 | The Bullroarer - Friday 22 February 2008 | TOD: Australia/New Zealand | Tapping The Source: The Power Of The Oceans |  |
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I thought the ELM was accepted here?
Isn't this a big load of duh?
Actually, Stuart, at least in the past, has generally dismissed the concept.
And in a larger sense, until fairly recently, even in Peak Oil circles, almost no one (with the exception of some people noted above) was paying any attention to net oil exports.
As Dr. Bartlett noted, we have trouble with the exponential function. This is perhaps doubly true with the net export phenomenon--where the combination of an exponential decline in production and a generally exponential increase in consumption results in vicious net export decline rates. While whether Saudi Arabia has peaked continues to be a hot topic of discussion, the amount of oil that they actually delivered to the market in 2007 probably declined at around 10%, versus about a 5% drop in 2006.
We need confirmation for the theories that everybody accepts too, not only for the controversial ones.
Otherwise, we wouldn't know if we were really right, and could miss some important insights.
Isn't this a big load of duh?
Depends on your understanding of "duh"...
I thought the piece on 4 billion cars was intended as humor.
"Duh", I said when I read it, "A big load..."
If we agree on validity of the Export Land Model, shouldn’t we be working to understand effects of the Import Land Model?
Import Land Model- A model of the effects of the decline in oil available for consumption to discretionary sectors of an importing nation’s economy as a result of the Export Land Model and simultaneous domestic consumption increases by non-discretionary sectors of the economy. This combination of declining imports and increasing domestic consumption by a significant fraction of the domestic economy leads oil available for all other sectors of the economy to decline at a far faster percentage rate than oil availability itself is falling to the importing nation.
Assume that an oil importing country – Import Land – produces 10 mbpd, consumes 20 mbpd and imports 10 mbpd. In Import Land, 25% of all oil is consumed by the government (18%), energy production (6%), and agricultural (1%) sectors of the economy, or 5 mbpd total (WAG, Reference needed).
Over a five year period, imports drop by 50% to 5 mbpd due to the effects of the Export Land Model. Meanwhile internal production drops by 20% to 8 mbpd. This leaves Import Land with 13 mbpd to consume, a drop of 33% over 5 years (9%yoy).
The government of Import Land will be under severe societal stress to keep energy, food, and governmental services working. If they somehow maintain these sectors without increasing internal consumption, it will still leave only 8 mbpd for the discretionary economy, a decline from 15 mpbd over 5 years (13%yoy).
This example conservatively assumes no growth and low estimates in non-discretionary spending, low Export Land and Import Land oil production decline rates, and starts with a nation that only imports half of its oil. All are likely (or certainly) optimistic for many Import Lands.
Clearly the economic impact on the discretionary economy will be far more severe than is suggested by the Export Land Model.
I called it "Rationland" a while back.
Basically you can rank usages in decreasing order of priority, each of which ratchets up the compound decline rate for what's left. Each carves out what it thinks it needs and leave what's left for those further down the pile.
Net effect is that in a well-ordered economy certain sectors hurt VERY fast. Third world first, suburban poor second, discretionary third, and so on. The resilience of that economy to change and loss eventually defines how fast it collapses. As it collapses it drags down other usage, giving others further down the path the time to adapt - it they chose to take it.
Our future gets defined by how soon people realise what's happening.
First stage is already happening, second is not far off.
Our world is a fragile egg, balanced on a knife edge that keeps on tilting. The route down is not as secure or pleasant as the route up.
Yep thats about right.
Also export land itself is a multistep process that mimics ration land.
First the oil exporters ensure the local market is well supplied. Next that are the first tier importers for finished products if they don't have enough refining capacity. Next on the list are countries with refining capacity in excess of internal demand. Next are countries that import both crude and finished products. Next in the chain are countries that import only finished products. And last are poor countries that subsist on imports of diesel and gasoline and worse depend on diesel electric generators. And at the very end are poor countries that are wholly dependent on imports and have subsidies.
We focus a lot on crude oil itself but the real impacts right now are going to be in finished product flows given the above chain. Its like North Dakota in the US the guy at the end of the pipeline gets screwed first.
I think that finished product exports will experience tightening first simply because more local markets have to have demand met before exports are sent on.
So if I'm right we will see a spike in gasoline prices this summer widening above oil prices as we have to pay more for gasoline imports. So the poor who drive long distances in low MPG cars could get hit hard as early as this summer.
Memmel, crack spread can only increase with high utilization rates, otherwise partially idle refineries will bid up crude prices. We’re seeing it today with the high prices and tight spread. Tight supply means tight spread.
This time its not from the crack spread but lack of imported gasoline.
It looks like the crack spread is increasing but the gasoline importers have to cover increased costs for gasoline and oil we be expensive. Or refinery utilization might actually be down while the "crack spread" is high.
