Global Oil Exports: Smooth Sailing Or Midnight on the Titanic? Jeffrey J. Brown; Samuel Foucher, PhD; Tiger Craft*, Fortress Investment Group April 26, 2012 * All views are those of the authors, and Fortress accepts no responsibility for the content contained in this presentation.
Five Key Topics Peak Oil Versus Peak Exports Global Supply Update Global Net Oil Exports Versus Available Net Exports Consumption to Production Ratios in Current Oil Exporting Countries Increasing US Production--in Perspective Note: Principal data source: BP + Minor EIA Input 2
Two Peak Production Case Histories: Texas and North Sea Crude Oil Production 1999 North Sea Peak 1972 Texas Peak 3
Texas and North Sea Exponential Rates of Change (ROC) Relative to Their Production Peaks Rate of Change (%/year) Texas North Sea Texas production fell at 3.7%/ year from 1972 to 1982, resulting in 1982 production being 31% below the 1972 rate. North Sea production fell at 4.8%/year from 1999 to 2009, resulting in 2009 production being 38% below the 1999 rate.
Texas Crude Oil Production (1962-1982) and North Sea Crude Oil Production(1989-2009) Versus US Oil Prices 5
What Happens to the Net Export Decline Rate When Oil Production Peaks in an Oil Exporting Country? 6
Three Primary Factors That Control Net Export Declines Consumption as a percentage of production at final production peak Rate of change in production Rate of change in consumption 7
Export Land Model, Assuming Production Peak in 2000 2.0 2.0 2.0 Production 1.5 1.0 Million bpd Millions of bbls per day 1.5 0.5 0.0-0.5 1990 1.0 Net Exports 0.5 1994 1996 1998 Net Exports -0.5 1990 1.5 1.5 1.0 1.0 0.5 0.5 1992 90 - '00 +5.0% +2.5% +8.1% '00 - '08 1.5 1.0 0.5 0.0-5.0% +2.5% -28.8% -0.5-0.5 2000 2002 2010 1990 2004 1992 2006 1994 1996becomes 1998 Import 2000 Export 2008 Land Land 2002 Consumption 1994 2.0 RATE OF CHANGE Production 0.0 Consumption Net Exports 0.0 1992 Millions of bbls per day 2.0 1996 1998 Net Exports 2000 2002 2004 0.0 2004 Consumption 2006 2008-0.5 2010 8 2006 20
Exponential Rate of Change in Production, Consumption and Net Oil Exports by Year, Relative to Final Production Peak, for "Export Land" Post Peak CNE 60% Depleted 3 Years into a 9 Year Decline Annual Volume Down by 40% From Peak. 9
Export Land Total Petroleum Liquids Consumption / Production Ratio 160% 140% Net Oil Importer 120% 100% 80% 60% Net Oil Exporter 40% 20% 0% 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 Note: Dotted line represents extrapolation based on 2000-2003 rate of change. 10
Export Land, Indonesia, UK & Egypt Net Oil Export Comparisons C = Consumption; P = Production; NE = Net Exports CNE = Cumulative (Post-Peak) Net Exports (BP Data Base) Country Export Land Indonesia UK Egypt C/P At Final Production Peak Simple Percentage Changes & Rates of Change in C, P & NE Over NE Decline Years to CNE Half Life (Post-Peak CNE At Least 50% Depleted) Years After Peak to C/P = 100% (Zero Net Exports) 50% (2000) C: +30% (+2.5%/year) P: -35% (-5.0%/year) NE:-100% (-29%/year) 3 Years (CNE 60% Depleted by 2003) 9 Years (2009) 42% (1991) C: +77% (+4.8%/year) P: -30% (-2.9%/year) NE:-100% (-23%/year) 4 Years (CNE 53% Depleted by 1995) 12 Years (2003) 59% (1999) C: +3% (+0.5%/year) P: -38% (-7.2%/year) NE:-100% (-31%/year) 2 Years (CNE 53% Depleted by 2001) 6 Years (2005) 5 Years (CNE 55% Depleted 1998) 17 Years (2010) 45% (1993) C: +77% (+3.4%/year) P: -22% (-1.4%/year) NE: -100% (-26%/year)
Export Land, Indonesia, UK & Egypt C/P Projections Vs. Actual Data C = Consumption; P = Production; NE = Net Exports CNE = Cumulative (Post-Peak) Net Exports (BP Data Base) Country C/P At Final Production Peak Three Year Rate of Change in Post-Peak C/P Ratio Predicted Year for C/P Ratio = 100% Or More Actual Year for C/P Ratio = 100% Or More Export Land 50% (2000) +8.2%/year (2000 to 2003) 2009 (9 years) 2009 (9 years) Indonesia 42% (1991) +7.1%/year (1991 to 1994) 2004 (13 years) 2003 (12 years) UK 59% (1999) +5.2%/year (1999 to 2002) 2009 (10 years) 2005 (6 years) Egypt 45% (1993) +6.7%/year (1993 to 1996) 2005 (12 years) 2010 (17 years)
