If you aren’t familiar with the Export Land Model for oil, you should be – I’ve posted about Jeffrey Brown’s incredibly important work many times in the past, but it is still common for even people who otherwise grasp the basic points of peak oil to not thoroughly understand that internal consumption dramatically affects potential decline rates.
In the simplest terms, oil exporting nations are also nations with oil money coming in and that creates economic growth and modernization that encourages domestic oil consumption. The more oil consumed internally, the less that gets exported. When nations reach their peak (and all oil producing nations eventually peak, and in fact, a majority of major oil exporters have already done so), and begins to decline, the people who live in that country don’t necessarily say “oh, we shouldn’t use oil anymore because people in other countries want it.” This was manifestly true of the US during the years when the US was a net oil exporter – instead, our per capita oil consumption continued to rise, and as the US moved down the peak further, we stopped being a net exporter. What is important about this is that where the material limits of production often give decline rates of 2-5% or so year over year (problematic enough in a society where oil prices turn on tiny fluctuations), net export affected decline rates are much more dramatic – consider this case study of Indonesia and the UK, two very different countries with shockingly similar net decline rates.
As important as internal consumption is to the overall availability of oil, people have been slow to grasp this. Now a firm in Britain has trumpeted the alarm – the Saudis are using too much of the oil under their land, and should stop, because it could cause a world oil crisis. Wow, I’m sure that will stop internal oil consumption.
The report, posted on the Chatham House website Wednesday, said without significant policy changes, rising Saudi energy consumption could deprive the world of 2 million barrels a day of oil exports by 2020 and make major oil price spikes more likely.
It urged the Saudi authorities to curb demand growth with some urgency by increasing domestic fuel prices and pushing for greater efficiency.
“Saudi Arabia’s energy consumption pattern is unsustainable,” said the report. “Demand for its own oil and gas is growing at around 7% a year. At this rate of growth, national consumption will have doubled in a decade.”
According to the Joint Organizations Data Initiative, which publishes official oil production figures from participating countries, Saudi Arabia produced 9.4 million barrels a day of oil in October and consumed 2.0 million barrels a day.
Since neither Britain, the US nor any other nation has ever curbed consumption based on their declining net exports, this can only be seen as humorous. The Saudis claim to be able to increase production, but as the article notes there are compelling reasons why this is probably not the case – and we know that during record high oil prices in 2007, the Saudi’s announced a “voluntary” cap on production – essentially saying unconvincingly “Well, we can pump all the oil we want, we just don’t want to right now because we don’t want the money.”
It is extremely unlikely that anything other than a massive global recession could cut domestic consumption in Saudi Arabia, and maybe not even then. Instead, we will have to come to terms with the fact that it just isn’t our oil under their sands.