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.