Export Land Model

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Overview

The Export Land Model (ELM) is a simple mathematical model describing how rising consumption by oil producing nations, combined with peak production in those nations, accelerates the decline in net global exports.[1]

Theory

Under this theoretical model, high oil prices produce rapid economic growth in "Export Land" countries (oil-exporting countries), subsequently causing a growth in domestic energy demand in order to power the many cars, houses and businesses being bought. In turn this increase in demand constrains how much oil these countries can sell on the world market. Demand projections by CIBC in 2007 suggested that for many oil-producing countries, including Saudi Arabia, Kuwait and Libya, internal oil demand would double in a decade.[2]

One prominent example of a country which has swung from being a net exporter of oil to a net importer in recent years is China. China became a net importer 1993 as a result of flattening production against sharply increasing consumption figures.[3] For example, in 2008 Chinese consumers bought 5.5 million vehicles (cars, minivans and SUVs), up from just 1.6 million in 1997, with demand expected to continue growing. In 2008 the Chinese government attempted to reduce demand for oil by increasing gas and diesel prices by 46 US cents.[4]

Impact of Subsidies

According to Richard Posner, the most substantial subsidies on petroleum products are usually found in oil-producing countries, such as Saudi Arabia, Iran, Russia, Venezuela, Indonesia and the UAE. He asserts that in Saudi Arabia, subsidies made buying a litre of petrol cheaper than buying a bottle of water. This results in increased demand and increased consumption of oil where subsidies are offered.[5]

According to economist Jeff Rubin, exports from OPEC (the Organization of Petroleum Exporting Countries) are likely to fall as the countries which make up the organization face increasing consumption among their own populations. As a consequence such countries begin to "cannibalize their own export capacity".[6]

Consequences for Global Energy Security

A 2007 report by CIBC World Markets estimated that "soaring internal rates of oil consumption" in Russia, Mexico and OPEC member countries would reduce crude exports by as much as 2.5 million barrels per day (bpd) by 2010, accounting for 3% of global demand. Fatih Birol, chief economist at the International Energy Agency (IEA), rated consumption growth among oil exporters as the second greatest threat to meeting the world’s oil needs. Analysts have said this phenomenon is likely to lead to big market shifts and an increased focus on the exploitation of unconventional resources such as Canada's tar sands.[7]

These implications of the ELM are particularly concerning for countries which import a large percentage of their oil imports, such as the US, where 70% of the country's oil needs are imported. It can also have the effect of creating greater international competition for the remaining supplies of oil.[8]

Criticisms of the ELM

While he does not dispute the basic tenets of the theory, the author of the Peak Oil Debunked blog casts some doubt on the figures underpinning Jeffrey Brown's model.[9]

References

  1. "Net Oil Exports and the "Iron Triangle"" The Oil Drum, 13 July 2007.
  2. "Oil-Rich Nations Use More Energy, Cutting Exports" New York Times, 9 December 2007.
  3. "What the Export Land Model Means for Energy Prices" Investors Insight, retrieved 6 March 2012.
  4. "China Raises Fuel Prices: Is this the End of the Oil boom?" Market Oracle, 23 June 2008.
  5. "Subsidies to Oil and Other Energy Sources-Becker" Becker-Posner Blog, 9 December 2007.
  6. "Export Land Model (ELM) goes mainstream" Energy Bulletin, 2 October 2007.
  7. "Oil-Rich Nations Use More Energy, Cutting Exports" New York Times, 9 December 2007.
  8. "What the Export Land Model Means for Energy Prices" Investors Insight, retrieved 6 March 2012.
  9. "EXPORT LAND MODEL: DUE DILIGENCE AUDIT (PT. 1)" Peak Oil Debunked, 4 November 2008.