413. OIL SHOCKS DO NOT CAUSE GLOBAL RECESSION

As noted in the previous article, peak oil doomers constantly say that oil shocks (or high oil prices) inevitably cause economic recession. They produce graphs showing the coincidence of recessions with oil price spikes, and suggest that the historical record is unequivocal.

For some countries, like the US, their point is very true. However, consider the flipside: when the US is getting bled to death and recessing due to high oil prices, countries like Saudi Arabia and Russia are swimming in cash and growing like never before. The money that is sucked out of the US economy is diverted to and spent by oil exporting economies, and the result is a net wash in terms of global GDP. The global GDP doesn't care who spends the money, or where it is spent, or what it is spent on. In fact, there is no simple logical reason why an oil shock should cause global growth to halt or reverse -- a fact which has been noted by economists.

The actual statistics on world growth bear my point out. Here is a graph of world oil production from 1978 to 1994 (a period I like to call "The Big Glitch"; figures from the BP. Stat. Rev. 2007). Note that there was no net growth in oil production in the 14 years from 1979 to 1993.

This was a period which began with a huge oil shock, and some of the highest real oil prices in history (click to enlarge):

And yet world real GDP grew the entire time (figures from the World Bank's World Development Indicators Database):



This is further supported by the following Table of global real GDP 1950-2001 (P. 233, The World Economy, Angus Maddison; click to enlarge). Note that an oil shock has never caused global growth to even halt, let alone reverse:



If declining oil production and high oil prices cause recession, why didn't the world economy recess during the Big Glitch? The world economy grew steadily without any net growth in oil production for 14 years.

In fact, in the 1979-1993 period, the world produced far less than it would have produced in a 14-year production plateau:
And yet world growth continued, unimpeded. The peak oilers tell us that a plateau will have devastating effects on economic growth, because the economy can't grow without growth in oil production. And yet that did not happen during the Big Glitch, even though far less oil was produced than would have been produced in a plateau. On the global level, something is very wrong with their theory that oil shocks cause recession... what is it?

by JD

412. THE MYSTERY OF CHINESE GROWTH

This morning, I was looking at the Nikkei Shimbun (Japan's leading economics daily), and noticed the following graph of China's GDP growth since 2000:


This is very interesting if you reflect on it. After all, we are told by many popular peak oilers that:

1. High oil prices always cause recession.
2. The current recession was caused by the run-up in oil prices prior to July 2008.

Notice the vertical axis on the graph. Even at its lowest point, the Chinese growth rate never dipped below 6%. China never even came close to a recession, despite the highest real oil prices in history.

How is that possible? If cheap oil is so critical to economic functioning, why doesn't an oil crunch stop growth in China?

by JD

411. REALITY CHECK FOR "ACE"

Today's a good day to review one of the oil production forecasts made by the Oil Drum's primary forecaster, Tony Eriksen aka "ace". (Quick question: How narcissistic do you have to be to call yourself "ace"?)

On August 6, 2007, ace published the following prediction on the Oil Drum:

World C&C production continues to retain its May 2005 peak and is forecast to decline by 1%/yr until 2009. The decline rate steepens to 4%/yr until 2012. The main reason for the end of the total liquids plateau in 2009 (Fig 1) is that the C&C production decline rate changes from 1%/yr to 4%/yr in 2009.

The graph of this forecast is as follows. Notice in particular the steep increase in the decline rate to 4%/yr which ace forecasted to begin right now, in the Summer of 2009 (click the graph to enlarge):

Now, let's compare this forecast with the actual results to date (from the latest Oilwatch Monthly):

As you can see, the first part of the forecast was not very accurate. Ace stated that there would be no new peak after 2005, but in fact a new peak was set in July 2008. Furthermore, production did not decline by 1%/yr from May 2007. In fact, there was a sharp increase in production, until the steep drop due to the recession.

However, those points are all pretty minor. The funky part of ace's forecast starts about right now, in July 2009. As you can see in the graph, he is predicting that world C&C (conventional crude) production will now begin a shocking and unprecedented nosedive, and decline by 4%/yr until 2012. (Compare this with the 1.3% C&C decline forecast by Kjell Aleklett.)

