The Oil Drum: Europe

We all know that the United States is an importer of petroleum products. The United States is also an exporter of petroleum products, primarily to Mexico and Canada. Both of these countries send us crude oil, and we export refined products back to them. We often hear that Canada and Mexico are our largest sources of petroleum product imports, but is this really true if we net out exports? Canada remains number 1 when we net out exports, but Mexico drops to fifth place in 2008. (Mexico drops to third place in 2008, without netting out exports, because of its declining volume.)

Although the days are still relatively hot and the sun high in the sky, this summer is coming to an end. The order has gone in for the wood that will help us heat the house this winter, and the students have arrived for a new semester. Which means, a little late as usual, it is time to dust off the lecture notes (which now-a-days come as Powerpoint presentations), and start the annual update.

One of the classes that I teach deals with power, both generation and use, and so I start the semester with a review of where I see that we currently stand as an overview before getting into more mundane details, such as the inner workings of a generator. The spacing of a year between using these particular slides also gives a little perspective on how things have changed, and updating individual slides emphasizes where the most significant changes have been, in my opinion. So let me show you the slides I am adding or changing, and explain, relatively briefly, why.

It is also fitting that on that same date, the International Energy Agency published one of its gloomiest ever analyses of the oil markets, asserting that oil prices are justified by fundamentals

It said: “Like alchemists looking for a way to turn basic elements into gold, everyone wants a simplistic explanation for high prices,” bluntly adding: “Often it is a case of political expediency to find a scapegoat for higher prices rather than undertake serious analysis or perhaps confront difficult decisions.”

This is a guest post by Jeffrey J. Brown, known on TOD as westexas. Jeff is an independent petroleum geologist in the Dallas, Texas area. His e-mail address is westexas@aol.com.

Building on prior work by many people, including Matt Simmons and Kenneth Deffeyes, and largely based on great technical work by Khebab, I have been intensively studying the Net Oil Export issue for more than two years.

The simple mathematical model I have been using to talk about our export situation is called the Export Land Model (ELM). Recently, data and media reports have shown that the concerns I have expressed about our export situation are growing more valid each day.

Venezuela and Mexico are critically important to the US because of their proximity to the refineries on the Gulf Coast. From what I have been able to discern, it takes an average of about five days for a tanker to get to the US from Venezuela and Mexico versus about 30 days from the Persian Gulf. Based on recent news reports, it certainly appears that the overall net export decline from Venezuela and Mexico is continuing into 2008.

So, what has happened to net oil exports from Venezuela & Mexico to the US and what effect has had this had on Gulf Coast crude oil inventories, and why am I concerned?

Apropos of yesterday's gas tax report and discussion, today we bring you Alan Drake's ideas on post-peak mitigation. Alan is an engineer, former accountant, and professional researcher based in New Orleans with best hopes for many. Alan would also like to thank the lovely and talented Wendi Berman for her editing skills and assistance.

Many proponents for public spending on Post-Peak Oil mitigation are attracted to gasoline and diesel taxes or more generic oil and/or carbon taxes. In an era of rapidly increasing oil (and all other energy) prices, passing such taxes will be politically difficult and take precious time.

I would like to propose an alternative tax for Phase I of Peak Oil mitigation that adheres to Sen. Russell Long’s famous dictum “Don’t tax you, don’t tax me, let’s tax that fellow behind the tree!”

World Trade Organization (WTO) rules allow for a specific exemption that will allow the United States of America to impose a non-discriminatory tariff (it applies to all goods and taxable services, with a specific exemption for essential goods) if the funds raised are used to reduce our structural trade deficit, i.e. our oil consumption.

Specifically, the WTO allows nations with a structural balance of trade deficit (which the USA certainly has) to apply a non-discriminatory tariff if the funds from that tariff are used to reduce the structural trade deficit (which reducing oil use certainly would do). A separate section of the WTO treaty allows the importing nation to exempt “essential” goods.

In 2006, the USA imported $1.861 trillion in goods (and exported $1.023 trillion). This allows for significant revenues from a small percent tariff.

This is the third article in a 3-part series. (Here's a link to Part 1 and Part 2.)

We cannot know exactly what is ahead. In this part, we look at one possible future scenario. When we think of economic impacts, we usually think of the impacts that the squeeze of higher oil prices will bring--such as energy price inflation, food price inflation, and the need for more mass transit.

While these "squeeze" impacts are expected to occur, the real problem may be the discontinuities that occur, because of pressure on monetary systems and pressure on political systems. These pressures can cause unexpected results such as:

• Hyperinflation or deflation that indirectly results in a major decline in imports of all kinds (not just oil),

• Major changes in governments, and

• Fast declines in oil production in some oil exporting countries.

1. What impacts do you expect peak oil to have in the future?

This is a guest post by Glenn Morton, a geophysicist in the oil industry. For Kerr-McGee Oil and Gas Corp., Glenn served as Geophysical Mgr Gulf of Mexico, Geophysical Mgr for the North Sea, Dir. of Technology and as Exploration Director of China. Currently he is an independent consulting geophysicist, and you might know him as seismobob.

