Pool of world oil exports dwindling

The fact that world crude oil production has been stagnant since 2005 is now commonly acknowledged. But for all the world’s net oil-importing countries – including South Africa – the crucial oil supply variable is total world oil exports, rather than total world oil production – that is, oil importers must compete for the surplus oil sold by oil-producing nations that is left over after the latter’s domestic consumption.

According to the US Energy Information Administration, one of the leading providers of global oil data, world oil exports reached a peak in 2005 at 43.4-million barrels per day (mbpd) and have declined every year since then by an average of 1.8% year. World crude oil exports totalled 40.2 mbpd on average in 2009, according to the latest available data. This represented 48% of total world oil production of 82.4 mbpd.

The 12 members of the Organisation of Petroleum Exporting Countries (Opec) cartel currently produce about 31 mbpd of oil and export about two-thirds of this amount. Opec, therefore, accounts for about half of total world oil exports, and wields this market power to influence prices.

The largest individual net oil exporters in 2009 were Saudi Arabia, Russia, Iran, Nigeria and the United Arab Emirates. The top ten together provided 64% of total world exports.

There are several medium and long-term threats to future world oil exports.

The first is the continuing rise in domestic oil consumption in the oil-exporting countries. In most oil producing countries, local fuel prices are heavily subsidised, which encourages high levels of consumption. And the record-high oil prices of recent years have translated into rapid economic growth and incomes in oil exporters, further stimulating domestic petroleum use.

The second factor undermining world oil output is reserve depletion and production decline in some exporting countries. Already depletion has turned several former net exporters into net importers, including the UK, Indonesia and Egypt. Over time, more and more oil producers will become net importers. Mexico – currently one of the leading suppliers to the US – is near the top of this list.

The third threat is posed by wars, conflict and political uncertainty in a number of oil exporting countries. In Nigeria, militants have consistently undermined the country’s export potential by blowing up pipelines in the Niger Delta. Libya’s 1.2 mbpd of exports was taken off line completely last year and may not reach their precivil war levels for some time as the political ructions persist. Although Iraq’s exports are increasing, this country, too, is beset by perennial political conflict. As competition for the world’s dwindling oil supplies intensifies, we can expect more civil and regional strife in oil-producing countries.

The fourth – and most immediate – threat to world oil exports is posed by the looming sanctions on Iran’s oil exports. The US and Europe are pressuring importers of Iranian crude to sharply reduce their purchases from the Islamic republic. At 2.4 mbpd last year, Iran contributed 6% of global oil exports. Even halving this could have a major impact on international oil prices.

These developments surrounding world oil exports have some stark implications.

First, from the net oil importers’ perspective – a large majority of the world’s nations – oil supply effectively peaked in 2005. What’s more, world exports will decline more rapidly after aggregate global production peaks.

Second, the decline in global oil exports goes a long way toward explaining why the average price of oil doubled between 2005 and 2011. And we can expect the upward trend in oil prices to continue.

Third, this rising oil price has contributed to a shift in oil consump- tion from the West – the US, Europe and Japan – to the East. It seems that the dynamic emerging markets have a higher productivity of oil – more gross domestic product per barrel – and, therefore, can better cope with higher oil prices than the oil-saturated Western economies. China and India, in particular, are rapidly increasing their share of world oil imports, thereby squeezing out of the market both poorer developing countries and highly indebted industrialised nations.

Finally, prices are not the only mechanism for allocating diminishing traded oil supplies. China has used its economic muscle to conclude bilateral deals with several oil-producing countries, often providing loans for infrastructure projects in exchange for long-term oil-supply commitments. The US strategy is to use its over- whelming military superiority to ensure access to, and control over, oil resources for Western oil companies.

South Africa depends on imports for two-thirds of its petroleum consumption. But ranking just seventeenth on the list of oil importers in 2009, we will be hard-pressed to outcompete the big players like China, India and the US. The only feasible option is to wean ourselves off imported oil. The myriad ways to do this will be explored in future columns.

 engineering news