Current C&C production is roughly 72 mbd (EIA, April 2009). So here's ace's forecast for the next few years:

Summer 2010: 69 mbd
Summer 2011: 66 mbd
Summer 2012: 64 mbd

Those are horrendous declines. The total crude production of Saudi Arabia gone, in just three years. So stay tuned folks. Either oil production, or ace's credibility, is going to swirl down the toilet in the next year or two. I'm betting on the latter.

by JD

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 kbd
2009: 18,831 kbd

As 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." Source

is set to recede even further into the future.

The problem is that Brown's ELM calculates available exports like this

Available exports = Production by exporting nations - Consumption growth by exporting nations

when in fact, it is calculated like this

Available exports = Production by exporting nations - Consumption growth by exporting nations + Consumption shrinkage by importing nations

and the third term is currently swamping the second term.

by JD

409. THE IMPORT LAND MODEL

I've previously discussed the statistical gimmickry of Jeffrey Brown's Export Land Model (ELM). The problem can be quickly summarized like this: Suppose you have a fuel tank which is running down at a rate of 1 liter per hour. Ordinary people with common sense would say that the tank is being drawn down at a constant rate. Similarly, mathematicians would call this a simple linear decline at a constant rate. Jeffrey Brown, however, claims that the draw down is occurring at an exponentially accelerating decline rate. I kid you not. If you're curious about how this amazing feat of smoke and mirrors is achieved, here is a detailed explanation.

Today I'd like to talk about another gimmick of the ELM. Veterans who have read a lot of Brown's writing will have noticed that he always focuses on a few carefully selected examples: Indonesia, the UK and of course "Export Land" (the fictional country he uses to illustrate the model). He never seems to bring it all together, and give a coherent picture of the net export situation for the entire world. There is a good reason for this. When you look at the big picture, the ELM "crisis" appears in a very different light.

Consider the following table, showing oil consumption growth in the world's top 20 exporting countries (click to enlarge):

The first column gives the exporter, the second column gives growth in consumption from 2007 to 2008, and the third column gives average growth in consumption for the past 3 years. The figures in black come from the BP Stat. Rev. 2009, and the figures in blue come from the EIA. All figures indicate thousand barrels per day (kbd).

The first striking thing is how small these numbers are (with the possible exception of Saudi Arabia and Russia). For example, consumption in Mexico only increased by 13,000 barrels per day in 2008, and an average of only 35,000 barrels per day over the last 3 years.

For comparison, the US consumed 19.4 million bd in 2008. That's 1500 times the size of consumption growth in Mexico in 2008. Mexico's growth in oil consumption is literally one tiny piss-ant oil field a year. And Mexico is very representative of oil exporters in general.

So the idea that oil exporting nations are ravenously chewing into the developed world's oil supply is completely at odds with the facts.

In 2008, total world oil exports were around 40 mbd, and total growth in oil consumption by exporters was about 490 kbd. So growth by exporters in 2008 only consumed about 1.2% of the pool of available exports. Graphically, it looks like this:
According to the ELM, that little blue sliver is the bad guy. But try overlaying US oil consumption on the same graph for a size check:
Let's not fool ourselves about who's really sucking down all the oil, and needs to cut back. It's not the oil exporters.

And that leads me to the most interesting point.

On April 5, 2006, Jeffrey Brown (aka "Westexas") made the following 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." Source

This turned out to be totally wrong in an interesting and unexpected way. The reason is that oil consumption in the US dropped by -1,262 kbd in 2008. This means that the decrease in consumption in the US alone cancelled out about 3 years of consumption growth by all exporting countries. Similarly, Japan's consumption has been dropping by about -166 kbd per year for the last 3 years, totally compensating for consumption growth in Saudi Arabia, the largest exporter consumer. There are also a number of other nations where oil consumption is steadily declining.

So instead of seeing a decrease in available exports due to rising consumption by exporters, what the statistics actually show is importer consumption dropping faster than exporter consumption is rising. I call this effect the "Import Land Model".

