demand is expected to weaken.

And last but not least because its and absolute lack of oil you should see refinery utilization well off of peak simply because there is not enough oil to import to run the refineries. And you should see the same with shipping a large excess in crude carriers esp VLCC's and shipping rates not keeping up with rising oil prices.

I'll not pull in all the data it all fits. The bottom line is all hell is breaking lose right now if I'm right.

How long it takes for things to obviously go haywire again all depends on the actual volume of distillates hoarded. I'd imagine everything was done to provide enough to get through spring planting season in the northern hemisphere but I seriously doubt there is enough to get us to harvest before things get very interesting.

Now way is there going to be enough diesel to plant in 2011 without the wealthy nations seriously cutting back on consumption so TSHTJE ( the shit hits the jet engine ) in 2011 we are well past fans at that point.

Whats interesting is how we enter collapse while the wealthiest nations have just started to experience some pain. By the time it actually gets difficult in the wealthiest nations globally collapse is already well advanced.

This is because of course of the rapid onset of shortages in diesel exports. It comes brutally fast literally over a period of months not years. The situation literally goes from under control to explosive in months the moment diesel shortages thence food production becomes problematic outside the wealthy nations.

And electricity in the third world is closely related as they have electricity problems because of lack of fuel oil they resort to diesel generators accelerating the issue rapidly. Then they don't have enough diesel to plant and kaboom. Shortly thereafter you have to harvest. And as I said not a chance next year.

Mem - I'm missing two things:

1. Why is your first graph not just simply an indication that U.S. gasoline consumption is down over the last 2 years.

2. Why is your second graph not just simply an indication that the last years' distillate imports and this years are seasonal and virtually the same?

As far as 1. goes if you look at the graph obviously demand flattened then declined not just over the last two years. Even as US population has grown. Now is this because Americans are using less and less gasoline by choice or because there is simply less available ? Well to answer this question you have to look at price. If demand is falling and price is rising then the situation is supply constrained not demand constrained. Just looking at products supplied tells you nothing you also have to look at price changes.

As far 2 goes well the problem is we claim a massive glut in distillates and esp heating fuel the recent cold weather at least put a dent in the glut. Yet we are actually importing more distillates than last year while refinery utilization remains very low.

I did not post everything you need to look at VMT, NG, Shipping, Imports, Rail traffic, Truck traffic, Gasoline and price to get a handle on the situation.

Of course there is a MSM explanation for everything thats happening now. And thats that demand is falling but OPEC is cutting or managing supply to obtain a certain price point. I.e the price increase is purely a result of OPEC cutting supply to balance supply and demand at a certain high price.

How this is possible given that the US supposedly has a massive glut in stored oil and products and is running their refineries at low utilization rates is not fully explained.

One would think we would simply draw down our reserves some periodically and smash the price down.
Why we are willing to pay almost double the price for oil over a year while our demand is falling rapidly and we have plenty of oil has never been fully explained. I can't create a reason that would work so I'm not surprised we don't have a complete official explanation.

The best I've seen is that speculators like the stock market is pricing in a rapid recovery in the near future this suggests its the more distant futures contracts pulling up the front month.

However the contango in futures has steadily flattened over time so these forward looking speculators are able to push up prices even as contango actually flattens.

My point is I can't generate a plausible anti-thesis to what I think is going on taking all public macro-economic data as valid. I have to assume one or more pieces of data are invalid.

But any assumption that one of the indicators is badly skewed results in a tin foil hat theory.

As far as I can tell the only valid model that works is not a single one but a set of models that assume that various macro economic factors are decoupled and have little influence.

1.) Floor price for oil is set by OPEC managing production to hit a target range 70-80
2.) Since this price point is known speculators play within the rules set by OPEC regardless of actual supply situation. I.e if the price falls towards 70 they buy in knowing OPEC will cut. As it goes over 80 they sell knowing OPEC will produce.
3.) The large amounts of oil and products claimed to be stored offshore and onshore simply set for the most part sometimes being used to cover physical delivery as needed. I guess it allows some riskier trades that are either going to pay off or break even so nothing to lose. Once could guess that in general its used to front run OPEC when the price rises and they sell high and buy low inside OPECs price band. This means OPEC does not continuously have to fiddle with real production at the end of long shipping times to get their price band. However this smacks of collusion and is approaching a tin foil hat explanation.But perhaps its simply arbitrage plays on top of OPEC gross changes in exports.
Of course one would think a smart trader would choose to force OPEC into over and under compensating making the moves larger and thus increasing volatility and profits.

4.) OPEC itself is aware of all of this and is extensively involved in the various futures markets itself its not just a oil play but they are also working indirectly through proxies to avert wild price swings induced by traders. It makes tons of sense that if they are trying to maintain a price band and turning production up in down is a rough control that they would also fine tune the situation using financial leverage. So you have a sort of battle between speculators and OPEC one trying to increase volatility and the other trying to subdue it. At this point it does not make sense for OPEC to not also join in the offshore storage game. They can charter tankers and store oil and products along with everyone else.

5.) Well with four we have the problem that if OPEC is controlling prices and has plenty of spare capacity its difficult to see how speculators can survive for long holding physical oil or not. Eventually they are driven out of the market and should divest of stored oil. The 500 pound gorilla playing all aspects of the game to ensure smooth prices can beat you as long as it has spare production.

Anyway as I said I can't get anything consistent to work not even the multi model case really works.
Your left with a fairly extensive and tin foil hat style network of colluding/fighting market manipulators that just happen to cancel each other. As and anti-thesis it sucks rocks because it becomes a big brother defense. Things are the way they are because big brother (OPEC) wants them like this. But if anything that really is the anti-thesis at the end of the day.

If its true its true however the problem with it is even deeper what happens if prices swing significantly outside of OPEC's 70-80 price band and they are unable to bring them back into line ?
If it turns out to not be true then its capable of blowing up big time when it becomes false.

We need a strong price swing either up or down to know for sure. Down is easy enough because OPEC can always cut thus a strong move well above the price band is the only move that can really test big brother theory and one can argue this won't happen until all physical speculators are cleared from the market and storage levels are much lower given they have remained persistently high it could be years before the theory of OPEC control could even be tested which is something thats also a common theme in the MSM that prices will remain stable unless we see a sharp rebound in demand.

In any case this sort of argument is basically impossible to refute as it involves a big brother/ god like entity thats managing everything and thus it allows for interesting and contradictory public data as behind the curtain positioning is used to counteract known inconsistencies.

The fact that the counter argument to peak oil is effectively a tin foil hat theory itself is interesting.

Thus one would expect with this double export land models that exports/imports of gasoline and distillates will tighten even faster than oil exports.

memmel, it seems that you are adding the two 'export land' (oil + gasoline,etc), though oil = gasoline,etc. I don't understand why finished products will become a problem faster.

Lets take France and the US.

France exports Gasoline to the US as imports of oil get tight. Export land Oil do you really think
that they will continue to export gasoline to the US to the point it causes shortages at home ?

Certainly as the price of gasoline for export increases i.e demand from the US offers a higher price they will try to export more but then they have to buy more oil. In this case they compete for the US for oil for refining to offer gasoline to export to the US.

If there simply is physically not enough oil i.e both France and the US simply cannot get enough oil to satisfy home demand then gasoline exports will fall. Market forces can only divide the pie they can't make it larger over the short term. In particular pure importers with no or little refining capacity suffer the most as their demand is met only after countries with refineries. And of course these generally are the poorer countries.

Now I used gasoline but far more important is distillates which are critical for a functional infrastructure in particular growing food.

And of course the countries with the least amount of infrastructure often run fuel oil fired electrical generators as product imports become tight they load shed leading to increased use of diesel generators putting more pressure on diesel imports.

Third world nations run out of distillates well before you see serious shortage problems in the wealthier nations. The problem is of course they can't really compete so they allow their storage levels to run desperately low before buying then its a forced purchase at basically any price.

The underlying problem is they are both at the end of the supply chain and have high intrinsic or inelastic demand levels even though the per capita consumption is low they already have minimized consumption as much as possible without simply giving up on oil.

Its really no different from examples in the US when we run low on oil or products in our pipelines its the people at the end of the pipe that suffer first.

Consider a simple extreme case the US which imports oil from Mexico and exports distillates back to Mexico faces a shortage in spring and does not have enough diesel to plant. Are they going to.
1.) Export as much diesel as Mexico wants.
2.) Distribute diesel to their farmers first then export whats left.

No country with refineries is going to export if it leads to shortages in products at home.
Obviously in this case where the exports would go back to a oil producing nation the situation
is even more interesting which is why I used it. However I assume the US also exports smaller amounts to other central American countries just don't know who thus they would see their exports cut off first ahead of Mexico.

