The Saudis also have massive economic and demographic problems to deal with, including a pending peak and rapid decline in oil exports. You heard right: Saudi Arabia, the world's largest producer of oil, is facing a peak in its oil exports and a rapid decline thereafter.

There are solutions, however, to these very large problems, which I'll discuss further below.

Saudi Arabia's national oil company, Saudi Aramco, pumped about 11.5 million barrels per day for the last year, up from about 9.5 in early 2009. The Saudis are pumping more oil now than they have in decades, along with the rest of OPEC, which is at a 23-year high for combined oil production.

Russia held the top spot for oil production for a couple of years but Saudi Arabia came roaring back since 2010. The U.S. is a distant third place with about 6 million barrels per day.

Net oil exports, are, however, a very different picture. The U.S. is famously the world's biggest importer of oil. While our production of oil has taken an unusual upward tick in the last couple of years, spurred by record high prices, and our consumption of oil has declined even further due to increased energy efficiency, conservation and a still-struggling economy, we still import about half of the oil we consume: a massive 9 million barrels of oil per day.

Saudi Arabia exports about 8 million barrels per day (mbpd from now on), with Russia not too far behind at about 7 mbpd.

So far, this is all fairly familiar data. However, what is not well-known is the degree to which Saudi Arabia's massive oil exports are threatened by its demographics and a probable decline in its aging supergiant oil fields.

A new report from the UK's Chatham House examines this problem in detail. They conclude that Saudi Arabia's oil exports will peak around 2020 and, under current policies, decline to zero by 2038. You read that right: decline to zero. This decline will occur due to the dramatic growth in consumption by Saudi Arabia's rapidly growing population and increases in per capita energy consumption. Saudi domestic consumption of oil is growing at about 7% per year, which leads to a doubling of consumption in just ten years.

Now, 2038 is a long time away, in normal circumstances. But oil politics operates in decadal timespans, not normal timespans. 2038 is, in oil terms, not that far away, so if Chatham House's projections are accurate, we've got a major problem on our hands.

What will the world do if fully 10% of global oil production, and 20% of global net oil exports, is consumed by the Saudis rather than exported?

Saudi Arabia's governmental revenue will come under extreme pressure if net oil exports decline. The Saudis rely on oil revenue for fully 80% of their budget. Many things will have to give if oil exports do dry up. Net oil exports declined fairly dramatically from 2005 to 2010, as Figure 1 shows, but have risen back in the last couple of years. Chatham projects net exports will rise to about 9 mbpd by 2020, and then start a precipitous decline as the Saudis' demographic time bomb explodes.

The Global Oil Exports Problem

Saudi Arabia's problem is not, of course, unique to Saudi Arabia. It is a global problem that afflicts many countries. Jeffrey Brown and Samuel Foucher have developed an "Export Land Model" to predict how the global net oil export situation will unfold in coming years. They found that the top five exporters of oil (Saudi Arabia, Russia, Iran, United Arab Emirates and Norway) decline from about 24 mbpd in 2008 to about 7.5 in 2020 and go to almost zero by 2030. Global net oil exports are about 40 mbpd, so these producers comprise more than half of the global export market.

These net oil export projection declines are due to the demographic explosion that the Chatham House report focuses but also to declines in oil production in these countries. Chatham House chose not to discuss the role of declining oil production, choosing instead to believe Saudi projections of steady oil production, but this is a real and extremely serious corollary to the demographic explosion. It's also the reason why Brown and Foucher project Saudi Arabia and other oil exporters going to zero faster than the Chatham House report. Figure 3 illustrates (with generic numbers) how these two trends work together to cause net oil exports to decline very quickly. Figure 4 shows the result of Brown and Foucher's modeling for the top five producers.

This data should provoke a "holy crap" moment in all readers. It's a very big deal.

Currently, we're far more worried about economic growth, or the lack thereof, presidential elections and why Europe can't get its act together. These are all important issues. But the big daddy of issues is this one: global net oil exports.

