11 June 2008

If geologist Jeffrey Brown is correct, the shit will hit the fan sooner than what most people anticipate - including the pessimists. According to his calculations, Mexico, the 3rd largest exporter of oil to America, will approach zero net oil exports by 2014. Meanwhile, Saudi Arabia (2nd largest oil exporter to America) have signalled that they would slow down their oil production capacity to preserve their oil endowment for future generations (a more likely reason is that they have peaked). The largest oil exporter to America, Canada, is unlikely to ramp up their oil extraction from tar sands fast enough to make up for the shortfall due to a peak in North American natural gas (an important factor in the extraction process). The next three largest oil exporters to America, Nigeria, Venezuela, and Iraq are not friendly and reliable sources. Can we say we are on the verge of Dark Ages America?

Meanwhile, GIC is investing, or should I say mal-investing, billions in dollars of Singapore's foreign reserves in American bank Citigroup, which will in all probability fold up when peak oil momentum gets underway; this is an unbelievable lack of foresight on the Singapore government's part.

With regard to the government's decision to go ahead with the Integrated Resorts, they will be go down in history as white elephants.

Export Land Model

It models the effects of the decline in oil exports as a result of the peak in oil production in oil exporting countries while at the same time domestic consumption increases in those same countries. This combination of declining production and increasing domestic consumption leads oil exports to decline at a far faster percentage rate than oil production itself is falling.
What The Export Land Model Means For Energy Prices
"What’s more important: the fact that global oil production is falling ... or that the oil exporting nations are cutting off their exports?”

“From this point out I think we’ll see a geometric progression in prices… you know, $50, $100, $200, $400, whatever. The only question now is how short the periods will be between prices doubling again.”

“The reality is that this thing is coming so much faster and so much harder than even most pessimists were expecting.”

For a useful way to think about energy exports and prices, Jeff Brown points to the current situation with global rice supplies.

As long as there are abundant local supplies, countries are happy, eager in fact, to export excess production in order to generate foreign exchange. But as soon as local consumption exceeds locally available production, then all hell breaks loose and the next thing you know countries are banning exports, a move that has already been undertaken by Vietnam and a number of other countries.

In that scenario, price eventually no longer becomes a factor in the availability of the commodity. Vietnam, for example, is not going to let its people starve just because higher global prices would allow it to earn an extra $10 a bag of rice.

And so in the face of the prospect of any serious shortage of an important resource – energy being maybe the most important – export markets freeze up and the price begins to be set at the margin, literally based on a global competition for the dwindling supplies that manage to leak out around the edges.

“People are crazy not to be focusing on the oil export situation,” Dr. Brown told me.
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