Given Brown's prediction it's a very paradoxical outcome. But it's also very satisfying. Clearly we should continue in just this vein: cancelling out exporter consumption growth through conservation and efficiency in the OECD.

by JD

408. KJELL ALEKLETT: 0.5% PER ANNUM POST-PEAK DECLINE

A few weeks ago Kjell Aleklett, President of ASPO International, visited Australia and gave a presentation which included his forecast for oil production in 2030:

Professor Aleklett addressed the NSW electric car task force and the Federal Government's Bureau of Infrastructure, Transport and Regional Economics yesterday. He had earlier warned a Senate committee that the International Energy Agency had wildly overestimated oil production, lulling nations such as Australia into a false sense of security.

Rather than oil production rising by 20 per cent to 101.5 million barrels a day in 2030, he says production is likely to fall 11 per cent, to just 76 million barrels a day.Source

A fall of 11% to 76mbd means that Aleklett is using a figure of roughly 85.4mbd for the current production level. (In other words, he is using the term "oil" to mean liquids in this context.)

Running the numbers, we find that Aleklett is predicting a post-peak liquids decline rate of 0.5% per year. He is predicting that liquids production 21 years from now will be roughly 90% of what it is today (76/85.4 = 89%). This rate of decline is extremely mild and easy to cope with. Indeed a decline of 11% in liquids fuel production is substantially less than the 14% decline which occurred over the course of only 4 years in the early 1980s (a time I like to call The Big Glitch).

For reference, here is Aleklett's forecast from P. 40 of the pdf of his presentation (available here, click to enlarge):

Aleklett also foresees a mild decline rate for conventional crude (i.e., C&C, not including non-conventional, NGL etc.) The most recent production figure for conventional crude (EIA, March 2009) was 72 mbd. So Aleklett forecasts that conventional crude 21 years from now will be 77% of what it is today. That translates into an annual decline rate of 1.3% -- again, very mild.

These facts show that Kjell Aleklett, President of ASPO international, is basically in agreement with my own well-known prediction from Dec. 2007:

JD's Prediction: World C&C production will decline at an average annual rate of 1% for 15 years after the world C&C peak.

Don't let doomers pull your leg. They love to talk about extremely high post-peak decline rates, but the top people, like Kjell Aleklett, don't buy it. For more information on the principle of slow decline, please see:

317. STRONG ARGUMENT FOR A SLOW DECLINE and
323. LARGE BLOCKS PLATEAU FOR DECADES

by JD

407. THE OIL DRUM PIMPS RACIST PUBLICATION

[Note from JD (2009/7/5): The situation described in this post has been resolved somewhat, as described by the update at the bottom. The Oil Drum is no longer pimping a racist publication. They are now pimping an article from a racist publication, without indicating where it came from.]

Today, the Oil Drum is featuring an article by pseudo-scientist Richard "worldwide permanent electrical blackouts by 2007" Duncan, and the intro by Nate Hagens begins like this:

This is a guest posting of Richard Duncan's latest "Olduvai" update, which is also featured in the Summer 2009 issue of The Social Contract Quarterly www.thesocialcontract.com.

The uninitiated may not know what is going on here, so let me explain. The "Social Contract Quarterly" is not a scientific journal. It's a rag published and edited by overt white supremacists.

Let me be clear:
The Oil Drum, an ostensibly scientific and reality-based website, is directing its readers to a white supremacist publication and website.

Here's the Southern Poverty Law Center on "The Social Contract":

The Social Contract Press
Petoskey, Mich.
www.tscpress.com

With a strong focus on immigration, The Social Contract Press (TSCP) sells books from its on-line bookstore and publishes a quarterly journal, The Social Contract. TCSP says it favors lowering immigration levels merely "to reduce the rate of American's population growth, protect jobs, preserve the environment, and foster assimilation."

But it publishes a number of racist works, including a reprint of the "gripping" 1973 book, The Camp of the Saints (see Fear and Fantasy), a French racist fantasy novel about the obliteration of Western civilization by dark-skinned hordes from India. The novel, like the race war fantasy The Turner Diaries, has become a key screed for American white supremacists.

The Social Contract is edited by Wayne Lutton, who recently the joined the editorial advisory board of the newspaper of the white supremacist Council of Conservative Citizens (CCC).

