2012 April 27

The Master Resource Report  2012-04-27

Net exports are all that matter…!

For oil importing countries like the United States, China, India and all of Europe except for Norway the available supply of importable oil on the global market is all that matters. It doesn’t matter to these countries how much global production has risen if that production does not translate into an increase in the global net export supply. An increase in gross Saudi Arabian production is meaningless if it is destined solely for domestic consumption (see this week’s report for more).

The graph below is from Jeff Brown’s outstanding ASPO-USA webinar yesterday titled “Global Oil Exports: Smooth Sailing or Midnight on the Titanic?” This is the graph that everyone should be paying attention to, not the gross production number.

Click for larger view

Many energy experts seem able to overlook the flat lining of global crude oil and to take some comfort in the minor uptick in all liquids production since 2005. However explaining away the nearly 3 million barrel per day decline in global net exports is tougher, requiring some serious mental gymnastics. This one graph should make it very clear why crude oil is priced over $100 per barrel today. The oil importers are bidding for a share of a global supply that has shrunk 6.5% since 2005 and likely will continue to shrink.

Every time you purchase a gallon of gasoline for a higher price than before you are playing a tiny role in bidding up the price of the globally available net export supply. Multiply that times billions of consumers worldwide competing for that limited and at least for now shrinking supply and the impact on price is clear.

So that brings up an interesting set of questions. If oil importing economies are going to continue growing where is the increase in global net exports going to come from to meet that demand? What price will it take to secure a share of that limited net export supply? Can the oil importing economies function at that price?

One of Jeff Brown’s closing comments speaks directly to these questions. “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.” Finally “Energy Independence….!”