Lest say you can produce gasoline from imported crude at 2.50 a gallon but your imported gasoline or blending components is coming to 3.50 a gallon. You have a dollar spread between imports and gasoline you make but if you don't import you don't have enough gasoline. Logically you have to either back down on internal production or probably back off on imports until the price increase to cover your import costs. Your correct that calling it crack spread is not quite right but its easier then saying imports are substantially more expensive than domestic production. We actually saw refinery utilization back down a bit last year while imports where robust. I'm not saying that you will get a dollar spread but imported gasoline will get expensive so no matter how you cut it your going to have to get prices up to cover your total costs.
Also it makes sense that if imported gasoline is expensive crude is also expensive from the base export land model.
The actual crack spread for locally produced gasoline might be quite low under these conditions and we actually saw that last year except last year I don't think imported gasoline and blending components where a issue I think they where actually cheaper then running our new heavy/sour refineries at capacity.
At a million barrels a day of gasoline imports its enough to influence the overall price.
What I'm saying is we simply won't have enough imported gasoline to meet demand without a significant increase in price even with our refineries running at maximum and a low crack spread. This means something has to break.
Crack spreads have to start bouncing back to bring in more imported gasoline.
But notice its a bit of a catch 22 if we ramp up refinery utilization then elsewhere probably in a nation we import gasoline from they won't have enough oil to support export to us.
The intrinsic problem is we have to import significant amounts of gasoline and blending components. Once the worlds oil supply is low enough then we will see shortages and expensive gasoline imports. This will result in strange moves in the crack spread. Some places will back down on exports as its not cost effective thus idling plants and resulting in a low local crack spread. Until gasoline supplies get dire then we will import like mad and crack spreads may widen but the cost of oil will go up as well so :)
The key component is that imported gasoline and blending components will become expensive and scarce this cost will have to be passed on to the consumer. Its not clear if the real crack spread will widen or not.
What will happen is gasoline prices vs oil prices will start to widen as long as we need imported gasoline.
Garyp, Could you embellish your theory a bit? Are you suggesting a bidding war, a governmental rationing system, or something else?
Simple really. The reaction of most governments to declining fuel supply will be to implement a form of rationing system. The UK has it all defined and written down, and I'll bet most others do too. Even the US is likely to implement something along these lines.
That rationing can be on simple availability, but might extend to price controls on the first items as well. Farmers already get red diesel with lower tax, but in future they might discounts on costs with the difference being made up from higher charges on group 4. All to ensure things are kept in check.
Now, if you total up the first three and cast the net wide enough to try to keep all key parts of civilisation working, together with the secondary feeders to those, you can end up with a sizeable percentage of the supply earmarked by the government to these purposes. From the point of view of the general motorist, trying to commute to work, the available supply falls even faster than exportland suggests, together with costs rising faster as well. If physical decline rate is 4.5%, exportland might make that 10% and rationland 18%. Each acts a multiplier.
Now rationing sounds like a sensible reaction to declining supplies. However the multiplier it puts into the decline rate of the fuel available to individuals means their opportunity to adapt is reduced. If, say, exportland forecasts max>zero transition in 10 years, rationland might cut it to 6 years. Its not just a matter of SUV > economical small car, its any vehicle to no vehicle, no commuting, within a few years.
Somewhere in the continuum of decline rates, there is a break point. Literally patience breaks, people react, society breaks down. Personally I think that's fairly early on (I agree with the MI5 maxim) but wherever it is, rationing can actually mean we hit it faster and with more certainty.
That's not to say that the alternative of farmers not being able to afford fuel is attractive either, just pointing out that rationing is no magic bullet and can actually make things worse.
And combine that with the multitiered ELM where some countries have to import gas too and then we ahve some very quick declines for certain parts of populations in certain countries. Essebntially you could make a complicated computer simulation isolating hwo falls first out of supply chain globally depending on supposed rationing scheme and structure of oil and refingin idustry /production in that particular country.
Call it mulititered ELM/Rationland collapse computer simulation.
Call it Multiiterated ELM/Rationland Decline Evaluator
(for the french)
;-)
Exactly and thanks for fleshing this out. I've been banging on WT for a while now that the ELM is a mutli-tiered effect. The key is it gives you good indicators to look for.
1.) Poor countries that import 100% diesel gasoline go first. Already happening.
2.) Price of gasoline/diesel for export rises dramatically vs crude.
What is the global market if any for this ?
3.) Crude prices rise as countries with excess refining capacity import more to make diesel/gasoline for export.
4.) Refining costs for "local" usage increases. For countries that are dual refiners/importers they have to deal with the cost differential between locally produced gasoline from crude and imported gasoline.