I don't know where US product exports are broken out by country so you could substitute Costa Rica perhaps. Obviously the decision on who get distillates would quickly become a political issue.

Here is the data I know of perhaps a break out is buried somewhere.


France exports Gasoline to the US as imports of oil get tight. Export land Oil do you really think
that they will continue to export gasoline to the US to the point it causes shortages at home ?

No, but less gasoline follows directly from less oil. Still I don't see why gasoline,etc market tighten faster than oil market. With the exception of what you mentioned about using more diesel generators in third world countries but generally poor countries are priced out of the market with high oilprices.

Looks to me like high prices and another peak are around the corner.

I'm guessing the price increases will be more gradual, because increasing demand is only going to be gradual (and in the OECD probably still more or less flat).

The question again is at what price point will the price of oil cause another economic setback. With cutbacks in debt issuance I think the next setback will happen quicker. Assuming some price point is unsustainable (say $100 per barrel of oil), last time we had enough debt to push it forward until is was up to $147. This time it may be more like $115 -but to the point- a lower price causing much the same damage.

But in the near term this depends on unemployment benefits in the US being extended and wheter interest rates are raised. If there are no extensions and interest rates rise demand in the US could drop considerably while people sit in there parents basement with nothing to do - all this without oil moving a bit. High long term unemployment will continue and rates will probably only go up very slightly (to test the waters on inflation - of which there is none besides food and energy).

We are now in the stage of the game where government action can move up or push back the goal posts for another economic crisis. Also if other governments collapse, like say Pakistan, this could also cause demand destruction.

As westexas has continually told us, net exporters will continue to consume more, as will some emerging economies like China (is it really still an "emerging" economy?) and India mostly.

As westexas has continually told us, net exporters will continue to consume more

A small correction. Rising oil consumption is not a requirement for a net export decline. The UK, with flat consumption over their net export decline period, demonstrated one of the fastest net oil export decline rates that we have observed (also true for natural gas in the case of the UK).

Given a production decline in an exporting country, if consumption does not fall at the same rate, or at a rate faster than, the production decline rate, the net export decline rate will exceed the production decline rate, and the net export decline rate will tend to accelerate with time. Incidentally, so far we have found no example of an exporting country, showing a production decline, that has cut their consumption sufficiently to keep the net export decline rate above the production decline rate.

But what our model and recent case histories show is that consumption as a percentage of production goes up as production declines. For example, the ELM (consumption = 50% of production at final peak, production declines at 5%/year, consumption increases at 2.5%year), shows that consumption goes from 50% of production at final peak to 100% of production in 9 years. If we assume no increase in consumption, then consumption goes from 50% of production at final peak to 100% of production in 14 years.

Here are the recent consumption as a percentage of production numbers for Saudi Arabia (which has of course shown rising consumption):

2005: 18%

2008: 22%

How about Dutch NG? production seems flat and exports are up, no?
(edit: I guess it depends on the timeframe of one's analyis...)

Well, for starters, the stipulation was for a production decline in a (net) exporting country, but in any case here is what the EIA shows for Dutch natural gas production through 2007:

I picked 1996 as a recent production peak, since it was almost identical to the prior peak (and especially since 1996 appears to have been the net export peak). The 1996 to 2007 rate of change numbers are as follows:

Production: -2.0%/year
Consumption: -1.2%/year
Net Exports: -3.2%/year

Since the rate of decline in consumption was less than the rate of decline in production, the observed net export decline rate exceeded the observed production decline rate. The net result was a relatively slow increase in consumption as a percentage of production, from 56% in 1996 to 61% in 2007.

But I suppose the bottom line is that they delivered 31% less (net) natural gas to the export market in 2007, than in 1996--as production fell by 20% over the same time frame.

Boy.... that is harsh.... but clearly backed up by facts.
Yes, you keep beating the same drum but obviously that is the one factoid that, certainly the mass media, are completely ignoring.
My guess is that if one were to take the net energy available to society for purposes other than extracting/creating energy and regress it vs global GDP you'd have a close to perfect correlation.


Sorry, didn't mean to be harsh, but as you said the numbers speak for themselves. Even in a case where a country showed a rather sustained decline in consumption, the simple percentage net export decline was 50% bigger than the production decline.

But this does illustrate a key point. Critics almost always make a qualitative argument against what is a quantitative model--and quantitative case histories. You have to run the numbers.

If we beieve any of the numbers we have been seeing on this site concerning depletion, your own ELM model, etc, then we MUST believe prices can't really go anywhere but up if there really is a world wide recovery underway.

While Westexas is onto something quite important with his Exportland argument, I think he over-estimates its strength somewhat. The graphs and projections are compelling, but they have an assumption - that declining production will not affect consumption in a net exporting country.

As long as global production is not falling, that is a reasonable assumption. Falling global production, however, causes prices to increase. This produces a number of effects. In an importing country, the effects all work in the one direction - to curb demand.

In the exporting country, things are somewhat more complicated. Higher world prices bring about higher national income. In places like Venezuela or Saudi Arabia, oil is now sold domestically pretty much at the cost of production, with export revenue allowing the national government to fund whatever projects it finds important. In Venezuela this means social welfare for the poor. In Saudi Arabia it means arms from the US. In the days of Saddam Hussein's Iraq, it meant national industrial & urban development. Of course, this process means that a booming oil price actually super-charges consumption increases in exporting countries, or at least countries with a high proportion of produced oil destined for export.

After the peak hits & is recognised, however, the dynamic changes. National governments, even in places like Saudi Arabia, will decide at some point that domestic consumption needs to be reined in. The obvious thing to do is to let domestic prices rise to equal the world price. I understand that one of the political hot potatoes in Iran at the moment is a government attempt to cut back on domestic oil subsidies.

If domestic prices in exporting countries rise to meet the world price (or at least a meaningful fraction of it), the Exportland model would need to be adjusted. Domestic consumption will fall in reaction to oil price rises, though at a lower rate than production. The net result for the Exportland model will be to flatten out the net export decline curve somewhat.

One final thing to consider is that, once production has declined sufficiently to get Peak Oil accepted as the conventional wisdom (it's taken 8 or 9 years for Peak Gold), it can be expected that governments in many countries will implement crash programs to reduce or eliminate oil consumption for certain uses. This could have a lumpy effect on global demand, as certain big-ticket investment/diversion programs get implemented in major countries in particular years.

The net result for the Exportland model will be to flatten out the net export decline curve somewhat.

As you noted, given a production decline, the rate of change in consumption basically controls the "glideslope" of the net export decline. For "Export Land," given 5%/year production decline rate, with consumption = 50% of production at final peak, net exports go to zero in nine years. With no increase in consumption, net exports go to zero in 14 years.

I have suggested that we are likely to see what I call Phase One and Phase Two net export declines. In Phase One, the rising price of oil offsets the decline in the volume of net oil exports, resulting in rising cash flows from export sales. In Phase Two, the rising price of oil can't offset the decline in volume of net oil exports, resulting in declining cash flows from export sales.

However, since net export declines are front-end loaded, the bulk of post-peak net oil exports (probably 50% of more) are likely to be shipped in Phase One.

For example, Sam's best case is that the 2013 volume of annual net oil exports from the (2005) top five net oil exporters will only be down by about 13% from their 2005 rate, but by the end of 2013, they will have shipped about half of post-2005 cumulative net oil exports. Consider for a moment what the price oil might be in 2013, versus a fairly small, 13%, decline in the volume of net oil exports. This is another example of why this debate needs to be in quantitative terms. People consistently make a qualitative argument against a quantitative model and quantitative case histories. You have to run the numbers.

Subsidized oil will be the hardeset of all habits for a govt to break and create the most pervasive and violent reactions from the citizenry-if food is also subsidized food riots might come sooner but I don't think there will be any other exception.

The subsidies will probably stand for so long as the exporting govt can maintain them,regardless of the consequences.

Nigeria is probably a good example of what can happen when countries try to maximize oil exports, without fully meeting local demand.

Hasn't China ended price controls and subsidies?

UK production went from 253 kb/d in 1976 to a temporary peak of 2675 kb/d in 1985. Over the same span of time consumption averaged -1.28% YOY, this including crazy years with gains of 17.30% (1979) followed the next year by losses of 11.94%.

