How do we make up for Mexico's declining exports?

The current turmoil over the supply of gas from Russia, highlights the increasing dependence that the world has to place on energy supplies from a shrinking pool of suppliers. This past week the Energy Information Agency (EIA) shows that the United States imported some 14.5 million barrels of oil a day (mbd). Domestically we produced 4.9 mbd, having fallen below 5 mbd just as the calendar kicked over into December, 2008. The October import figures the most recent available, (pdf) show 6 mbd came from OPEC countries and 7.4 mbd from non-OPEC nations.

This supply came from a total of 49 countries, ten of whom are in OPEC and 39 of whom aren’t. However if we count only countries that contributed more than 250,000 bd to this supply we end up with Canada (2,567 kbd); Saudi Arabia (1,487 kbd); Mexico (1,483 kbd); Venezuela (1,162 kbd); Nigeria (979 kbd); Iraq (577 kbd); Algeria (555 kbd); Angola (539 kbd); Russia (394 kbd); Brazil (354 kbd); the United Kingdom (386 kbd): and the U.S. Virgin Islands (267 kbd).

One of the reasons for putting the list up here and now is that we can come back, next year and see how things have changed, and note how and where the dependence has moved to. But, as I noted in Pick Points, Mexican production has fallen to around 3 mbd, of which half is exported to the U.S., and if their production continues to fall at 500,000 bd per year, then within this next year there is going to be some greater crunch between domestic use and exports. So where will the United States make up the difference?


Now the volume each supplies varies by month, two months ago Norway supplied (for that month) 2.175 mbd so that drawing conclusions from a single month is of no great value, but if one goes back and looks at figures for 2007 (pdf), one ends up with almost the same list, only Brazil having since joined (by 154 kbd). In 2005 the top 14 countries importing to the US would have dropped off Russia, Brazil and the U.S. Virgin Islands, but Colombia, Ecuador, Kuwait and Equatorial Guinea were still on it.

The largest proportion of the U.S. imports come from Canada, yet outside of the Oil Sands of Alberta and the possibilities of production from the Bakken shale, their production has been declining, with the Newfoundland fields perhaps peaking at 369 kbd in 2007. The oil sand production, currently at 1.4 mbd is scheduled to increase, with an initial target of 3.5 mbd, once planned for 2015, but now slipped back to 2020. Unfortunately for US consumers, there are two snags to relying on this source to offset Mexican declines. The first is the slowing of the expansion plans of those working the oil sands as prices fall; the second is:

The 2007 federal energy bill says U.S. government fleets can't buy fuel from the oil sands and other sources whose production emits more greenhouse gases than conventional oil.

And if someone gets serious about enforcing that . . . . .
So if Canada cannot expand their production enough, and Mexico is going to cut their exports, for the sake of discussion by 0.5 mbd, where do we look to next?

That would be Saudi Arabia, from which we get about 1.5 mbd. But Saudi Arabia is a strong advocate of OPEC production cuts and has already dropped their production from a peak of 9.7 mbd to 8.5 mbd in November. While it may go lower, probably not below 8 mbd, they have just warned Asian customers that cuts, of up to 15% will continue. So no luck there.

Moving down the list of suppliers, in terms of import size, that takes us to Venezuela. This is an interesting case, since there is a fairly large difference between how much oil the country says it is producing (3 mbd) and the amount others have estimated (2.4 mbd). In accord with OPEC wishes to cut production, so that prices will move back up, Venezuela is cutting some 189 kbd or production, 166 kbd of which was going to the United States. So I guess we’d better not look there.

Next on the list, moving down, is Nigeria, where we get just under 1 mbd. Well they are currently exporting, in total, around 1.66 mbd, but this is a cut of 12% (from 1.88 mbd) to accord with OPEC requests.. Although the country has a potential to produce perhaps 2.5 mbd, the problems that have been created by widespread conflict has pulled it down to perhaps the current level, although, with perhaps as much as 200,000 being siphoned off to illicit sales, it is going to be difficult to estimate true production – but I wouldn’t gamble on getting more out either.

And so we come to Iraq, which has now, with 0.577 mbd, made it to sixth on the list. A year ago I would have thought that increasing that number would have been almost impossible, but the nation is moving ahead with plans to double oil production (from around 2.5 mbd today, of which 1.85 mbd is exported), within three or four years. If this can be achieved, and one of the fields planned for expansion lies beneath Baghdad, then this could solve the US shortage , if not . .

The next candidate on the list is Algeria. But while their production is continuing to rise, together with exports, they also hosted the latest OPEC meeting with its call for 3.3 mbd of oil cuts. Thus while the US may get up to about a third of their exports, of about 2 mbd total production, their share is not going to go up in the short term, even though they hope, when markets grow, to increase production to 2.6 mbd by 2018..

Angola is eighth, but as a member of OPEC they are falling in line to drop production, from the 1.9 mbd that they produced in 2008, even though new fields are coming into production, and the production cut is anticipated to lower this to 1.5 mbd.

At ninth in line, there is Russia. But while Russia now vies with Saudi Arabia to be the worlds largest producer of oil, it has announced that it will go along with the OPEC cuts and, in collaboration with Azerbaijan, reduce their output by 600,000 bd. There is also a question as to whether overall Russian production has not peaked, since production last year fell year-on-year (Y-o-Y) by 815 kbd, to 9.74 mbd, with exports falling 16% to 3.53 mbd. Guess we had better not look there.

And so we come to the tenth candidate – which is Brazil. Brazil reached energy in 2006, but though a lot of credit was given to sugar cane ethanol the reality is that it was achieved with increased production of oil, particularly from offshore. However the costs for developing those fields is above the current price of selling the oil from those fields. So maybe we should not send out tankers down there yet.

Hmm, well lets see where that leaves us, Can it be that we are left hoping for production increases from Iraq as our likely savior, should demand start to resurrect?


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