I've written about these issues before, in the last go-round of record high oil prices in 2008. This time around, four years later, we're seeing much the same phenomena unfolding. We've just been through yet another super price spike, hurting Europe more than us because they hit new record highs for oil prices, whereas we in the US didn't see prices as high as we did in 2008.

Europe is now being pushed back into recession in part because of the new record high prices (every recession in the last thirty or more years has been preceded by an oil price spike). And we are now seeing oil prices decline again (oil is currently about $83 a barrel for U.S. WTI crude and just under a $100 for European Brent crude, down from the recent peaks of $112 and $127, respectively) rather quickly as European growth stalls, US growth struggles and oil storage numbers reach recent highs here in the U.S.

A recent article extends the original Export Land Model, shedding additional light on this singularly important issue and providing strong support for Brown and Foucher's initial projections.

The Saudi Solar Solution

There are solutions. I've written recently about the tremendous growth in renewable energy around the world and similarly positive trends in energy efficiency and conservation. The picture is far less rosy, however, when we look at transportation fuel - as opposed to electricity. There are some similar positive themes in transportation energy, but there are also major problems in shifting away from petroleum as our key transportation fuel because we're so dependent on oil for transportation. Simply put, this is a many-decades long process at best.

What we really need is a World War II-level effort to rapidly and massively save energy in all sectors through improved energy efficiency and conservation, and to shift away from oil and coal in transportation and the generation of power.

The Saudis seem to be recognizing the severity of the problems they're facing. They recently announced a massive renewable energy initiative, designed to bring 54 gigawatts of mostly solar and wind power within 20 years. This will comprise about 1/3 of total electricity consumption at that time, up from almost zero renewables online today. This growth will be achieved with a type of "feed-in tariff," which guarantees eligible power producers a contract at a long-term fixed rate. Feed-in tariffs are responsible for the large majority of solar and wind capacity installed around the world today.

At the same time, the Saudis need to focus on energy efficiency and conservation. Saudis consume the most oil per capita of any major economy in the world. I have considerable faith that, as government revenues shrink from declining net oil exports, the Saudis will find economically compelling incentives and/or mandates to reduce domestic consumption of oil.

Conclusion

The problem of "peak oil exports" is the even more scary sibling to "peak oil." Peak oil is, by itself, a massive problem, but peak oil exports highlight the problem even further, particularly for major oil importers like the US, Japan, China and Western Europe. The Saudis and other nations experiencing a demographic explosion will suffer greatly from reduced revenue from oil exports but they will at least have the energy resources to maintain their economies. Countries that are net importers of oil will suffer in their own way, primarily from much higher prices for oil and possible shortages of oil as demand far outstrips supply.

As the world's biggest importer of oil, by far, the problem of peak oil exports highlights the need for the U.S. to get off oil as quickly as possible.

The package of solutions to achieve this shift away from oil must include major and ongoing investments in energy efficiency and renewables. Energy efficiency is steadily improving with new technologies and higher fuel prices. Similarly, conservation (behavior change, as opposed to technological improvements that comprise energy efficiency) will occur automatically with higher prices.

We also need to ensure that the exponential growth in renewable energy over the last decade continues. Luckily, the cost of renewables has plummeted in recent years so this transformation away from fossil fuels can be done cost-effectively when it comes to electricity.

Transforming our transportation energy sector is far less easy, however. Conservation through carpooling, better mass transit and low-tech solutions like bikes and walking, will be major parts of the solution. Smaller vehicles, higher mileage vehicles, hybrid cars and electric cars must lead the way in terms of new technologies. Electrification of transportation, while still fairly expensive with today's technology, is still the most promising long-term solution because electric vehicles offer a readily-available technology for entirely eliminating dependence on oil.

Other Posts by: Tam Hunt

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Comments

July, 19 2012

Jim Beyer says

Build plug in hybrids that are fueled with methane.