Now, Brazil is the new North Sea, we're all told, so what have they been up to? Average consumption from 1999-2008 YOY is 1.59% gain, with much less asymmetry, this keeping them in net importer status all the while. Supposedly all this pre-salt will flood the world with oil but to date it's all been smothered by added consumption and declines in older fields. The UK reached net exporter status in 1981, 5 years after ramping up began in earnest. If Brazil were to follow a similar pattern should we expect more exports 5 years after the discovery of Tupi? But Tupi only hits peak production in 2016, not 2012.

Add it all up and you've got a problem. Ain't like the old days, even offshore.

The EIA had their preliminary 2009 numbers up for a little while, since taken down, but it appears that Brazil achieved, by a razor thin margin of a few thousand barrels per day, net oil exporter status in 2009. IMO, the most likely scenario from here is a slow rate of increase in net oil exports, but if they have any problems with production, it won't take much for them to slip back into net importer status.

Very good point KLR. As you know the N Sea development took state of the art engineering at that time. But DW Brazil makes those days look like child's play. Your most pertinent point was the time lag issue IMO. With those long times lines new developments may not be able to keep up with decline rates of the initial fields. Perhaps more of a relative low plateau instead of a long term increasing ramp upwards.

The next two years are rather slim pickings for Brazil, too - expansions of old projects like Jubarte and Marlim (discovered in 1986) for a few measly 100kb/d. Even in '13 when there's more on the table the oil is intermediate crude. Tony will have to fill us in on how Brazilian projects have been delayed. And they brought on a heap of oil in the last few years, to little discernible effect; those declines in old fields seem to have obviated almost any gain. Perhaps Brazil will bolt out of the gate later in the decade, but for now they just seem to be champing at the bit.

For 2009 I've got a preliminary 2600.67 kb/d up to Sept, that's 166.06 kb/d over 2008. Now for 2008 they piled on an additional 120 kb/d consumption. If this year repeats, wow, I think we added more to supply for the US in North Dakota.

I am not sure that I agree with you. If you track vehicle miles driven put out by the FHWA this has been rising since last April - but, as with the figures cited in the post, we are some 2 months behind the current.

The differences between auto buyers in China and India and those in the USA is that more of the former are buying their first car, and thus increasing the demand while in the USA there is a a lot of replacement purchase that does not have quite as significant an effect, particularly if better milage vehicles are bought.

There may be a peak in total liquids although I have my doubts. Government policy is counterproductive to increases in ethanol and biodiesel at the moment.

Please remember Peak Oil is about conventional oil only. The reason for this is that it is based on historical experience of depletion of conventional oil wells. Ethanol does not count. Biodiesel does not count. Tar sands do not count.

The reason they do not count is that they deplete/or not differently. Adding conventional oil and non conventional oil/liquids to disprove Hubbert's thesis is fallacious. Things that are different can not be compared, added, subtracted, etc.. Adding different forms of energy to disprove Peak Oil is wrong.

China is stressed as the big reason for increased demand and I agree. But don't forget oil exporting countries, as westexas has pointed out many times, continue to boom along. They subsidize oil consumption even more than Americans in many cases and are a significant factor in increased demand. So conventional oil available in the international market is limited and that is why tankers can't find loads and sit idle used for storage.

Oil no longer, for at least 6 months, faces rapid expansion of competition from ethanol or biodiesel. The increased number of cars on the road need to be fueled with non conventional liquids, but their production will be stagnant at best.

The only answer is demand destruction as we saw in 2008. Expect higher crude oil prices in 2010.

That's a different perspective for you. From the back-40 where Farmer Joe tends his little biofuel patch, a member of the OOLE (Organization of Other Liquid Exporter), enriched beyond his wildest dreams, he builds mini Burj-Khalifas stretching skyward to his reach the curtain on his rented corn harvestor.

I have detected a subtly different attitude from Mr. x as well.

I very, very much agree that we should concentrate on conventional oil only when we describe the principal Hubbert peak. Only show the all-liquids curve after the crude analysis is beaten to death. People have to understand that the crude-only peak is real, and shouldn't get unnecessarily confused by the details of all-liquids.

In my view, peak oil is to a significant extent about society not being able to afford increasingly high priced oil, and having to cut back (because income to pay for the high priced oil is limited). Unless alternatives are cheaper, they do not really fix the situation, because the problem of high price is still there--and often worse than for fossil fuels. Government can provide subsidies, but this just disguises the issue for a while.

Governments are likely to find themselves in increasingly poor financial situation as we go forward--I expect that they will increasingly cut back on subsidies, but they may still make laws intended to cut back on petroleum products (cap and trade as with California, or pollution rulings). I expect that the net effect of this will be that less fossil fuel energy is produced. But without subsidies, I don't see much of a ramp up in renewables either. I expect that the net impact is that people will need to learn to get along with less, and the world will need to deal with increasing recession.

So our task is to find cheap alternatives, that don't need subsidies.

This is not my view of Peak Oil.

Peak Oil is not about money but about the future scarcity of oil. Our whole way of life is based on plentiful oil. Tar sands and unconventional oil are being not developed quickly enough to compensate for declining reserves. The reason is that the oil companies prefer to look for and develop conventional oil or buy it from NOCs--they say that the world is awash in cheap oil. The last really big US oil project was the Alaska pipeline. It was very expensive. Under Jimmy Carter there was the Colony oil shale program and the Great Plains Gasification Project(to synthesize natural gas from lignite--which is sucessfully running today).
Similarly, in South Africa in the 1970's there was the Secunda CTL project. And in Canada, the government pushed a tar sands program.
Other than these efforts, the IOCs spend their efforts in looking for easy oil and pumping out what had been found. Now those days are coming to the end. Production has peaked, discoveries are coming up short.

He told them this parable: "No one tears a patch from a new garment and sews it on an old one. If he does, he will have torn the new garment, and the patch from the new will not match the old. [37] And no one pours new wine into old wineskins. If he does, the new wine will burst the skins, the wine will run out and the wineskins will be ruined. [38] No, new wine must be poured into new wineskins. [39] And no one after drinking old wine wants the new, for he says, 'The old is better.' "
--Luke 5:36

Money implies there is a choice.

We need to adapt.

Peak Oil is about geology but it is also controlled by money(economics).

In an individual field the peak production rate is controlled by money. The size of the seperation unit for gas, oil and water is an economic decision. The number of wells and the timing of their drilling is an economic decision. For a given geology these economic decisions control the rate of oil extraction. In that sense Peak Oil is controlled by economics.

Having said that you are correct in the sense that Oil in Place (in an ideal situation) controls the economic factors used to derive Peak Oil.

Gail is right, and to take it one step further Peak Oil is itself just one biophysical limit among many that humanity is bumping up against.

The litany has been repeated often enough, no need to go down the laundry list here, but it can be summarized simply enough: There are physical limits to how many resources we can extract from the planet and how much waste we can dump onto it.

Industrial societies in particular are in a sticky wicket because their economies are almost completely predicated on continued growth. In fact they MUST grow to make good on past promises to pay the enormous debts leveraged from a relatively small base of "real" physical wealth. Not unlike a ponzi scheme, if new growth does not continue to pay off past promises then the resulting defaults destroy confidence and the whole thing collapses.

Look no further than the housing bubble for a recent example, if house prices had continued to grow we would not have heard of "subprime" anything because people would have been able to refinance, sell, or take equity loans before they got into trouble, as was the promise when they took the risky loans to begin with. All it took was $4 per gallon gas to halt demand for far flung houses, among other things, to bring the highly leveraged mortgage pyramid down.

As growth continues to be constrained by physical limits, so too will highly leveraged economies be forced to default on past promises to pay and confidence in the system will be destroyed. As debts are defaulted the money that was created from them is also destroyed and governments will have little choice but to either cut services or raise taxes, or both, as is currently the case here in Washington state.

Something tells me people ain't gonna like that.


"""""Governments are likely to find themselves in increasingly poor financial situation as we go forward""""

Not to nit pick, but are you unsure about this?

Seems to me this is all but certain.

Oil production decreases -> real GDP decreases ->taxes decrease (but government obligations stay the same, or go up, if they attempt to borrow to kick start the economy)


It is worrysome that we still (in fact I just heared comments on the radio news this morning) have politicians here in Canada proclaim that the current deficit will "melt away on its own" because of increased tax income once the economy picks up again.

There is this explicit assumption that the economy will just pick up again and all will be well. In the mean time, let's just run up the deficit to get us thorugh this "rough patch".

When I hear that, it just make me worry... what if the economy doesn't really pick up again?

Conventional easy oil already peaked in 2005. Every addition since has been heavy oil, deep water oil etc. NGL's do not count either.


Do you suppose that ethanol made from GM corn would poison the atmosphere for humans if burned in an IC engine?


