Sunday, July 12, 2009

410. MORE ON THE IMPORT LAND EFFECT

This is a continuation of the previous post 409. THE IMPORT LAND MODEL examining the relevance of the Jeffrey Brown's Export Land Model (ELM).According to the ELM, growth in oil consumption by exporters will rapidly reduce available exports. However, as I showed in the previous article, total 2008 consumption growth of all major exporters was about 486 kbd, while the 2008 drop in oil consumption by the US alone was -1,262 kbd. This means that increased consumption by exporters was completely swamped by decreased consumption by importers. Indeed, the drop in consumption by the US alone in 2008 eliminated roughly 2.5 years worth of the ELM effect. I call this the import land effect.This effect is getting larger. Examining the Weekly US Petroleum Products Supplied from the EIA, I compared average US fuel consumption for Jan. 1-July 4, 2008 with the corresponding period for 2009. The results:2008: 20,504 kbd2009: 18,831 kbdAs you can see, US consumption is down by about -1,673 kbd in 2009 over 2008. This makes a total drop in consumption of roughly 3,000 kbd in two years -- an amount sufficient to wipe out the ELM for about 6.2 years.And keep in mind: so far I am only considering consumption shrinkage in the US alone. When we figure in the structural drop in consumption in the OECD, which peaked in 2005 and will show a large consumption drop for the 4th consecutive year in 2009, it's likely that importer demand shrinkage is going to wipe out 8 or more years of consumption growth by exporting countries.So Jeffrey Brown's 2005 prediction"As I said last year, I expect that by the end of 2006 we will be in the teeth of a ferocious net oil export crisis." Sourceis set to recede even further into the future.The problem is that Brown's ELM calculates available exports like thisAvailable exports = Production by exporting nations - Consumption growth by exporting nationswhen in fact, it is calculated like thisAvailable exports = Production by exporting nations - Consumption growth by exporting nations + Consumption shrinkage by importing nationsand the third term is currently swamping the second term.

by JD