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July, 20 2012

Ferdinand E. Banks says

Strange, isn't it Tam, how intelligent you sound when you stop making nutty and semi-literate comments on nuclear.

Speaking of nuclear, some nuclear sounds are coming from Saudi Arabia, which leads to a prediction on my part. After those 4 reactors in the Emirates are constructed, or a part of them, Saudi Arabia will be in some reactor salesman's order book.

Incidentally, I dont remember if I've ever had a student from that country, but I have always had a great deal of respect for the Saudis. This is largely because I remember when fools from the '7 Sisters' patiently explained to dumb me that without their help the Saudi's couldn't construct a dog house or a urinal. And specifically the occasion at a conference when I made one of my beautiful predictions, and was asked by a 7 Sister flunkie if I was "kidding".

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July, 20 2012

Jim Beyer says

Well, a backhanded compliment from Fred is still a compliment.

With all this talk about nuclear power and the grid, I really don't think this will press on us the way peak oil will, and probably already has. I think it contributed to the economic collapse of 2008. People can talk about a 'crisis' of electric power, but the fact remains it's largely an incremental stress; oil prices, on the other hand, can shift very rapidly. The climate impact of the grid is also not to be ignored, but also not pressing in the same way.

If you think about it, they are actually two completely separate problems; grid and electricity is all about climate (coal) and environmental (nuclear) concerns.

Transportation is about shortage (peak oil). There's actually not enough oil left to be a concern with respect to CO2 emissions.

So the next time anyone tells me about a grid "crisis", I will try to remind myself what the real crisis is; our day-to-day life is dependent on importing a depleting resource from countries that are holding too many cards.

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July, 21 2012

Ferdinand E. Banks says

Jim, maybe you should hock some of your furniture and head for Harvard on a private jet as soon as possible. On CNN this morning they interviewed Mr Maugeri, - who for some incredible reason has been given a fellowship at the Kennedy School - and who explained that the world is going to drenched in oil before the end of this decade. The big problem is going to be using all that will become available.

Yes, I can understand how he can say that, but how could they (CNN)'publish' it, and how could I be so stupid as to listen to the entire interview?

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July, 24 2012

Ferdinand E. Banks says

Tam - and everybody else - you should pay some attention to the work of James Hamilton. He is at University California San Diego, and although I feel sure that he is a man who would strongly object to me calling myself the leading academic energy economist in the world, has published some things on oil that EVERYONE should look at.

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July, 24 2012

Len Gould says

Excellent article Tam. I agree completely, and am continually amazed by how little play this topic gets in any news or political forum. It looks to me like the 2020's decade is going to be "Interesting times".

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July, 24 2012

Tam Hunt says

Thanks Fred and Len. Fred, one day you'll realize I'm as right on nuclear as I am on oil :)

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July, 24 2012

bill payne says

Go solar instead of nuclear in iran?

Prime Minister Yoshihiko Noda told the public last month: "In order to lead prosperous and decent lives, cheap and stable electricity is indispensable. Japanese society will not be able to function if there is a decision to permanently halt nuclear power generation."

Masami Hasegawa is a senior manager at Japan Business Federation and agrees that Japan faces an energy crisis heading into the hot summer months. Last year rolling blackouts adversely affected business, he says.

"We hear our members saying that they cannot stay in Japan if this situation continues," says Hasegawa. "If the current situation continues, energy consuming industries cannot survive in Japan and they will leave. The immediate effect will be on employment which might be lost."

And

Overemphasis on natural gas a threat to energy stability without certain checks

July 20, 2012

Executives from three major American utility companies shared their belief recently that the shift to natural gas-fired generation could create as many problems for the country's electricity transmission system as it solves without certain checks, according to Bloomberg.

http://www.prosefights.org/nmgco/intervene/hearing/hearing#azita

Tuesday July 24, 2012 13:01

Solar generation of electricty works well when the power produced matches the load.