December 2009 Oil Watch Monthly shows Non-OPEC crude oil production peaked at about 42.6 million bbl/day in 2004/2005 and has been declining since. The major uptick shown above may be in other "liquids".

Rembrandt tells me that he plans to have the next edition of Oil Watch Monthly available the middle of next week, so perhaps we can look at the situation more then.

I doubt if it's useful to talk about prices, when most people treat money as an end in and of itself. It's a tool that virtually no-one understands, a placeholder for the matter and energy we require.

Instead, if oil were represented by how much other stuff you could get with it, then looking at its relative value would yield useful insights. Unfortunately, I'm too lazy to do this, and despite the simplicity of the approach, most people would not understand it.

It will be amusing to see so many elite fortunes go up in smoke.

Egads…, the next price spike may be sooner then I thought……
Can I just stick my head in the sand until this mess all goes away???

My family and I live in Southern California!!!

Someone make the export land model go away.

What happened to the previous story about Iraq extending the plateau or making terminal decline less steep??? (my interpretation).

1) I live in So Cal - it will depend what part you live in - At this point I think Westside LA will suffer the least, followed by the Docks and then any point along the rail corridors

Everywhere else - up for grabs

2) You cannot make it go away - anymore then you can make the sun "go away"

3) Iraq - if upon the departure of the main body of troops they resume the civil war/ethnic strife then it's almost irrelevant

I live in So Cal - it will depend what part you live in - At this point I think Westside LA will suffer the least

I lived most of my life in SCAL, and next to Las Vegas or Manhattan, it's just about the most unsustainable place in the U.S. --LA County has one of the highest population densities in N. America. West L.A. has excellent roads in a nearly perfect grid pattern --tons of easy entry and exit points that would be all but impossible to control, barring building a wall around the place.

If the SRHTF, then the Westside will not be immune to rioting and social strife. The '92 riots were mostly confined to poor inner city neighborhoods. However, that won't be the case following a general collapse, where government & police are sidelined and/or impotent.

Thats in a hard, fast crash - in that case anyplace is no place.

If its a decline mode then West LA will be the last to lose effective police protection

Reminds me of Octavia Butler's "Parable of the sower"

Can I just stick my head in the sand until this mess all goes away???

Just be careful you don't stick your head in the tar sand, or you may not be able to get it out ;-)

The black swan for southern California is a major earthquake.

When is that going to occur? I'm quite young so it should happen in my lifetime, a major one is supposed to occur around every 100 years, correct? What happened in Haiti could easily occur in California.

Good point Fl. I'll have to re-read Kaleb's premise but I believe one attribute of a BS is that there's very little expectation of it happening. There will some day be a very major earth quake in LA. That's a geologic fact. Maybe a subset of a BS: something that isn't likely to happen in my lifetime. That seems to be splitting hairs though. Long ago CA should have started an earth quake insurance fund IMHO. Looking at where the US economy is currently (and may be for a while thanks to PO) the Feds might not be able to throw a couple trillion $'s at CA when the time comes. Take the example of New Orleans and the hurricane damage. Looking at the worse case scenario for CA the bill for Katrina was chicken feed.

Will the "big one" hit CA tomorrow? I have no idea. But that's the same answer I would have given about the same prospect for Haiti is you had asked me last Monday.

Tallying up the megaprojects and applying a 4.35% decline rate that grows .01%/year (per WEO 2008) gives the following:

Date	MPSs   Decline	Gain	Dec Rate Net Loss
2009	4742	-3718	1024	0.0435	
2010	3230	-3755	-525	0.0439	 498.83
2011	3114	-3793	-679	0.0444	-179.89
2012	2275	-3831	-1556	0.0448	-1735.54
2013	2400	-3869	-1469	0.0453	-3204.49
2014	2350	-3908	-1558	0.0457	-4762.13

"MPs"=additions from megaprojects as documented at the Wiki. Spare Capacity at the moment is either 5.35 mb/d (IEA) or 4.08 mb/d (EIA), assuming production values stated by producers are accurate - much of this volume is from "new" projects like KSA's AFK and Khurais, we have to take their word that they will perform as stated.

This suggests that spare capacity will be wholly or almost wholly eroded by 2014, depending on which SC figure is correct. Several caveats apply of course, these figures are the result of a whole bevy of projects being delayed, and they could just as easily be set back at the front of the line; Stuart Staniford looked at recent work in KSA and came up with a figure of 2-3 years in his blog entry: How Long Do Mega-mega-projects Take? As I commented in that piece, energy cornucopian Robin Mills suggests 3-4 years, also noting that the oil supply persistently seems to be running dry owing to this horizon.

Wholly new projects are being vetted all the time as well, of course. On the other side of the equation demand could reassert itself almost overnight, with spare capacity brought back online immediately.

Graph courtesy Chris Nelder, who got it from a presentation of Herman Franssen at ASPO 2008.

From R Rapier, posted last March: The Next Five Years

In Figure 4, the year 2007 shows a world in which oil is at $80 and the demand has nearly caught up with supply. 2008 shows an example of no spare capacity, and the oil price sharply higher. Then 2009 shows the situation with reduced demand, some incremental capacity increase over 2008 (new projects scheduled to come online in 2009 will generally be too far along to cancel), and the corresponding price collapse arising from the largest spare capacity situation in several years.

Thanks for the graphs which help illustrate the point of the post. For if you look at your bottom plot the latest numbers are showing that you might have to move the projected point on the black curve (demand) for 2011 to 2010, and that steepens the black line, brings it likely into intersection with the purple one within the time scale of the plot, and likely lifts the green one off the chart.

That graph is 2007, it should be noted. Robert cross posted that piece from March at TOD as well, for those interested.

If we are truly facing a supply crunch and Prof Hamilton etc are correct that sustained high oil prices as a certain % of GDP can't be maintained, we face a series of spikes, a sawtooth pattern:

From Dave Cohen's The Next Oil Shock. The evidence is on the side of this scenario, given past examples.

I should mention that the EIA has conclusions wholly at odds with mine; for non-OPEC they project 420 kb/d of gain in 2010, above declines. I'm seeing an approximate 295 kb/d decline, 56% of projects being non-OPEC = 1815 kb/d. Assuming the cookie crumbles in such a neat fashion.

Perhaps the EIA thinks declines are much more gentle than the IEA - my numbers are using a lowball figure for decline, which analysis here at TOD extrapolated from graphs, not the 6.1%/6.7% numbers bandied about in the text - or they know about a lot of production we haven't picked up on. Or they are blowing smoke. Their projections in the past have been unerringly overoptimistic, after all.

Interesting KLR. That model is essentially what my owner is basing his $300 million drilling bet upon. He's thinking more like 2013-14 but we're trying to move fast enough to be inplace for the sell off by 2012. Time will tell who's right. At least he putting his family's money behind his opinion for what that's worth. But I know more then a few other operators who would make the same bet if they had access to the capital.

What we may also see is that the period between the sawtooths decreases as well as we run into the supply decline slope increasingly sooner on each cycle as demand rebounds:

-the speculators are going to have a field day 'till worlds-end...

Regards, Nick.

Intersting chart Nick...thanks. But only half the speculators will have a field day IMO. The other half will be making the other side of the bet. Of course, the brokers get their cut either way the cookie crumbles.

With regards to the saw tooth graph, without commenting on the directional correctness, I note that the graph suggests that oil will be at about its current price in about 2017 . . . which is virtually impossible.

I just respectfully note that calculations about "spare" capacity, notwithstanding tables, data, and charts, are wild guesses given that the most important exporters don't share their field data.

This whole Peak Oil thing reminds me of a natural disaster like a great quake, a massive tsunami, major hurricane, or a deadly volcanic eruption. We’re all fascinated by the numbers, science and awesome power of nature, but forget the human toll these disasters take on the victims.

I’m guilty too. I’m fascinated by a good far off earthquake or volcanic eruption. I’m fascinated by Peak Oil and depletion in general.

How stupid can we behave for how long before disaster strikes, when will it strike, and when it finally does strike us, how bad will it be…???

Maybe I’m thinking this way right now because of the earthquake in Haiti. Anyway, I think human beings are basically partially insane.
When an accident occurs and people gather along the side of the highway to see the wreckage, I walk away…, but when it comes to natural disasters…, I just try to read as much about the disaster as possible.

In other words, my fascination with peak oil may have something to do with my fascination with natural disasters. I used to read the Far Side a lot…, maybe it all comes together into some sick, twisted fatal human flaw.

nah..., maybe I'm on to nothing....

This whole Peak Oil thing reminds me of a natural disaster like a great quake, a massive tsunami, major hurricane, or a deadly volcanic eruption.

