Friday, February 1, 2013

Checking the oil #2

Greetings Peaksters

      So, lets take a closer look at the significance of  peak exports.   A good place to start is Crash Watcher,  (CW) who has put a lot of time and effort into get a handle of how decline  of oil exports will play out

       CW is one of the few people I've found  who attempted to model the likely impact of peak oil and in particular peak exports in different areas.   Where will the oil go?   Who will get what share of the shrinking export pie? 

     One simple approach would be to assume that everyone's share will be the same, but each slice will get smaller.  But looking at the last few years, we can see that hasn't happened.  The US and EU took a bigger share of the decline, while China actually increased their usage.

       So, CW built a model.  He looked the population and consumption rates and trends, and production rates and made some projections about how long various countries will continue to export.   Then CW looked the oil market for the past ten years, who sold to whom, and what the trends were and tried to project those trends into the future.   There is no way I can summarize the data or the assumptions,  I can only suggest you get on over to crashwatcher and see for yourself.   There is  even  a movie to help to explain it all.  

     One thing I appreciate about CW, is that  (s)he is very explicit about the assumptions that go into the analysis.  See e.g. here 

       Of course 99% of prediction are inaccurate.  But this exercise  may at least provide some idea what things may look like.

     First,  lets look at the big picture.  CW predicts that there the export market will completely dry up between 2030 and 2035.  (For reference,  Jeffery  Brown the originator of the "export land model" projects 2031.)    That's only about 20 years from now!     Since exports are about 40% of the total oil use, this could be significant (!).  

   Next let' s look at the allocation.   Essentially CW predicts that the recent trend will continue, at least in the short term. Allocation will be rationed by price. The US and EU will be unable to afford the high priced oil, and  China will continue to take a bigger share of a shrinking pie

   OK, so what does that mean for the good 'ol USA?    CW, uses regions ratter than counties so, let's look at North America (NA).  Here's his/her take - we will experience a drop on per capita use of oil, from  from now to 2020 of 3%/y ,  and from 2020 to 2040 of 2%/y      In comparison ,since 2005 we've been dropping at 2.2%/y. 

"From 2005 to 2011, NA’s per capita consumption rate dropped from 21 to 18.3 b/py: a 13 % drop in 6 years, or -2.2 %/y.  The prediction curve projects for a steeper drop in per capita consumption from 17.7 to 12.7 b/py from 2011 to 2020—a 28% drop in 9 years or -3.1 %/y.  From 2020 to 2040, the  per capita consumption rate is predicted to continue declining, from 12.7 to 6.9 b/py.  That’s another 46 % drop over 20 years, or, -2.3 %/p.  By 2065, the per capita consumption rate is down to 4.2 b/py—another 40 % drop in 25 years or -1.6 %/y."  

  See the full NA story here

   So, that's no too bad.  Basically more of the same.  No growth to speak of.  Income stagnation.  Probably inflation at some point..   

NB -  While no growth is heresy to folks like the US Treasury, and the Fed (not to mention PERS), it  is not  just wild peaksters speculation.   The effect of high cost resources on the economy is getting more play recently on wall street.. For instance  Jeremy Grantham , a well respected  investor,  has  suggested that resource costs will grow at 7%/yr, flattening GDP growth to near 0%   see On The Road to Zero Growth


    But, all and all, it could be worse.  NA  is blessed with large initial resources,  a reasonably small population, and slow population growth rate.  After all, we waste so much, we have a long way to fall.  And we actually produce almost half of what we use.    Other regions are not so fortunate.  The EU and Japan for instance.    Or Africa.    (see  chart below)

     (Warning: This next  part is for mature audiences only)   

      At some point we get into "Limits to Growth" territory - That's right - dropping population.  CW has a theory that the minimum amount of oil necessary to support industrial agriculture is 1b(per cap)/yr.   So once a region goes below that, it confronts starvation.  Unless, some other part of the world decides to donate some of their oil (  to that region.  Africa, as you might expect is already at that level.
      So,  1b/y is kind of  hard limit.  Once you go past that, your start losing population.  CW figures that  you drop to the population that you had in 1900, the last time people had non fossil fuel based agriculture  

