At the EIA’s International Energy Outlook (IEO) presentation this May the issue of future oil exports from OPECnations came up, and in an interesting way. Readers may be familiar with the phenomenon of declining net exports, from major oil producingnations, as a result of internal demand from growing, domesticpopulations. The phenomenon was modelled last decade by Jeffrey Brownand Samuel Foucher. Their Export-Land Model showed that the rate of decline from oil exporters can become quiteaccelerated. While that may seem obvious, it was a point worth makinglast decade when it was widely presumed that gross production from large oil producing nations was largely available for export. The tipping,of both the UK and Indonesia, from net oil exporters to net oilimporters should have put an end to such a presumption. Moreimportantly, the rise of domestic oil consumption in Saudi Arabia wasalso a warning. Saudi oil exports have declined now for five years.
Given that Saudi Arabia’s exports have already been in decline forsome time, it was surprising to hear EIA Deputy Administrator HowardGruenspecht not only fail to acknowledge that fact, but forecast arather sanguine outlook on future OPEC export supply in the IEO Maypress conference. It is particularly noteworthy that he gave such anempty and meaningless answer to the questioner, James Schlesingerformer Energy Secretary under Carter, who made a point of probing inthis exact area. | see: dialogue starting after the 37:00 minute mark ofVideo: International Energy Outlook 2010.
Secretary Schlesinger: …we see thegrowth of demand within the OPEC countries, domestic demand, and someof the projections show internal demand in Saudi Arabia rising to 8-9million barrels a day as opposed to your top projection of 15 millionbarrels per day…similarly with other OPEC nations …the consequencesbeing less oil available for export to the international market. Haveyou factored that into your projections, and what might theimplications be?
Howard Gruenspecht: …we think that in the OPECregion, there will be an interest in substituting natural gas for thegrowth in domestic oil demand in the mid-east region, which does tendto free up oil for the world market.
And there you have it. An answer that only a post-war economist could give: soaring domestic demand for oil in OPEC nations, already cutting into exports, will dial back in the years ahead and convert to natural gas–in order to free up oil for exports…to us here in the West! I had to replay the exchange several times, to get the full measure ofGreunspecht’s ridiculous answer. Readers are encouraged to listen to the exchange to get a full measure of the cavalier manner in whichGruensphect, who is clearly out of his depth, answered Schlesinger’sother questions.
While the EIA’s future projections remain a largely theatricalexercise, and are demonstrably unserious, there is another criticalresource balance coming into play between Middle East states and therest of the world in the area of food, and agricultural land. As youmight imagine, arable land in the Middle East is not exactly found in anoptimal ratio to those growing populations. And this is whyKuwait, Qatar, Bahrain, and Saudi investors have gone into Africa. Below is a very good graphic published last year by the Economist Magzine,which accompanied their article: Outsourcing’s Third Wave.
According to the Arab Organization for Agricultural Development (AOAD), the Arab nations are suffering from a persistent shortage in all types of farm products and the gap has steadily worsened over the past two decades. Food imports into the Middle East have soared to new highs, and are now running above $25 billion a year on a net basis. There is a particularneed, and shortage, of cereals and grains. Is it any wonder thatcentral and eastern Africa has become a target for Middle East nations, looking to lease easily improved farmland?
While the EIA’s IEO 2010 correctly notes the trend to further worldreliance on OPEC oil as Non-OPEC oil production growth stalls out,clearly the demographic trends as expressed by food demand are anotherway to see how wrong the EIA’s forecast has become, about future oilavailable for export. Also according to the AOAD: The Arabpopulation was estimated at nearly 351 million at the end of 2009. Since 1990, it has grown by nearly 2.34 per cent annually compared withglobal growth of about 1.16 per cent.
Accordingly, not only will Middle East nations need more of their own fossil fuels to fund domestic construction, but the improvement ofleased, foreign farmland to match their above trend population growthwill also require fossil fuels. To the declining oil export model ofBrown and Foucher, it appears we will need a new model of IncreasingAgricultural Imports to the Middle East. As for the EIA’s call thatthese nations will somehow level off their demand for oil, and switch to natural gas? That makes no sense at all. On a number of levels. TheMiddle East is not going to voluntarily transition away from oil, evenmarginally. And, the natural gas that our flaky EIA in Washingtonimagines will be used to “substitute for oil” will instead be used fornew power generation and to make fertilizer.