But with PO 'we' refuse to see the warning signs.

To: Heading Out

When I read this I am reminded of Dr. Bakhtiari's four Phases of transition.

He wrote"It is clear that T1 will witness the tilting of the 'oil demand' and 'oil supply' scales-with the former dominant at the onset and the latter commanding toward the close(say, by 2009 or 2010)."

This sound an awful lot like a non-detailed one sentence summary of your work above. Predicting the future is always chancy and it looks like 2010 will be an interesting year.

Thanks HO for an interesting post.

With regard to Chinese new car and light truck sales of 13,6 million in 2009, it is an impressive number of new cars and light trucks.
Assuming the net addition in 2009 was 13 million cars and light trucks and further assuming that each of these on average use 1 000 liter (or 260 -300 gallon) a year, this would add a consumption of an estimated 0,20 - 0,25 Mb/d petroleum products.

Question then is; what other sectors of the Chinese economy is growing their petroleum consumption?

I ran some of those calculations myself some time ago, looking at the increase in demand that is coming from both China and India, and just allocating it to new vehicles was not, in itself enough, by at least half. But then not everything that comes out of a refinery is gasoline.


Ceartinly the exitisng Chinese vehicle park is using fuels, if they use more as the economy grows could seem reasonable.

If we assume that each bbl of oil yields around 50 % gasoline and diesel, then there still must be a growing market for the other petroleum products.

How much oil does it take to make the plastic in a full sized SUV?

Plastic in a full sized SUV is likely based more on natural gas (although I'm not sure exactly what plastic is used). If you want to know how much NG is used to make the plastic, I suppose the mass of plastic is probably about 60-80% natural gas (the rest being UV stabilizers, plasticizers, etc).

Actual molecules of gas that end up in the plastic is not the limiting factor.
It's the gas/diesel/coal that is burned to release energy to form the parts.

Just my guess.

If there's 200 kilos of plastic, and if that's roughly 240 liters of oil, that's about 60 gallons of gasoline equivalent. An American SUV at 15 MPG will use that in about 900 miles.

That's about 1 month's worth of travel - not much.

Last I heard, Saudi Arabia was delibrealy pumping LESS oil due to the dropoff in demand from the credit crisis. Do we have any data that indicates that they have gone back to balls-to-the-wall?

2010 will be interesting. If the 2010 annual oil price exceeds the $62 that we saw in 2009, and if Saudi 2010 annual crude production rate does not exceed the 2005 rate, they will have shown five years of production below their annual 2005 rate (and more importantly net exports below their 2005 rate), as four of the five years showed year over year increases in oil prices.

Who said they were? Last Oilwatch Monthly Rembrandt said official figures for shut in KSA are 3.32 mb/d or 2.9 mb/d, IEA and EIA respectively. These are 62% and 71 % of total spare capacity figures of 5.35 mb/d and 4.08 mb/d. To figure out who is shipping what you'd have to follow missives from outfits like Oil Movements, who track outbound tankers and guess at what their loads are from how high in the water the ships sit. OPEC uses these companies for their export figures, btw. Frickin' slackers.

EIA is figuring 1.1 and 1.5 mb/d growth in '10/'11.

There is no "due to the". If they're pumping less oil, we don't know why, we can only surmise.

We do have their statements, for what it's worth. When Bush went cap in hand begging for oil from the Saudis, they said, in pure Scotty fashion, that they were pushing her as far as they could. When oil prices tanked, we then had stories of the stranded tankers and the Saudis talking about voluntary production cuts in order to get oil prices back into a sweet spot. So now oil is hovering around $80, where it's been for some time, and demand (at least from China) is rebounding. So where does this leave Saudi spare capacity and what have they said about this? Certainly if oil goes much higher, they will have to issue a statement as they have done prior. I'd just like to know what the party line is over there. There will be, as there always is, accusations that they just aren't pumping hard enough in order to jack up prices. On the flipside, Matt Simmons was warning that "production destruction" would backfire when demand rebounded, leaving the industry too flat-footed to re-open the spigot.

I really can not overemphasize this issue. The credit crisis threw off the typical simplistic oil-drum chart-watching because the idea was that due to the SUV/MCmansion craze and the rise of Chindia, demand would track linearly and so production would ALWAYS represent maximum output. This clearly was not the case after oil prices tanked. So we can't always assume that what's being produced is everything that can be produced.

I really liked the 09 Trek. Lots of trekkies didn't. They were looking for canon continuity, and so on. I found it a fun 2 hours. And for the purists, I only say, "before you pick apart the plot, better go back and look at the last 10 installments to check for the average number of holes per plot."

Last thing I paid attention coming from their gobs was al-Naimi saying they were, ala Ren and Stimpy, "very happy" with the current price. Stories in the news all say they're sporting 4.5 mb/d of spare capacity, too; must be folding in new projects for that, at nameplate capacity too.

Beats me. Mostly I use these frothy comments as opportunities to snicker, or as contrary indicators. The "no customers!" line was pretty funny, what BS. I recommend Morgan Downey's very helpful article on How to Speak OPEC.

In the first paragraph, it seems that "1.9 barrels a day" and "1.58 barrels a day" should both be "million barrels."

Thanks. I fixed it. I think I was probably the one who introduced the error, when I rewrote the sentence and changed the word order a bit.

If we are to presume that higher oil prices contributed to the real estate/credit bubble bursting event of 08 in the U.S., that in turn negatively affected many other investor countries holding derivatives, then one must wonder if the 2nd bubble burst might come by way of spiking oil prices that suddenly deflates China's real estate market. I suggest this because their properties are going up in price so fast, it seems like a rerun of what happened here. And of course something will need to act as teh catalyst for lowering oil in the next price run up, and so will it will be China? And if so, how will that impact the U.S. economy?

It may be China; it may be greater reduction in debt availability as more and more defaults occur elsewhere; it may be unwillingness to sell oil to countries that seem to be on the edge financially.

The demand figures we show here all relate to consumption/imports in specific countries, and sales/exports by specific countries too.

Yet nations do not buy the oil that gets consumed therein, and nor (with a few exceptions) do national governments sell it.

Virtually all this movement of oil is by multi-national corporations and the like that effectively ignore national boundaries, are they not?

The Netherlands does not import oil, Royal Dutch Shell does. USA does not import oil, Enron et al do; and so on.

Isn't the distribution of the global oil supply determined by the market-workers of these outfits? If there is a shortfall in oil supply to say Great Britain will it be the House of Commons who decides how much Britain will get, or an executive in an oil company? Will the New Zealand government decide how much that country is prepared to bid in the price wars? No, out there someplace is someone who decides how much to ship to their commercial market destinations. Those decisions are made way outside any nationalistic democratic political process where 'we the people' have any say at all.

The crudest example is how with the recent USA's oil-wars it is the commercial oil companies who came in at the invitation of the government of the conquering army and took what they could grab of the oil production. The decisions on the destination of those oil-spoils-of-war was not made by the US Senate, but by oil company executives.

This is a key question, because it determines who we need to take out for a coffee before the music stops and we try and find a seat!

When the going gets tough, what is it that will induce that foreigner to think of my welfare way out here on the edge of the world, and send me a few barrels of crude?

Mostly surplus oil is not held by nations, its held in and released from tanks or ships owned and operated by Mobil, and Exon and BP and Shell etc... There may be a few days worths put away in a hole someplace that is owned by We the People, but not enough to sustain basic production of critical food supplies for very long. Not for a full growing season.

Those are the charts that need to be drawn, the flows on the commercial distribution webs, and we need to know where the decision-rooms are, and who makes those decisions. And why. And who is in whose pocket. And how do we get in there too.

Re-cast all this data into the true oil market, the commercial-nations where the decisions are made. Then we will be able to understand, learn, and perhaps find a way to secure an equitable distribution of what remains.


Partially true Nigel. The KSA (owner of Aramco) decides who they sell their oil to. As does Mexico's PEMEX, Vz's state owned oil company as well as a number of other exporters. But your point was well taken by China long ago. For at least 15 years they have been gaining title of oil reserves in the ground in many countries: VZ, Angola, etc. They have also loaned large sums of money to countries such as Brazil to help fund their oil development projects. We're never privy to the details but it's a good bet that a right of first refusal on a future volume of oil sales is part of the trade. So even if someone is willing to pay all China has to do is match the price and it's theirs. While the companies may exercise some control over who future oil production is sold to they don't have nearly as much say as they once did. Which may be unfortunate for the US. A company would be expected to sell to the highest bidder which could be us. But if China owns a certain percentage of Angolan oil it won't matter what a US refiner would be willing to pay: that oil is going to be shipped to China. It has be long recognized that the NOC control most of the oil in the world...not the major oil companies. IMHO that fact will be driven painfully home to many unsuspecting folks not too many years down the road.