    End of mature section

     Here's the   rest of the story:
Nine region scenario summary
Table 1 summarizes the predicted annual percent change per capita consumption rate scenarios over three different time ranges, and, the year when a region drop to 1 b/py, or alternatively, that regions per capita consumption rate at the end of my study period in 2065.
Table 1: Regional changes in per capita consumption rate and year to reach 1 b/py, or, rate in 2065
Year to reach 1 b/py or rate in 2065
The Net Exporter Regions
 down to 1.9 b/yp by 2065
 >1 b/py by 2022; ~0 b/py by 2026
 >1 b/py now; ~0 b/py by 2026
 down to 2.5 b/yp by 2065
The Net Importing Developed Regions
 down to 4.2 b/py by 2065
 down to 1.3 b/py by 2040
>1 b/py by 2034; 0.2 b/py by 2040
The Net Importing Developing Asian Regions
 down to 1.5 b/py by 2065
>1 b/py by 2031; >0.2 b/py by 2065
Although all nine regions suffer serious declines in per capita petroleum consumption over my study period to 2065, some regions have much sooner and steeper declines than other regions.  
In the short term, from the present until 2020, CH fairs the best with an overall slight increase and ME is next best off with a very mild declines in per capita consumption.  Next best off is SA with only a -1.3 % decline, followed by rAP with a -2.2%/y decline.  Then there are progressively steeper annual consumption rate declines of -3 to -5 %/y from NA, to EU to JP.  At the bottom are FS and AF.  The annual per capita consumption rate declines of -7 to -8 %/y for AF and FS are extremely large, because of the bad combinations of trends for declining domestic production, increasing export rates and low to zero import rates for these two regions. 


    All this assumes that trends continue.  And course they won't - at some point countries look at the trends and begin to react.

     CW begins to take this into account, but assumes a very late response.  He explains:

"Although one could fantasize about various more pleasant mitigation scenarios, like dramatically increasing domestic petroleum production, massive food production increases, independent of petroleum consumption, massive voluntary population control, etc..., I don’t see signs of any of these things happening in the new 10 to 20 years.  Rather, I expect that the most likely mitigation scenario is that these regions will try to cut their exports of petroleum in favor of domestic petroleum consumption.  Furthermore, I expect that this mitigation effort will start to occur right at the point where the per capita consumption for that region reaches 1 b/py. 
Why do I expect this mitigation measure later, rather than sooner?  That is, why not just start cutting petroleum export rates right now? 
Well, at three reasons, anyone of which would be sufficient: first, lack of recognition of the problem; second, these regions, or at least governments in these regions, rely heavily on the income that their petroleum exports bring in; and, third, humans generally do not act to mitigate a problem, like imminent starvation and death, until it reaches crisis proportions.
In the mitigation scenarios to follow for these four regions, I assume that each of the four regions will not act to cut their export rate of petroleum until that region’s particular per capita consumption rate reaches 1 b/py, and, I assume that the extent of export rate reduction made will only be enough to keep the per capita consumption rate at 1 b/py for as long as possible. "

    This seems a little extreme to me. Perhaps I am a hopeless optimist!  I suppose if one looks at the behaviors of Mao and Stalin, one might conclude that leaders may be willing to allow things to get pretty bad for the local population before dealing with the crisis.        
       How, for instance will the FSU deal with falling production?   see e.g.  Russian Oil Production to Peak soon? Will they reduce exports?  like they did in 2011?     I wouldn't count that out, which of course would only reduce further the amount of oil available for export.

     Anyway, CW has given us something to work from.  We can now at least see see how things may play out.  CW's projections may be off, but happily he/she seems willing to watch and modify his/her views. 

   The problem, of course, is that peak exports is completely ignored by the media and government, and is swamped by  wonderful optimistic, and misleading reports about the new golden age of energy through the miracle of fracking.  
    Party on Dudes! 


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