[roccman]

Jeffrey Brown: We may be days or weeks away from a net-export crisis

LATOC

Here in Texas it's possible that we are going to be experiencing very real effects of the net export decline in a matter of days to weeks.

The 2007 Annual (Total) Net Export Decline Rates for Mexico & Venezuela (EIA) are as follows, and the recent monthly data don't look any better.

Mexico: -16%/year
Venezuela: -7.6%/year

It's usually hazardous to pay too much attention to short term data, but in the past few weeks total net imports into the US have been dropping like a rock, so last week's EIA data fit the very short term trend. I wonder how much of it is simply a falloff in oil exports from Venezuela and Mexico--it looks like almost all of the recent decline in US crude oil inventories has been on the Gulf Coast.

If this is the case, refiners on the Gulf Coast are going to have to bid the crude price up. One of the problems is the considerably more time that it takes to replace oil imports from Venezuela and Mexico with imports from other sources--because of the distances to other oil exporters. It's possible that we could see some problems with refined product volumes in the Gulf Coast area in the very near future.

I just checked the EIA net import numbers. From 10/07 to 3/08, combined net oil exports from Venezuela and Mexico to the US dropped by 414,000 bpd. I betcha that combined net exports from Venezuela & Mexico to the US are now down by over 500,000 bpd from 10/07.

tonto.eia.doe.gov/dnav/pet/pet_move_impcus_a2_nus_ep00_im0_mbblpd_m.htm

We may see some calls to release oil from the SPR. The problem of course is using emergency reserves to offset a long term decline in oil exports from two key nearby oil exporters.

Venezuela increases petroleum imports despite vast deposits at home
Associated Press via IHT
Venezuela's state petroleum company, PDVSA, increased petroleum imports by nearly 150 percent between the first quarter of 2007 and the same period this year, bank statistics show.

A report by the Venezuelan Central Bank this week demonstrated that petroleum imports reached US$1.5 billion (€964 million) during the first quarter of 2008. The imports - which include diesel oil, gasoline and chemical additives for gasoline products - are the country's highest in more than a decade.

A spokesperson for PDVSA said the company had no immediate comment on the issue.

Economist Gustavo Garcia, a professor at a Caracas business school, said called the increase "one more factor that shows how production has fallen," forcing the company to purchase petroleum products outside of the country.

[FloridaGirl]

Yeah, but could the cause in this case be a bottleneck in throughput of the tankers? A bottleneck that is constricting because the tankers are having to travel longer distances due to the declining exports of the nearest exporters (Mexico and Venezuela for the US and the North Sea for Europe).

From TheOilDrum.com Is a Net Oil Export Hurricane Hitting the US Gulf Coast?

The EIA has recently reported a large drop in US oil imports and fairly large crude oil inventory declines, with almost all of the decline concentrated in the Gulf Coast area. Gulf Coast crude oil inventories have dropped by 15.6 million barrels (9%) in two weeks.

The last four weeks (ending May 23rd) of crude oil imports from all sources into the US Gulf Coast are as follows:

6.683 mbpd
6.130
5.173
4.996

And from expat in the same link:

Interesting - who would have thought that transit times could also be such a major factor?

It seems like the oil fairy is not only limited by the fact that oil is finite, but that it actually takes time to transport.

And this just might explain the tanker rates - it isn't about increasing production, it is about increasing distance. After all, instead of one tanker making a round trip in a dozen days, it is now a tanker making a round trip in five dozen days. Which means that you now need 4 extra tankers to maintain the same flow of crude.

Then from Geckolizard in the same link:

Well, let's consider our happy friend the oil tanker.

If he can make 4 trips from Mexico or Venezuela in 20 days, he hauls 4x his holding capacity in those 20 days.

If he can only make 1 trip from the ME in thise 20 days, then he can only haul 1x his holding capacity.

Now... If the company that owns him wants to maintain the same rate (4x in 20 days) then the company needs to have 4x as many tankers. This drives up the overall cost of shipping by 4x as well.

And then from AlanfromBigEasy:

GWB gets on his knees and begs the King for more oil. He gets 300,000 b/day (the King was in a good mood).

Assume that this replaces Mexican oil (3 days I think to Houston or New Orleans). 30 days from Saudi Arabia.

(30 - 3) x 300,000 = 8.1 million barrels to fill the longer pipeline. About 20% of one day's net world oil exports for this new demand.

That led me to wonder, for Alan's 300,000 b/day case, "Does the world have 27 extra tankers to fill in that gap?".

But the drop was actually bigger than 300,000 b/day:

The data show that combined net oil exports from Venezuela & Mexico to the US have dropped by 414,000 bpd from 10/07 to 3/08, an astounding annual decline rate of -32%/year. This decline was at least partially offset by increases in imports from the Persian Gulf.