Well see my long posts above. China's moves are going to make the diesel export land situation even worse.
And obviously if they export diesel themselves to other countries it will be with serious political strings attached.

Again see my long post above but if you throw in Chinese moves and distillate demand this leads to even more concern about the future of the global distillate markets. And of course as I said in my big post during spring planting season and fall harvest this has a direct impact on global food supply.

Outside of me being completely wrong I'd argue things can and will get very ugly very fast in my opinion I have to be way off base for this not to happen.

So even if someone is willing to pay all China has to do is match the price and it's theirs.

Hasn't that always been the case? What's the difference between matching and beating by a penny? Either way, China has to pay market prices to get the supply they want.

Either way, China has to pay market prices to get the supply they want.

Not necessarily so, if I think about it. There is no advantage for China to enter into deals with oil sources (as they are doing lots of, it seems) if they end up having to pay the going rate for the oil they have tied up, and even not get that oil if they are beaten to it by a penny.

So there MUST be an advantage to them for all the investment they are making and all the promises they are nailing down. Its both understandable and terribly sensible for them to have secured exclusive rights to a large chunk of global supply on an 'as and when we need it' basis.

Many of the sources China is putting in its back pocket will be displaying all the Peaking symptoms of decreasing big fields, increasing numbers of short-life fields, increasing cost of extraction, increasing domestic production etc. So if China then says 'OK we want our bite of the cherry', that country could immediately turn from being a useful contributor of supply on the open market to having no oil for general export, or even becoming a net importer itself, and placing more demands on free market supplies.

So the muck will hit the fan when this sort of cornering of the market starts to significantly reduce the oil available on the open market.

At that point is will be quite likely that production versus demand still appears to have some capacity that we should be able to get, but the spare capacity has been grabbed by nervous but more intelligent and forward-thinking outfits; like China.

For the rest of us living in countries where the government is in denial about any threat to security of supply the end of supply may be very abrupt, and oh migosh what a surprise. Nutz!

So there MUST be an advantage to them for all the investment they are making and all the promises they are nailing down. Its both understandable and terribly sensible for them to have secured exclusive rights to a large chunk of global supply on an 'as and when we need it' basis.

They could be simply preventing someone else from taking it off the market in the way you describe.

What you describe would appear to keep the contract sale price from reaching current market levels (at least directly - shut out buyers would still go to the open market, and raise prices there). Do we have any evidence that they're making that kind of deal?

Question for the export modelers:

Is there any evidence that the net exporters are trying to increase their production of refined products, such as gasoline, distalites, feedstocks, petrochechemicals etc. Just wondering about when Kuwait and Dow Chem attempted to create that company during the crisis last year which failed. Would it make sense for a country like Saudi Arabia, if facing a peak moment, to move up the value chain and keep more raw material for themselves to produce higher value (more revenue) finished product? Maybe Saudi has other reasons why the wouldn't do this but has there been any examples of other countries who when facing declining output sought to maximize revenue by doing this?

The EIA also publishes a Short Term Energy Outlook every month, which includes estimates for international production and demand up to the previous month (with projections for future months), and so include a couple of months more than the IPM. The latest outlook shows historic estimates up to the end of December. They don't show production increasing significantly since October (indeed, the December production figure is below October's). There have been stock withdrawals for each of the last three months, and for 4 out of the last 5 months. So it's starting to look like production can't keep up with demand. Of course, it may be too early to say, but if production has been unable to increase in 3 months, despite increasing demand, then it might be an indicator that the new plateau is around 85.3 mbpd and prices are set to spike again.

Because I'm basically a wimp, I don't ride by bike on icy roads here in WI during the month of January. So, I spend time on my indoor trainer and listen to public radio. Here is what I have learned about our future energy situation:

- New technology for NG has assured the US of abundant energy for decades to come. Industries, trucking companies, taxi services, buses, etc can all switch to NG in short order and reduce overall demand for oil.

- The US auto industry really is producing much more fuel efficient cars that will result in reduced demand. Electric cars are coming soon.

- Government funded insulation projects will stimulate a huge industry that will result in reduced demand.

- There are huge undiscovered oil deposits - we have hardly begun to explore the oceans.

Iraq and discoveries of new oil fields will maintain a robust supply for decades to come - maybe a little higher price, but lots of supply if the price is right. Deep water and tar sands are just neat problems for the technology folks.

- Nuclear based upon thorium can produce nearly endless amounts of safe and clean energy in small, inexpensive, neighborhood, electric generator facilities.

- Nanotechnology is on the verge of discovering a way to grow oil in algae ponds.

- The US is the world leader in innovative technology - we will solve the energy problem easily - let's ignore these skeptics who drain our positive energy.

My listening impression is that "all we have to fear, is fear itself - happy motoring and all you can eat." The future looks bright and ignore those silly PO folks - trust in technology and the next generation of really smart young folks.

The price of oil is not likely to rise above current levels for decades to come.

The price of oil is not likely to rise above current levels for decades to come.

Are you unaware that the price of oil spiked at 147 in July 08?

Hi Earl,

Ahh... I never seem to get the tongue-in-cheek thing right. I don't agree with anything I listed - I was trying to show the extreme disconnect we have in both MSM and even somewhat alternative media. Next time, I'll try to find some kind of smiley face thing to better portray my tone.

Hey dave, getting tongue in cheek right on this site in particular ain't easy. I've been trying to do it since I started visiting and commenting a couple years ago. However just yesterday I found this image and am in the process of testing it's usefulness as an indicator of such. Feel free to use it your self maybe if enough people pick it up it can become the standard icon for "PURE TUNG IN CHEEK" Then again it might just slip and fall flat on its arse.


Hi FMagyar,

OK, I'll try again: On Public Radio today there was a program about resetting the "doomsday clock" and I learned:

- The threat of nuclear war has lessened (clock moved back one minute).

- The basic concept of doomsday is fundamentally flawed because people have been predicting doomsday scenarios for hundreds of years and life just gets better.

- Global human population size is a problem but is self correcting and nothing to get too worried about.

- Many other issues of GW, pollution, etc. were discussed but the consensus was that technology can certainly solve these problems with sufficient government research dollars.

- PO will be real at some point, but not to worry as we can have all the problems solved before it is a real problem.

Once again, no reason to believe that gasoline prices will get out of hand. Also, the Easter Bunny will bring me a new carbon fiber bike. (please - refrain from commenting on my ignorance)

Happy Training, Dave!

I'm contemplating rain in a few days and no rain-gear.

Could you please call your local NPR station and let them know:

The stalwart spokespersons for the call to direct the National Academy of Sciences to undertake an immediate investigation of the global oil supply picture, including impacts of decline and policy options will be absolutely delighted to explain the benefits of the NAS taking an objective look at what's ahead?

We can be reached via our petition site: www.oildepletion.wordpress.com.

And I'm fairly certain the world will not be able to feed itself in 2011 because of poor market based allocation of scarce diesel fuel and will have serious problems in 2010 the price of oil itself is now no longer our primary concern.

Someone is either right or wrong but we don't have to wait long to find out.

And I'm fairly certain the world will not be able to feed itself in 2011 because of poor market based allocation of scarce diesel fuel

memmel, this is a very very pessimistic scenario. 2011 is very early because there is still some spare capacity left. Also, because of diminishing globalisation, ship traffic will go down a lot so that much more diesel is available for essential use. The allocation of diesel have to be very poor indeed for that to happen.

"""""memmel, this is a very very pessimistic scenario. 2011 is very early because there is still some spare capacity left. """""

1. I completely and respectfully disagree that you have any idea whatsoever whether there is any spare capacity left. There is no way to know this, and anybody, here, at the IEA, the EIA, the BSS, the Moon, or standing on Ghawar floating in a barrel of oil, can tell you this.

We. Don't. Know.

It is absolutely bizarre to me that we all very well know that 1. Governments rig numbers every day to paint a rosier picture than exists, 2. Important oil producers do not allow auditing of their numbers,

but yet there is a myth perpetrated through the Oil Drum, as well as other such sites, that "there IS spare capacity."

2. Let's stay focused people. A child starves to death every 4 seconds on the planet. RIGHT NOW. There is no question that people will be starving in 2011. The only question will be - "how many more will starve than are starving RIGHT NOW."

1. I completely and respectfully disagree that you have any idea whatsoever whether there is any spare capacity left.

Then 'Oilwatch monthly' based on EIA numbers is completely useless.