Indonesia Total Petroleum Liquids Consumption / Production Ratio 160% 140% Net Oil Importer 120% 100% 80% Net Oil Exporter 60% 40% 20% 0% 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 Note: Dotted line represents extrapolation based on 1991-1994 rate of change. 13
Export Land, Indonesia, UK & Egypt Predicted (Based on Extrapolating 3 Years of C/P Data) Post-Peak CNE Vs. Actual Data CNE = Cumulative (Post-Peak) Net Exports (BP Data Base) Country Export Land Indonesia UK Egypt C/P At Final Production Peak Predicted Year for C/P Ratio = 100% Or More Predicted Post-Peak CNE (Extrapolating 3 years of C/P data) (Gb, Billion Barrels) Actual Post-Peak CNE (Gb, Billion Barrels) 50% (2000) 2009 (9 years) 1.3 Gb 1.4 Gb 42% (1991) 2004 (13 years) 2.0 Gb 2.1 Gb 59% (1999) 2009 (10 years) 1.7 Gb 1.2 Gb 45% (1993) 2005 (12 years) 0.9 Gb 1.3 Gb
Two Primary Characteristics of Net Export Declines: Given an ongoing production decline in an oil exporting country, unless consumption falls at the same rate as the production decline, or at a faster rate, the net export decline rate will exceed the production decline rate, and the net export decline rate will accelerate with time Net export declines tend to be Front-end loaded, with the bulk of post-peak cumulative net exports (CNE) being shipped early in the decline phase 15
Re: Two Primary Characteristics of Net Export Declines Okay, but what about case histories of net oil exporting countries, showing a production decline, that have successfully cut their consumption? 16
Two Examples of Oil Exporters Cutting Oil Consumption (2005 to 2010 Rates of Change) Nigeria: Production -0.8%year Consumption -2.2%/year Net exports -0.6%/year Denmark: Production -8.3%year Consumption -1.4%/year Net exports -19.5%/year 17
Global Production & Global Net Exports of Oil (GNE)
EIA Global Crude & Condensate Production 90 85 Million bpd 86.0 Extrapolation @ '02 - '05 Growth Rate ~12m bbl/d "gap" 80 75 73.8 74.1 70 65 67.2 Actual EIA Global "Crude & Condensate" Production 60 2002 2003 2004 2005 2006 2007 2008 2009 2010 19
BP Global Total Petroleum Liquids Production 100 94.0 95 Million bpd Extrapolation @ '02 - '05 Growth Rate 90 ~12m bbl/d "gap" 85 75 82.1 81.5 80 74.7 Actual BP Global Total Petroleum Liquids 70 2002 2003 2004 2005 2006 2007 2008 2009 2010 20
EIA Total Oil Supply 100 98.7 Extrapolation @ '02 - '05 Growth Rate 95 ~12m bbl/d "gap" Million bpd 90 84.6 85 80 77.0 86.8 Actual "Total Oil Supply" 75 70 2002 2003 2004 2005 2006 2007 2008 2009 2010 21
Global Net Exports (Top 33 Net Oil Exporters) 65 Million bpd 60 58.2 Extrapolation @ '02 - '05 Growth Rate 55 ~16m bbl/d "gap" 50 45.5 45 40 42.6 Actual "Global Net Exports" 39.1 35 2002 2003 2004 2005 2006 2007 2008 2009 2010 Source: BP Total Petroleum Liquids data and minor EIA data. Based on Top 33 net oil exporters as of 2005. Net exports defined as total liquids production consumption. 22
Top 33 Net Exporters: 2005 2010 Rate of Change Azerbaijan Sudan Colombia Qatar Kazakhstan Iraq Angola Canada Rep. of Congo Oman Gabon Russian Federation Nigeria Iran Kuwait Libya United Arab Emirates Algeria Brunei Trinidad & Tobago Saudi Arabia Equitorial Guinea Venezuela Ecuador Chad Syria Norway Malaysia Mexico Denmark Yemen Argentina Vietnam -40% -30% -20% -10% 0% 10% 20% 30% 23
Actual and Projected Production, Consumption, and Net Exports for the (2005) Top 5 Net Exporters (Saudi Arabia, Russia, Norway, Iran & UAE) Production Net Exports Consumption Dashed Lines are 95% Confidence Intervals Dashed Lines are 95% Confidence Intervals 24