I have intentionally paraphrased this wonderful Christmas song because it has much to say about the future after peak oil which I am now ready to say has already happened. As energy declines, we will indeed go to our grandmother's house--one without electricity and running water, sewer or septic and deep, mechanically pumped water wells. At least that was MY grandmother's house. She lived on the Kansas prairies of the 1890s. In the 1960s I asked my grandmother what the greatest invention of her life had been. She said electricity because before they had lights, everyone went to bed shortly after sun down because it was simply too dark to do to much. There was no air conditioning, so the summers were very hot. In the winter, trips to the outhouse were cold (and brutally awakening if during the middle of the night). While she had wood where she lived, about 100 miles west of her home, people had to burn dung as is done in Tibet today. See the picture below of the dung plastered against the house. When one wants to cook, one retrieves a patty.

Without cheap energy, we go back to my grandmother's house or one quite like it...

This is a guest post by Roger Conner Jr., known on TOD as ThatsItimout.

(Throughout, all headlines in all caps are mine, to help structure the content of the remarks, extracted from the following speeches. Links are provided so that the original remarks and slides can be viewed in entirety by the reader)

Presentation by Dr. Nimat B. Abu Al-Soof, Upstream Oil Industry Analyst, Secretariat, to the OPEC-organized session "The Petroleum Industry: New Realities Ahead?", at the Offshore Technology Conference 2007, Houston, Texas, 30 April - 3 May.

http://www.opec.org/opecna/Speeches/2007/OPECSpareCapacity.htm

If we look at the future, however, the issue of security of demand, which is intrinsically linked to the issue of security of supply, is of very real concern. Without confidence that there will be demand for OPEC oil, the incentive to undertake investment will also be reduced because of concerns that this will lead to large levels of unused capacity and, in turn, to downward pressures on oil prices.

This would result in huge revenue losses and OPEC Member Countries, as developing countries with strong competing needs for financial resources, would be adversely affected in terms of available resources for education, healthcare and infrastructure.

(Repromoted due to today's explosions in Pemex's pipelines and JHK's story and link to us today...originally posted 7/12/07)

In my annual new years predictions, I said that the most significant, and surprising, development of 2007 would be the collapse of both Mexico’s economy and its very existence as a viable Nation-State. While there hasn’t been a spectacular, single event confirming my prediction, there has been a steady erosion on all fronts—with five months left in the year, I’m not yet willing to push back my prediction of Mexico’s “collapse” to 2008. The decline of the Mexican Nation-State is a bellwether for the massively complex network of geopolitical influences sometimes termed above ground factors. It provides some insight into how symptoms of oil scarcity already being felt in poorer parts of the world will increasingly spill over into our own back yard…

UPDATE: After I wrote this story (July 7th), things took a serious turn for the worse with a series of rebel attacks on Mexican oil infrastructure: Bloomberg, Forbes (research credit: Dantes Peak).

Scroll down for the 5:00p and 11:50p EDT updates.

Hurricane Dean became a Category 5 storm last night with winds reaching 165 mph and reaching a low pressure of 909 mb (as of 2:15a EDT; Katrina was 920 mb and Camille 909 mb). Landfall occurred early yesterday morning with a second landfall occurring some time today. This is an historic hurricane by any standard.

Why this matters: If there were Cat2 winds in that area, we could have been talking about around 2.5 million barrels per day of Mexico's supply capacity being shut in for a while, and some of that shut in for an extended amount of time. Around 1.5 mbpd of that capacity is exported to the US (of the 20.5 mbpd the US uses, and the 85mbpd the world uses, each day). There are also some questions about the resilience of refineries and flow lines in the area of the second landfall.

Update (Khebab, 11:50 EDT):

HURRICANE DEAN ADVISORY NUMBER 35A
...DEAN IS MOVING BETWEEN THE WEST AND WEST-NORTHWEST NEAR 20 MPH...32KM/HR...AND THIS GENERAL MOTION IS EXPECTED DURING THE NEXT 24 HOURS. ON THE FORECAST TRACK...DEAN IS EXPECTED TO BE VERY NEAR THE COAST OF CENTRAL MEXICO DURING THE DAY WEDNESDAY. MAXIMUM SUSTAINED WINDS REMAIN NEAR 80 MPH...130 KM/HR...WITH HIGHER GUSTS. DEAN IS A CATEGORY ONE HURRICANE ON THE SAFFIR-SIMPSON SCALE. AN AIR FORCE PLANE IS CURRENTLY APPROACHING DEAN. SOME RE-STRENGTHENING IS FORECAST DURING THE NEXT 24 HOURS.

 HURRICANE FORCE WINDS EXTEND OUTWARD UP TO 35 MILES...55 KM...FROM THE CENTER...AND TROPICAL STORM FORCE WINDS EXTEND OUTWARD UP TO 140 MILES...220 KM. ESTIMATED MINIMUM CENTRAL PRESSURE IS 970 MB...

Cantarell and KMZ oil complex, 50-knots wind speed probabilities (NHC, forecast #35). Click to Enlarge.

Refinery position, 50-knots wind speed probabilities (NHC, forecast #35). Click to Enlarge.

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