2. Let's stay focused people. A child starves to death every 4 seconds on the planet. RIGHT NOW. There is no question that people will be starving in 2011. The only question will be - "how many more will starve than are starving RIGHT NOW."

Yes. NOW the problem is not shortage of food, but it is divided very poorly. In a lot of countries much food is thrown away because there is too much. Interpreting what memmel writes, a lot is going to change in 2011 regarding food supply, something that I doubt especially because if oilprices go up globalisation will go down.

I WROTE - 1. I completely and respectfully disagree that you have any idea whatsoever whether there is any spare capacity left.

YOU WROTE - Then 'Oilwatch monthly' based on EIA numbers is completely useless.

Maybe I'm missing what you are trying to say, but Oilwatch monthly's main point is to track production, and you may find value in that. I do.

As for "spare capacity," nobody here at the Oil Drum has answered my question more than topically.

How on earth can we pretend to know anything about "spare" production when, regarding the main producers in the world,

1. Our direct knowledge of spare capacity is nil and inferred capacity is based on a sea of assumptions, and
2. We have little to no information regarding the current state of their oil fields, the data supporting the promise of new fields, or information regarding past field parameters?

I say that "spare capacity" predictions are 99% guess and 1% data, which, for practical purposes, means it's all wild speculation that appears less-than-wild because good people spend a lot of time putting together inferential graphs based on phantom numbers.

Maybe I'm missing what you are trying to say, but Oilwatch monthly's main point is to track production

AndrewB, not only. Look at the november 2009 edition from Oilwatch monthly. I think the guess there is not as high as 99%.

Han its not all that hard to assume that countries which have refineries and manage to import oil will not let significant shortages of fuel happen even as they export obviously this could even impact their own ability to produce food.

And just as obvious to me at least if we then have a problem partitioning a limited supply of distillates to all the countries in the world which don't have adequate refining capacity it will impact food production in these countries. Most are dirt poor and agriculture is one of the primary uses for fuel esp getting food to markets. No diesel not crops moving even if they are grown.

Next of course many countries in the world that are third/second world have large cities where the fuel is imported distribution to the countryside is problematic even in good times and of course they have a large internal disparity with the wealthy living in the cities along with large slums and poverty in general in the country. Again the distribution network for diesel works against the poor farmer.

It the world does have a shortage of distillates the end result is many poor farmers will be cut off from supply as they are the end of the supply chain with numerous deeper pocket and probably more important better politically and infrastructure connected buyers in front of them. Everyone else can afford to pay higher prices and or use their position to ensure they are supplied first.

It probably takes less than 1mbpd of distillates not making it to the final poor farmers to seriously disrupt food supplies and cause price shocks in poor countries leading to hoarding and even more problems.

If you follow the export land model through to the end you realize that the way our system works virtually insures that problems mount quickly and spin out of control the moment diesel exports become a problem you never even reach the situation where countries like the US actually face real shortages.

The combination of diesel shortages and food shortages in third world countries rapidly reaches crisis levels.

Indeed if you simply go back and read about events in 2008 its in my opinion obvious that what I'm saying was happening. Food/Diesel shortages where rapidly mounting world wide.

The only thing thats really averted this situation today has been the collapse of US housing construction and housing construction in general world wide which results in significantly lower shipments of bulk construction materials and thus a larger drop in diesel demand than you get in gasoline demand. We pulled back from the brink of collapse via popping the housing bubble.

The problem we face now is we don't have a housing bubble left to pop when distillate supplied become strained again there is not simple solution which can unlock large amounts rapidly.

Its the diesel powered water pumps, tractors and trucks used to supply food to the poorest that will be the first to simply not get diesel. Thus putting direct pressure on food exports from the wealthier nations such as the US that actually where able to plant and of course on the global oil supply as emergency purchases are made and some hopefully makes it to the farmers after going through a number of corrupt hands.

Again if you read all of this happened in 2008 however my concern is this time around we don't have any bubbles to pop to take the pressure off the system if orders of magnitude more inelastic now than it was through 2008.

As far as I can tell their is enough distillates to get us through this spring. Supposedly the US had a bumper crop however I question the quality of the crop. I suspect most of the crops harvested this year are barely suitable for animal fodder. I know enough about agriculture to suggest that the protein assays and overall quality of our harvest has to be horrid. This means the grains are almost useless and you have to really up the soybean content of your feed to get the protein levels up.


Harvest reports from across the U.S. suggest that average corn yields are good to excellent, but that the crop quality is quite variable. The central and western Corn Belt is reporting very good yields and generally good quality, although grain moisture levels are above average. However, the eastern and northern corn growing regions are finding fields with lower than average test weights and a range of disease issues.

Please read the link there is a lot more in there. I used to formulate animal feeds so I actually know this area directly.

If you read its obvious the crop is not even fit for animal consumption you can forget about human consumption. I have to think that you will also see serious spoilage in the elevators given your obviously dealing with significant fungal contamination and wet crops right from the start. A lot of it will simply have to be dumped as various fungal toxins spoil the entire elevator.

Now I think we will squeeze but in 2010 at least until the fall but then we are in deep doodoo in 2011 we basically had a massive crop failure this year supplies will be low and everyone in the world will have to plant and many simply won't get the distillates they need to farm.

Only a seriously good bumper crop in 2010 that can be harvested and stored can get us through 2011 but then what about 2012 this ticking time bomb is not going away.

The oil situation only gets worse over time and sooner than later we will hit the wall again on crops/diesel.

I could even easily be wrong about my expectations we make it through 2010 we shall see. So far I think we will but lots of factors could change that.

The only thing thats really averted this situation today has been the collapse of US housing construction and housing construction in general world wide which results in significantly lower shipments of bulk construction materials and thus a larger drop in diesel demand than you get in gasoline demand.

memmel, it's not only construction materials that's being shipped less. Exports and consumption in general slowed down.

Well its a general drop in household formation but new housing and commercial real estate construction incur a lot of rail traffic. From the time a tree is cut till its finally used in construction its shipped at least twice if not three times by rail and twice by truck. This is a bulky item. Similar goes for concrete production etc. Coal traffic is down a lot a good bit of that may be a rapid fall of in concrete production. The creation of concrete for example can easily be two or three different shipments etc.

Its surprising rail traffic is only down by 12%.


One has to wonder how many partially loaded containers are now moving around.

The contents of a home flat screen TV's couches etc generally take up far less space i.e half a rail car at most and are not generally moved as often by rail often just once and thence once more by truck.

So falling houshold formation in general does have a impact but its a lot lower than construction.

Obviously the big story is not the real economic slowdown but on the cessation of new loan creation as new houses and commercial real estate fall. Buying and selling existing homes really just changes the names on the loans not overall expansion of debt which is driven by new construction.

Most of the blow was thus in the financial sector not the real economy outside of the falling rail traffic.

One reason we managed a L shaped recession for now is because the collapse was focused on our last growth industry certainly it ripples through the entire economy but still it was the collapse of a single sector primarily driving growth not the daily economy. The day to day or normal economy has yet to collapse. It will eventually of course but the end of growth is not the same as the final depression spiral and general collapse.

My opinion is the overall collapse started to form fourth quarter of 2009 but we are still early on in the process it will take at least a year to pick up steam and of course actual collapse of food and oil demand follows after that and will only fail in a high commodity price regime.

If we manage to keep food and oil cheap given we are now using fiat currencies then I'd argue we won't collapse into depression but enter a high inflation era. Something like 1970's stagflation.

I don't think we will make it personally. I think that the issues with oil globally will quickly overwhelm fiat monetary games and we transition right to a nasty resource competition situation with the purchasing power of fiat currencies against commodities falling rapidly. Or plain old shortages.
Thus the attempts to generally re-inflate the fiat currencies will fail as it simply inflames shortage based commodity price increases. Because of this the paradox is we enter a deflationary depth spiral on the debt side of the economy and the entire world contracts economically and focus's on just staying alive forget about debt. Shortage induced real price increase of commodities in my opinion will overwhelm any attempt to induce general monetary inflation as the willingness and ability to take on debt drops to zero.

Its a different trap from what we fell into during the Great Depression and in my opinion impossible to escape thats why it works to destroy fiat currencies. Any other trap and you can escape be inflation like we have done to date.

This is why Bernanke is the worst man for the job. He is fighting the last great war aka The Great Depression but he will find out just like the French did with the Maginot Line that fighting the last war can prove fatal.