And the Export Land Model says it will continue to drop rapidly and the North Sea exports are dropping rapidly as well.

So I looked to find an answer to my tanker question and I find this at: Peakoil.com: Weekly US Petroleum and NG Supply Reports (Current)

Quote:
May 15, 2008

Event Brief of Q1 2008 TEEKAY SHIPPING
Earnings Conference Call - Final

4. Reasons for Strong Markets:
1. Strong tanker demand growth driven by higher oil volumes and growing avg. transportation distances.
1. Oil demand is flat to slightly negative in US and Europe, demand is powering ahead in non-OECD countries.
2. China and developing Asia currently account for 70% of global oil demand growth.
3. In 1Q08 in China oil imports were up by 15% YonY.
4. Newly published specifics by China highlight that full [35%] of imports are now being sold from Atlantic basin. 1. Three times the volume of five years ago.
5. Marginal barrel of oil is being produced in Atlantic, being consumed in Pacific.
6. There is a relative trend of new or growing long haul trade routes such as: 1. Venezuela to China and India. 2. Brazil to California. 3. Angola to China and so on.
7. More tankers needed to move same amount of oil.
2. Required additional tankers to move that oil may not actually become available due to limited supply growth.
1. In 1Q08 oil tanker fleet grew by only 0.6% from 2007-end.
2. Deliveries were entirely offset by ships being converted to offshore or drybulk use.
3. Scrapping activity re-emerged due to record high prices for scrap steel.
4. Many services have predicted net fleet growth this year based on published order book.
5. Based on first hand experience of six-month delay on Suezmax new buildings in China, has reduced Suezmax deliveries from 21 from Clarkson to 17 through Co.'s calculation.
6. Has conservatively assumed no further conversion sales or any voluntary scrapping for remainder of 2008.
7. Overall Aframax, Suezmax, and VLCC fleet growth could be as little as 1% in 2008.
3. Operational Constraints.
1. Single-hull discrimination continues to grow.
1. Korea leading user of single-hull tonnage has set aggressive reduction targets for single-hulled use. 2. 20% of world's tankers that make up the single-hull fleet are feeling the net tighten around it.
2. Growing number of ship days are being lost due to a variety of infrastructure bottlenecks, such as: 1. Ships waiting to unload, due to lack of shore tank capacity. 2. Ships serving as floating storage, currently in Iran 1.5% of world tanker fleet is tied up.
3. Ships being used as hidden storage by all traders.
4. Stretched repair yard lengthening dry docking stay for ships.
3. Some eccentric factors influence the fleet.
4. High bunker prices.
1. Optimal economical speed of ship is function of price of fuel and prevailing trade market.
2. More than a year ago when bunker prices were well below today's levels major container lines began slow steaming their ships due to pressures on operating margins.
3. Result was significant contraction in container shipping capacity. 4. Based on today's bunker prices close of to $600 per ton, modern Suezmax tanker needs to generate a TCE of more than $50,000 a day to justify maintaining full speed of 15 knots.
5. Lowing the TCE level it is more economical to reduce speed to 14 knots, doing so would mean taking approx. 6% more days to complete a given voyage.
6. At macro level represents major self-regulating factor in tanks supply that should put a flow on spot rates at high TCE level. 5. Fleet Utilization & Spot Tanker Rates: 1. Generally accepted that 90% represents full utilization of world tanker fleet. 1. Above this spot rates tend to spike dramatically. 2. According to Platou, now back above 90% explaining market strength Co. currently enjoys. 3. Still early to rule out prospect of seasonal weakness later this summer. 4. Fundamentals point to tighter tanker market overall for 2008.

And I found this at: Peakoil.com: Where are all the tankers?

He told me, "John, it's more interesting than that. It is not just Iran. Today we started checking on how many tankers Iran had, and soon discovered that there is a serious tanker shortage. Lease prices have soared in the past few weeks.

So it sounds like the tanker market is pretty tight and they are not adding a whole lot more. So with longer distances for deliveries, they can't deliver as much thus total world exports go down.

I think we are starting to see a whole new level of Peak Oil Lite. The first level is flat supply/growing demand, and now the next level is declining short distance exports/tanker bottleneck.

But what does that mean to us? I think the bottleneck would force reduced world consumption thus driving the world oil price down, but domestic oil would be more valuable and its price would be driven up. The US would see shortages earlier and the US refineries would be able to raise the price of gas and enjoy a higher profit margin.

I can believe we are days or weeks from a crisis.