At a 1997 CCC conference, Lutton said Third Worlders "have declared racial demographic war against us. ... Why are their populations exploding? Because ... our people have exported medical technology and we feed them.

"Had we left them alone, many of them would be going extinct today."

The Social Contract has published articles by James Lubinskas of the racist American Renaissance magazine; Brent Nelson, who like Lutton is on the advisory board for the CCC's periodical, and Sam Francis, current editor of the CCC tabloid.

John H. Tanton, publisher of The Social Contract Press and founder of the Federation for American Immigration Reform, was instrumental in a 1996 effort to add an anti-immigration plank to the Sierra Club platform, a move that nearly split the environmental group permanently.

To editor Lutton, America essentially is a white man's country. "We are the real Americans," he declared in 1997, "not the Hmong, not Latinos, not the Siberian-Americans. ... As far as the future, the handwriting is on the screen. The Camp of the Saints is coming our way."Source

John H. Tanton, publisher of the "The Social Contract" has said that unless U.S. borders are sealed, America will be overrun by people "defecating and creating garbage and looking for jobs."Source

Here's a photo of Wayne Lutton Ph.D., editor of "The Social Contract" (2nd from right), at a meeting of white supremacists on June 11, 2004. Note the confederate flag in the foreground:

Update 2009/7/5:
Nate has now removed the link to The Social Contract, and added the following response to Peak Oil Debunked:

[Editor's Note: Some have noted that this article was first published by a controversial organization; TOD protocol for guest essays is to include the original source of the piece. It was not my/our intent to direct people to the site or to endorse its content, just like we don't endorse any other site's content or any particular world view. Let's focus the discussion on the essay itself; and debate it on its own merits please.]

This still does not address the underlying problem: If Richard Duncan is a legitimate scientist, whose work we should debate as legitimate science, then why does he publish his work in a rag published by low-rent racists instead of, say, the Proceedings of the National Academy of Sciences, or Nature, or Science, or one of the thousands and thousands of other reputable, peer-reviewed scientific journals?

The answer to that is clear: Duncan can't publish his work in reputable journals because he's a pseudo-scientist moron who (among many other things) predicted worldwide permanent electrical blackouts by the year 2007.

There's is no need to "discuss" Duncan's tripe. All we need to do his wait, and compare his Fig. 5 (shown below) with reality over the next 5 years.


The figure Duncan is graphing - energy consumption per capita (in barrels of oil equivalent, or "boe") - has been steady at about 56-60 boe/c since 1990 in the US (as calculated from the BP Stat. Rev. figures for energy consumption, and census figures for population). As you can see Duncan is predicting that this figure will fall to about 48 boe/c in 2012, and to about 36 boe/c in 2015. These are ridiculous drops - in short, a repeat of his mentally retarded prediction of worldwide permanent blackouts by 2007 - and will be exposed as such in about 3 years. Stay tuned for a thorough tar and feathering.

by JD

406. ORLOV NYC EVENT CANCELED

Camrade Orlov has now posted a mea culpa for his recent numerical blunder.

(BTW, my recent expose DMITRY ORLOV CONCEDES HE'S AN IDIOT is now on the front page of Google for "Dmitry Orlov". As usual, Peak Oil Debunked powers through the seas of doomer bullshit, straight to the top of the charts.)

Reading the comments to that article, I was amused to see that Dmitry had a presentation (tickets: $20-30) scheduled in NYC for July 11, 2009, but it was cancelled due to poor ticket sales. Apparently only 18 people in the entire NY metropolitan area (population 8.3 million +) expressed any interest. LOL

For reference, here's the comments:

"I just found out that the event in NY is cancelled. A couple of days ago I called Local Energy Solutions to find out why my check was not cashed, and I've got a reply that the event might be postponed or cancelled because there was not enough response."

"Wow. Only 18 people bought tickets for the talk? I was expecting "sold out" and hundreds of people bustling in an auditorium, not "cancelled"."

"Can't believe the NY event is off !"

Clearly the event was nuked due to pathetic turn out. True blue americans can smell a rat a mile away.

by JD