Actual and Projected Production, Consumption, and Net Exports for Saudi Arabia Production Net Exports Consumption Dashed Lines are 95% Confidence Intervals Dashed Lines are 95% Confidence Intervals (Projections Based on Data Through 2006; 2007-2010 Actual Data Points Circled) 25
Saudi Net Exports (2002-2011) Versus Brent Annual Crude Oil Prices (BP Data, Est. for 2011) 26
Global Net Exports (GNE) Versus Available Net Exports (ANE)
Top 33 Net Exporters: Claims on Production 70 60 70 Top 33 Production Global Net Exports Million bpd 50 40 10 0 '02 - '05 '05 - '10 Top 33 Prod. +4.6% -0.1% Top 33 Cons. +3.3% +2.7% "GNE" +5.1% -1.3% Chindia Net Im. +12.4% +7.5% "ANE" -2.8% +4.2% "Top 33" Consumption 50 40 RATE OF CHANGE 30 20 60 Available Net Exports Chindia Net Imports 30 20 10 0 Available Net Exports 28
Total Normalized Oil Consumption (2002 to 2010) for the US, China, India and Top 33 Net Oil Exporters, as Annual Global Crude Oil Prices Increased from $25 in 2002 to $111 in 2011 (100 = 2002 consumption rate, BP data base) 200 Normalized Oil Consumption 190 180 China 170 160 150 India 140 Top 33 130 120 USA 110 100 90 80 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Year 29
Top 33 Net Exporters: Claims on Production (0.1%/Year Production Decline 2010 to 2020, ANE Decline from 35 mbpd in 2010 to 21 mbpd in 2020) 70 70 Top 33 Production 60 60 Global Net Exports Million bpd 50 50 40 40 RATE OF CHANGE 30 20 10 0 '05 - '10 '10 - '20E Top 33 Prod. -0.1% -0.1% Top 33 Cons. +2.7% +2.7% "GNE" -1.3% -1.6% Chindia Net Im. +7.5% +7.5% "ANE" -2.8% -5.1% "Top 33" Consumption 30 Available Net Exports Chindia Net Imports 20 10 0 Available Net Exports 30
Top 33 Net Exporters: Claims on Production (1%/Year Production Decline 2010 to 2020, ANE Decline from 35 mbpd in 2010 to 16 mbpd in 2020) 70 70 Top 33 Production 60 60 Global Net Exports Million bpd 50 50 40 40 RATE OF CHANGE 30 20 10 0 '05 - '10 '10 - '20E Top 33 Prod. -0.1% -1.0% Top 33 Cons. +2.7% +2.7% "GNE" -1.3% -3.2% Chindia Net Im. +7.5% +7.5% "ANE" -2.8% -7.9% "Top 33" Consumption 30 Available Net Exports Chindia Net Imports 20 10 0 Available Net Exports 31
Global Net Exports Summary If we extrapolate the 2005 to 2010 rate of increase in consumption by the exporting countries out to 2020 and if we extrapolate Chindia's 2005 to 2010 rate of increase in net imports out to 2020, and if we assume a slight production decline among the 2005 top 33 net exporting countries (1.0%/year from 2010 to 2020), then the supply of global net oil exports available to importers other than China & India would decline by by about 60% from 2005 to 2020, down from 40 mbpd in 2005 to about 16 mbpd in 2020. 32
Consumption to Production Ratios in Current Oil Exporting Countries
Saudi Arabia, (2005) Top Five, GNE & ANE Predictions for 2010 (Based on Extrapolating 3 Years of C/P Data, 2005 to 2008) (CNI = Chindia s Net Oil Imports) Three Year (2005 to 2008) Rate of Change in Post-2005 C/P Ratio Predicted C/P Ratio In 2010 (Based on 2005 to 2008 Extrapolation) Actual C/P Ratio in 2010 Country/Region C/P in 2005 Saudi Arabia 18.0% +6.7%/year 25.2% 28.1% (+8.9%/year) (2005) Top Five Net Exporters 23.3% +4.3%/year 28.9% 29.6% (+4.8%/year) Global Net Exports (GNE) 26.9% +2.7%/year 30.8% 31.1% (+2.9%/year) Available Net Exports (ANE) CNI/GNE = C/P 11.2% +6.7%/year 15.7% 17.6% (+9.0%/year)