In this respect the US Military at least made the right move invading Iraq as its actually a return to resource colonialism or the 17th-18th century. We are going right back to that. Not that I agree with what we have done but I can recognize that the US actually made the perfect move. In this particular case GWB was dumb enough that military planners actually made the moves needed to ensure the continued existence of the American Empire indeed the probable expansion. Now I don't agree in that the American people would have been far better served if we had simply contracted and focused on creating a renewable internal economy and let the rest of the world fight.

Thus the survival and rebirth of America as a country probably rested in withdrawal and isolation and reinvigorating ourselves. While the creation of a post peak global empire controlling the last remaining oil resources required the Iraqi invasion. This empire of course does not require a large middle class exist with a faux Democratic process so I expect both to be eliminated early on.

My hope is that we fail in this bid for Empire and that whatever fighting does occur is amongst a complex fractured set of former countries with all kinds of civil war and factional fighting.

Although that sounds bad without and obvious empire forming the chances of full scale nuclear war are much lower at best some regional nukes. So the best outcome is for us to fail and for the US to break up along with all the other large countries. Smaller regional countries are a lot better framework for the re-localization and wind down that needs to happen. If we are lucky this attempt to create a Empire will backfire and actually result in a second best case outcome. Obviously a peaceful transition with local governments steadily increasing in power as the need for a powerful federal system waned would be the best case. Local trade would then serve to limit warfare as natural dependencies formed.

Sorry for the long reply but I think the big picture view is important. I think that fatal mistakes have already been made and assumptions about where we are are in general incorrect.

My opinion is we managed to pull of a luck break between the end of growth and the beginning of collapse and we have used it all up trying vainly to re-inflate the housing bubble and keep the bankers happy. I think we just blew our last chance. Not the last chance for the vision of a democracy free American Empire thats probably floating around in the heads of a few that grok the real situation but a chance to give up and do the right thing.

So Mem - what's your best prediction?
Reading your posts up until now, I thought you were calling for a major oil issue (supply crunch and price spike) within 2010.
Now it seems as though you're implying something further out.

What is your current position?

If your shark fin theory is correct, as well as the storage-to-emulate-supply-excess theory, when will we most likely see some market/price/shortage evidence?

Thanks for your posts.

One has to wonder how many partially loaded containers are now moving around.

memmel, regarding ship traffic I can say that on the island where I live (Curaçao) I saw a lot of ships offshore until sept-okt. of 2008. After that there were considerably less ships. The last months it increased a little. A diminished globalisation will use a lot less diesel, however what you described about diesel delivery problems to farmers (or farmers unable to pay for expensive diesel)is still a possibility, I have to agree. I know about PO since reading Savinar's lifeaftertheoilcrash site which is very pessimistic. After that I found Theoildrum and it seemed to me that one of the most pessimistic writers was Darwinian but with your prediction for 2011 you 'beat' him.
Unless EIA numbers about spare capacity are unreliable, I don't see more problems for this and the next year than there were last year.


Now I think we will squeeze but in 2010 at least until the fall but then we are in deep doodoo in 2011 we basically had a massive crop failure this year supplies will be low and everyone in the world will have to plant and many simply won't get the distillates they need to farm.

Only a seriously good bumper crop in 2010 that can be harvested and stored can get us through 2011 but then what about 2012 this ticking time bomb is not going away.

If I read this, and his other posts, correctly Memmel thinks that the wheels are going to fall off the global economy and begin a rapid descent into economic disintegration some time in the next 12-18 months. This is when global oil production is very close to the 2008 peak and the descent is at a very early stage. I don't think so.

The assumption behind his analysis is a complete inelasticity of demand in the face of production decreases. A small proportionate fall in production would be dealt with by preferential rationing and the ones at the end of the queue would be shut out completely. As production falls, more people would get short-changed at the end of the queue, but no changes would happen with the consumption of people who are still getting the oil.

Many people mightn't know this, but Ireland exported food all the way through the Potato Famine of the 1840s - just as Ethiopia did all the way through its drought-induced famine in the 1980s. People starved in both cases, not because they were cut off from rations, but because they didn't have the money to buy the food that the rich farmers were selling.

The effect of falling oil production will be to increase prices. This will mostly affect people in cities more than in the countryside, because of two reasons:

(a) The poorest farmers in Third World countries don't use oil at all. They can't afford farming machinery.

(b) Poor farmers producing food will demand that, to the extent that rising oil prices increase their costs, their selling prices are covered. The prices will definitely rise because the industrialised farming of the US, Europe, Canada & Australia is both very oil-dependent and market-driven. Falls in food production will therefore occur first in industrialised countries, leading to increased prices which benefit Third World food farmers.

The people hit hardest will be in the cities of the Third World, poor farmers growing cash crops and, to an extent, landless rural labourers. The rural labourers will be partially protected by a rise in wages, since they are mostly at subsistence level already. If they don't get enough to eat, they die & then the richer farmers have no labour force. And they'll want a labour force, since the mechanical alternative has become dearer.

Memmel's rationing assumption would be most accurate in places where a national oil company funds all (or virtually all) State revenue out of export receipts, while oil for domestic consumption is sold at nominal cost. The places where this is occurring, however, are decreasing. Even Iran is moving to the position of increasing the domestic oil price and diverting the subsidies to direct transfer payments.

When oil is sold at market prices, you don't get the same effects as with the preferential rationing in Memmel's scenario. Of course, there is a differential effect, in that poor people have harder choices to make than rich people, but the people with the highest oil consumption have the biggest proportional change in their consumption patterns to make, while other prices are also affected all along the way in proportion to their exposure to the oil price. In this scenario, I can certainly imagine Pemex exporting oil from Mexico because some people in the US are willing to pay a higher price than people in Mexico are. Basically, prices will be bid up until enough people decide it's no longer affordable to use it in the way they had been planning to. As I've been telling people for years, prices will rise to whatever level is required to bring demand back to meet available supply.

The final thing I can say is that, if rationing within a country is introduced, the rules will be drawn up with an eye to keeping the food supply up. In the US, for example, any oil rationing will be in favour of farmers and at the expense of city motorists.

The current structure of global capitalism is unsustainable - yes. I think, though, that production will have to drop at least a third, and perhaps two thirds, before it reaches breaking point.

Thanks for your thoughts.

Mankind has always been one bad harvest away from widespread starvation.
all it would take is a major volcanic eruption on the scale of 1816.

Today we are better able to handle famine because we have roads, railroads and ships and refrigeration. That somewhat makes up for low food stockpiles. This is not to say that millions can't starve.

If there is a food emergency we could switch to growing more potatoes and sweet potatoes. The yields are tremendous. When it's winter in Iowa it's summer in Brazil.

Westexas I found a very interesting post on export land from 1916.
Given the context the irony is incredible.


When Rumania and later Russia dropped out of the Entente the supply percentages altered to the extent that 80 per cent came from the United States. Although it was agreed that this temporary dislocation and its causes would probably cease to exist after the war, other far more powerful factors were certain by that time radically to worsen the entire petroleum position. An inquiry ordered by the United States Senate in 1916 had reported that most of the American oil-fields had already reached and passed their prime and were on the down-grade. Given a rise in yearly consumption, the estimated resources would, according to the most optimistic calculation, last for less than 25 years. As a consequence the Americans reckoned that exports would have to be drastically curtailed. In Admiral Slade's view supplies from America would greatly diminish after the war, if not entirely cease within 10 years,

Welcome to the world of finding out you rediscovered something that was once well known.
It why I hate mathematics you gnaw on a problem for a while just to find out some bastard dead for five hundred years already solved it.

I suspect if I did that the concept of export land was well known for coal thence for wood.
But I'll leave that to you as less than 100 years is not all that bad.

As I said before, good thing that I never claimed to be doing original work. In my case, I focused on exports because of prior work by Matt Simmons.

Am I reading this correctly?

An inquiry ordered by the United States Senate in 1916 had reported that most of the American oil-fields had already reached and passed their prime and were on the down-grade. Given a rise in yearly consumption, the estimated resources would, according to the most optimistic calculation, last for less than 25 years. As a consequence the Americans reckoned that exports would have to be drastically curtailed. In Admiral Slade's view supplies from America would greatly diminish after the war, if not entirely cease within 10 years

It appears to predict that US oil exports would cease by 1930, and that US oil production would be exhausted by 1945.

Is this a case of crying wolf on US peak exports and peak oil?

It has certainly been accepted by many now that oil and gas will not carry on supplying the world as fruitfully in this century as it has in the last. Has oil output peaked? And what prices are people likely to pay in five, ten years or beyond? These issues have been looked at by the Future Agenda Project in their blog on energy issues over the next decade (http://www.futureagenda.org/?cat=5).