5.) Real spare refining capacity exists in the global system.
5.) Crack spreads become volatile but overall for countries that import finished products the cost of gasoline/diesel vs oil is increasing even as the price of crude is increasing.
6.) Hoarding probably becomes commonplace and OPEC uses high stock levels where measured to justify lowering production.
7.) Supply contracts start breaking down and suppliers renegotiate because of higher prices sending more people to the spot markets for crude and finished products causing firm lower price bounds below speculative increases.
The important thing is trust is replaced with fear leading to more imbalances in the market.
7.) Systematic shortages start developing around the globe. A movable famine instead of a movable feast. This is a result of attempts to hedge in a volatile market failing. A lot more people will attempt to actually take delivery of real oil in the markets but the oil simply won't be available.
At any point in time at least one part of the world will be facing shortages.
In general the poorest will suffer more often than not but with the system glitching shortages are possible anywhere.
Volatility is rampant. And whats important is crude storage is probably not a good indicator of the overall condition of the market. For the US for example you should look at the crude storage level of the US and all the nations it imports gasoline from. For finished products its the combination of locally produced products plus import levels.
By the time crude inventory becomes a issue in the wealthiest nations the system will probably be close to break down so its a lagging indicator.
The EIA has spot prices for gasoline in several markets, including Rotterdam (NL) and Singapore.
Monthly price in Rotterdam in January was $2.23/gal; times 42 gallons/barrel, that's $93.66/bbl, or just $1.50/bbl over the
January price of Brent. The price in Singapore was $2.39/gal, or $100.38/bbl, or about $2.50/bbl above the price of Tapis.
So it's pretty clear that the world price of gasoline hasn't risen dramatically vs. crude. I don't know why you'd expect it to rise at the same time as the world had spare refining capacity, though; that does seem contradictory.
Read my ramblings I don't think this has happened yet but a multi-tiered ELM with each market ensuring adequate local supply before exporting implies that the first place divergence will happen will be in exported finished products.
At this point spare refining capacity is irrelevant to some extent since its crude supply problem. Your not getting enough crude to satisfy both your local market and export markets. In effect this is what ELM is saying at each stage your take care of the politically sensitive markets first before moving on to the free market. The key to ELM in my opinion is that local markets are not open.
The example is if crude supply is tight France or Korea will make sure that the home market is well supplied before they ship exports to the US. This will force the US into paying a premium for its finished gasoline and blending components.
I suspect that if this starts to happen the president will waive clean air rules which will offer a temporary reprieve by opening up the US market to more refineries.
So that would probably be a signal to watch.
Question for you is that spot prices in Rotterdam for the US markets ?
Or do you look at New York Harbor and LA ?
I think you have to read off the prices for NY and LA and if I'm right its a
13 cent spread vs Rotterdam. And look at LA.
However the historic data seems to show about the same spread back in time with a quick eyeball.
Thanks for the link I'll check from time to time. But I think we will see two leading indicators first we stop filling the SPR then we relax the clean air rules before we really need to take a hard look at the gasoline import situation.
Aeldric posted this on TOD:ANZ and it was Australia specific. Most of the discussion on TOD relates to how PO will affect the US or Europe or Chindia and very little thought ever given to how it will affect smaller countries or regions.
I thought it was a great post and and in no way deserved your "Duh?" comment. As an Australian it certainly shook my tree.
It is a very telling illustration for a particularly large island, apologies to Poms, which makes it easier to do. It might 'wake' people up, or allow those so inclined or capable to make predictions and take action.
Global renewable Energy, for Australia:
link
I think this post brings to light the interplay of several oil availability factors in an important way. Sure, ELM is a 'duh' to anyone who looks at it even cursorily. But the layers of effects as discussed herein by Xeroid, garyp, memmel and others helped take my understanding of ELM's consequences to a deeper level. So thanks to all. Here's my contribution. Essentially, the dynamic of increasing consumption and declining extraction works on both ends. That is, it works to decrease net exports from Export Land more rapidly than would gross declines in extraction or increases in internal consumption on their own, and it works to increase Import Land's net desired imports more rapidly than would either dynamic on its own. Some countries were doubtless never net exporters, but we're all well familiar with the fact that the US was once the supplier to the world. The US, in effect, is simply deep into the effects of its own experience with declining net exports. So the end result is that as the gaping jaws of net desired imports (NDI) open wider, the jaws of export land are snapping shut. Imagine yourself a baby bird, but the wider you open your mouth to be fed by your parent, the tighter they close theirs and refuse your need. The knock-on effects as discussed herein will overlap and multiply each other as will the effects of climate change, species extinction, population growth and a host of others work to exacerbate each other as deftly illustrated by the documentary What a Way to Go: Life at the End of Empire.