Large-scale solar generation matched to home loads may be an expersive scam? Think solar powered electric clothes dryer.

http://www.prosefights.org/nmgco/intervene/hearing/hearing.htm#leds

Iranians are on Facebook! Google shahab moszaffari aboulghassem zirakzadeh'

No proper response from Fred Banls on Mr Marin Katusa's statement pm fiuture availability of nuclear fuel for electricty yet.

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July, 24 2012

bill payne says

Where is Badarpur?

http://www.prosefights.org/vacation2012/vacation2012.htm#badarpur

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July, 25 2012

Ferdinand E. Banks says

Good work Bill, and listen everybody: it doesn't make the slightest difference what ANYBODY in the industrial world says about abandoning nuclear, it would not be done if they tore down every nuclear facility. Nuclear will eventually morph into breeders, and although. I have been assured that this will decrease the circulation of plutonium, I intend to continue with my own research on this topic.

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July, 25 2012

Jim Beyer says

Oil shale and tar sands can't make up the production rate of declining conventional wells. It's the old adage, if you have a million dollars in the bank, but can only take out a thousand dollars per year, are you really a millionaire? Well, sort of, but not really.

Also, everyone should read the McKibben piece in Rolling Stone. Depressing and well, depressing. I need to figure out how many barrels of oil is needed to produce 565 Gigatons of CO2.

Hard to see how burning more coal isn't a worse environmental decision than building more nuclear power plants.

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July, 25 2012

Don Hirschberg says

Jim, this problem takes me back to being a freshman chemical engineering candidate in1945.

7#/gal X 42 gal/barrel X 12# carbon/(12+2)# oil X 44# CO2/12# carbon = 924# CO2 per barrel of oil burned.

(Note: Most crudes weigh 7+/- pounds per gal. I used a ratio of hydrogen atoms to carbon atoms of two. The molecular weight of CO2 is 44, atomic weight of carbon is12 and of of hydrogen is one.)

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July, 26 2012

Ferdinand E. Banks says

Jim, believe it or not, Sir Nicholas Stern is NOT a climate scientist. He is a mathematical economist whose book - written with the aid of 23 foot soldiers - is completely and totally hopeless.

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July, 30 2012

Len Gould says

Interesting question Jim. Extending Don's excellent offering into answering your question (is there enough oil left in S. Arabia, Venezuela and Canada to matter to the climate?). est. (225+200+175 = 600 billion bb proven reservesl) / 2.38 bbl per ton CO2 = 252 billion tonnes (Gigatons) CO2. Even if 50 years for complete extraction, these three reservoirs alone contain half the carbon required to exceed the safe limit, and they WILL get burned, along with enough coal to pretty much guarantee the worst case IPCC scenario. Add in the fact that eg. though the stock exchanges only credit Canada with 173 billion bbl proven reserves, there are actually at least 1.2 trillion bbls known to exist in the oil sands, just awaiting further technical advancements in extraction techniques, which will happen at least in large part if nothing else substitutes.

Hopeless I guess.

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July, 31 2012

Jim Beyer says

Hi Len,

One thing I'm not sure about is the ocean. Of course I don't take 565 Gigatons as gospel, but a general, rough number. (Probably should be stated at 550 or 600 Gigatons to reflect that level of accuracy, if it's even that accurate).

But only about half of CO2 emissions goes into the air. The rest gets absorbed by the ocean. So what's the real limit? Also, I'd argue this estimate is fraught with error possibilities. Some people talk about tons of CO2, some about tons of Carbon. Very different. Also, what about methane emissions? They are growing as well, and no doubt will eat into this limit as well.

Obviously, the Canadians need to get off their butts and develop IFR and Thorium reactor technology! :) It's "aboat" time you did your part to save the world! :)

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July, 31 2012

Len Gould says

Hey hey, Jim. We already have a proven commercial thorium reactor. The CANDU will eat anything ;-P)

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