[roccman]

But what does that mean to us? I think the bottleneck would force reduced world consumption thus driving the world oil price down, but domestic oil would be more valuable and its price would be driven up. The US would see shortages earlier and the US refineries would be able to raise the price of gas and enjoy a higher profit margin.

I can believe we are days or weeks from a crisis.

Nice post FG...so we are constrained with both drilling rigs (West Texas 70s style more=less oil) and tankers.

So it goes.

[shortonoil]

FloridaGirl said:

But what does that mean to us? I think the bottleneck would force reduced world consumption thus driving the world oil price down, but domestic oil would be more valuable and its price would be driven up. The US would see shortages earlier and the US refineries would be able to raise the price of gas and enjoy a higher profit margin.

I can believe we are days or weeks from a crisis.

Long term prices are not going to go down, they will continue upward. This will happen because the Available Energy from oil is now declining faster than the economy; there being a six to twelve month lag time between available energy decline and the economy’s decline (see the Total AE graph in red).

Presently we are witnessing an Available Energy decline rate which will push oil prices up to about $175. That will be the value where these two forces will balance each other, and the economy will be falling at 3.5 to 5% per year!

J. Brown’s Export/Import Land Model could greatly exacerbate the situation!

[evilgenius]

So, that means buy any and every stock with anything to do with going after off-shore West African oil. Something will have to stick.

[Twilight]

Yes, the distance factor is a killer. Now I realise I did not give it as much thought as I should have.

Export Land is bad enough, but having a disproportionally large share of decline come from your nearest suppliers increases the transport capacity required to substitute from further away in direct proportion to distance. I can see how that would be a problem in a famously tight tanker market.

The decline of Mexican production was long-anticipated, but if this is the way with much else in that hemisphere, that is about the worst scenario possible. It is that part that comes as a surprise to me.

[Homesteader]

Brazil's production is going up. Who is buying it?

They ain't Mexico, but then they ain't the other side of the world either.

[Twilight]

Brazil's production is going up. Who is buying it?

Their production and consumption are quite well balanced. In fact up until now they were a net importer. They send 200kb/d to the US according to the EIA, but they probably import a similar volume from their neighbours. Future production increases may boost this somewhat, but I do not see it offsetting Mexico and Venezuela when they crash, especially as South America in general is having trouble meeting electricity demand with hydro and where applicable, natural gas. Oil has made a comeback in the short term because it lends itself to emergency measures.

[Dreamtwister]

This presents yet another problem - security.

Even if we were able to increase the tanker fleet, are there enough destroyer escorts to protect them all?

[Twilight]

This presents yet another problem - security.

Even if we were able to increase the tanker fleet, are there enough destroyer escorts to protect them all?

No. The convoy system worked before the days of JIT, now we have trains of tankers strung out across the shipping lanes. There are too many.

And anyway, from what? The barriers to entry into merchant shipping are so low, virtually any ship is a potential assailant in spite of having its papers in order.

[shortonoil]

Oil up 4.10

Long term prices are not going to go down, they will continue upward. This will happen because the Available Energy from oil is now declining faster than the economy; there being a six to twelve month lag time between available energy decline and the economy’s decline (see the Total AE graph in red).

Jul 08 122.85 126.40 122.75 126.40 Jun 05, 13:38- 4.10 335547

The Available Energy model has been run forward 3 years ( '05-'08 ) and back 35. So far, it works!

[Dreamtwister]

And anyway, from what? The barriers to entry into merchant shipping are so low, virtually any ship is a potential assailant in spite of having its papers in order.

That's precisely my point. The mob have been tossing around the idea of hijacking tankers since at least the mid 70's. At some point, the risk/reward balance is going to make it viable and people will start doing it. We already know how easy it is to show up at a refinery with stolen oil.

[Mastodon]

FloridaGirl said:

But what does that mean to us? I think the bottleneck would force reduced world consumption thus driving the world oil price down, but domestic oil would be more valuable and its price would be driven up. The US would see shortages earlier and the US refineries would be able to raise the price of gas and enjoy a higher profit margin.

I can believe we are days or weeks from a crisis.

Long term prices are not going to go down, they will continue upward. This will happen because the Available Energy from oil is now declining faster than the economy; there being a six to twelve month lag time between available energy decline and the economy’s decline (see the Total AE graph in red).

Presently we are witnessing an Available Energy decline rate which will push oil prices up to about $175. That will be the value where these two forces will balance each other, and the economy will be falling at 3.5 to 5% per year!

J. Brown’s Export/Import Land Model could greatly exacerbate the situation!

Shortonoil,

Interesting graphic, Cleveland 2005 puts US 48 oil EROI at 10, this does not seem to match with your graphic which would have it closer to 1.

Any thoughts.