The Oil Problem Spur for REEs

Now, 2038 is a long time away, under 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 percent of global oil production, and 20 percent of global net oil exports, is consumed by the Saudis rather than exported?

Readers of this blog know that I am a big believer in our coming switch over from internal combustion engine transportation for most uses, in favour of our developing Electric Vehicle transportation age, even if I’m not very impressed with the current early adopter vehicles currently on offer. Present technology, even with the latest developments in lithium batteries and using rare earth element super-powerful micro permanent magnets, for “power everything” in modern autos, still haven’t reached the technological stage where most motorists are willing to make the switch, no matter what the subsidy on offer. That will change with the next generation models, especially once the new super material graphene starts to get incorporated into the batteries, components, and electronics, substantially reducing the EVs weight, improving range, and speeding up recharging time. For fleet operators and public urban transportaion needs, next generation vehicles economies of scale will quickly kick in.

However one very big spur to the carbon age switch over, is likely to be a massive coming change in the availability of crude oil for export. Since the 2008 western banking crisis roiled the world, rising Asian oil demand has largely been offset by falling western demand, partly due to the effect of very high crude oil prices on western motoring itself, and partly due to the economic slowdown in the western economies. But crude oil prices are falling again from their recent high, and technicians can make the case that crude oil prices have put in a double top. Lower prices will spur renewed demand again, just at a time that the top five oil exporting nations are set to decline from exporting some 24 mbpd to an estimate 7.5 mbpd in 2020, falling to near zero in 2030. 2030 is only 17.5 years away, a heartbeat when considering a global lifestyle change in transportation.

Below, some of the coming oil problem, which REEs will have to become part of the solution too. The well respected Chatham House report came out last December and sank under the storm waves of the European sovereign debt crisis. With the euro looking like it was about to go out of existence daily, and the ECB then pumping in over a trillion euros of rescue funds. Who cared that the Saudis might need all of their oil production by 2038. But as readers of this blog know only too well, it takes long term planning to solve long term problems, not the least of them getting more non-Chinese REE supply into production than just Molycorp and Lynas. We will not be giving up micro powerful permanent magnets anytime soon, returning to massive less powerful yesterday’s iron magnets.

“I never think of the future. It comes soon enough.”

Albert Einstein

The Saudi Oil Problem
June 6 2012.
—– 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 million 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 has come 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 U.K.’s Chatham House (PDF) 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 percent per year, which leads to a doubling of consumption in just ten years.

Burning Oil to Keep CoolThe Hidden Energy Crisis in Saudi Arabia

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 account for more than half of the global export market.