Saudi Arabia, (2005) Top Five, GNE & ANE Cumulative Net Exports (CNE) Predictions (Based on Extrapolating 5 Years of C/P Data, 2005 to 2010) Country/Region Saudi Arabia (2005) Top Five Net Exporters Global Net Exports (GNE) Available Net Exports (ANE) CNI/GNE = C/P C/P in 2005 18.0% 23.3% 26.9% 11.2% Predicted Year for C/P Ratio Approaching 100% Predicted Post-2005 CNE (Extrapolating 5 years of C/P data) (Gb, Billion Barrels) 2025 (2029 Based on 2011 Estimate) 30 Gb (36 Gb, based 2011 Estimate) 16 Gb (47% Depleted, 13%/year depletion rate) 126 Gb 86 Gb (32% Depleted, 7.7%/year depletion rate) 2036 2050 2030 357 Gb 168 Gb Estimated Remaining Post-2005 CNE, After 2010 277 Gb (22% Depleted, 5%/year depletion rate) 100 Gb (40% Depleted, 10%/year depletion rate)
Saudi Arabia, (2005) Top Five, GNE & ANE Cumulative Net Exports (CNE) Predictions (Based on Extrapolating 5 Years of C/P Data, 2005 to 2010) Plus 10 Years Country/Region Saudi Arabia (2005) Top Five Net Exporters Global Net Exports (GNE) Available Net Exports (ANE) CNI/GNE = C/P C/P in 2005 Predicted Year for C/P Ratio Approaching 100% 18.0% 2025 (Assume 2035) 23.3% 2031 (Assume 2041) 11.% 2050 (Assume 2060) 26.9% 2030 (Assume 2040) Predicted Post-2005 CNE (+ 10 years) (Gb, Billion Barrels) Estimated Remaining Post-2005 CNE. After 2010 (+10 years) 46 Gb 32 Gb Vs. 16 Gb (30% Depleted, Vs. 47%) 178 Gb 138 Gb Vs. 86 Gb (22% Depleted, Vs. 32%) 440 GB 360 Gb Vs. 277 Gb (18% Depleted, Vs. 22% ) 257 Gb 189 Gb Vs. 100 Gb (26% Depleted, Vs. 40% )
Increasing US Oil Production In Perspective
U.S. Crude Oil Production Peaked in 1970 38
Consumption to Production (C/P) ratios (1998 to 2010) for US Total Petroleum Liquids, Natural Gas and Coal (BP Data Base) 3.5 Oil 3 2.5 C/P 2 Gas 1.5 1 Coal 0.5 0 1998 2000 2002 2004 2006 2008 2010 2012 Year 39
Increasing US Production Vs. Available Net Exports US total petroleum liquids production increased from 7.2 mbpd in 2004 (prior to the hurricanes) to 7.5 mbpd in 2010, an increase of about 0.3 mbpd from 2004 to 2010 (and probably to about 7.8 mbpd in 2011). Over a similar time frame (2005 to 2010), the global supply of Available Net Exports fell by 5.0 mbpd, and it could fall by 14 to 19 mbpd from 2010 to 2020. 40
Increasing US Production Vs. Regional Net Exports US total petroleum liquids production increased by 0.3 mbpd from 2004 to 2010, from 7.2 mbpd in 2004 to 7.5 mbpd in 2010. Combined Net Oil Exports from the seven major net oil exporters in the Americas & the Caribbean* declined by 1.4 mbpd from 2004 to 2010, from 6.2 mbpd in 2004 to 4.8 mbpd in 2010. *Canada, Mexico, Venezuela, Colombia, Argentina, Ecuador, Trinidad & Tobago 41
Midnight on the Titanic After hitting the iceberg at 11:40 P.M. on April 14, 1912, at around midnight only a handful of people knew that the ship would sink, but that did not mean that the ship was not sinking. The Titanic s pumps helped, but they could not fully offset the flood of seawater into the ship. In my opinion, slowly rising US crude oil production is to the ongoing declines in Global & Available Net Oil Exports as the Titanic s pumps were to the incoming flood of seawater. 42
What s the Good News? Our forecast is that the US, and many other developed oil importing countries, are well on their way to becoming "free" of their dependence on foreign sources of oil -- just not in the way that many people anticipated. 43
The ELP Plan Cut thy spending and get thee to the non-discretionary side of the economy Three Key Recommendations: Economize Try to live on half, or less of your current income. Localize Try to minimize the distance between home and work to as close to zero as possible and/or move to smaller energy efficient housing along a mass transit line. Produce Try to become, invest, or work for a provider of essential goods & services. 44
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Global Oil Exports: Smooth Sailing Or Midnight on the Titanic? Jeffrey J. Brown; Samuel Foucher, PhD; Tiger Craft*, Fortress Investment Group April 26, 2012 * All views are those of the authors, and Fortress accepts no responsibility for the content contained in this presentation.