[Pops]

The German military's report highlighted a trend in bi-lateral agreements. I'd noticed the stories here and there but I had not thought too much about it or seen analysis of how trade agreements or other sovereign deals are likely to affect oil supply - certainly not like there has been about the Export Land model for example.

Most of the time we talk about "market dynamics" and how they will influence the post-peak situation. We try to include what we've seen happen as prices rise and impact the economy, then forecast that forward to an "undulating plateau."

Take that ebb and flow of demand and the effects it has on oil producers' cash flow (along with low credit availability) and it's easy see an equal undulation of investment in expanding fossil fuel extraction. That undulating investment in turn amplifies the peaks and troughs in supply - kind of a self reinforcing loop.

Then overlay the "Export Land Model" effect that explains how countries that once were exporters of oil see their domestic use grow to the point they rapidly change from an exporter to a net importer (like the US did). This not only eliminates that country's addition to the available supply but reduces it - and reduces the available supply much faster than a simply look at reserves alone would indicate.

So, on top of those factors already distorting Hubert's' nice bell shaped geologic production curve, now add in sovereign trade agreements. China of course has been the most visible and most important due to it's determined, planned growth. They have been trading American dollars for oil in long term government to government deals around the world since the '90s. From Russia to Brazil & Venezuela and even making deals closer to home here in Canada and the GOM. In addition to making deals, China is buying oil companies too, they own a stake in the French company Total and even tried to buy Unocal, they won the bidding in fact but US regulators wouldn't sign off.

I don't have a clue how much oil China has agreements to purchase, maybe it's a large amount or maybe it's not. But as the German report also allegedly pointed out, peak oil could very possibly bring about a move toward (or return to) command economies. China is the perfect poster child for why it will be advantageous and probably inevitable, for governments to become directly involved in securing supplies, both internally and externally.


So, while the US bought it's own PR and went on a binge, then came too and started staring at it's navel pondering why the 30 year campaign for Total Capitalism via financial deregulation wound up with markets not only not regulating themselves but very nearly causing a total failure of the economy, China has taken in our dirty laundry - and our dollars - and used them to buy up reserves of dwindling resource right from under our nose.

And all the while we are borrowing even more money to wage the last war and stand up puppet governments who'll play along as if they are democratic and we are just another oil customer. As we stagger blindly ahead, vowing to not negotiate a way of life that is arguably already gone, China sells us what we ask for and uses our money to position themselves for the coming change.

Kind of like Jujutsu..
Naw, on second thought it's more like rolling a drunk.


EIA, China, Oil
Time 10/'04: China's Quest for Oil
CSM 2/'09: China, taking advantage of global recession, goes on a buying spree
Newsweek 5/'10: China Races to Secure Middle East Oil Deals

[Ludi]

China sells us what we ask for and uses our money to position themselves for the coming change.

I'm not convinced they are positioning themselves for any change. On the contrary, with much of their infrastructure at the level of the US at the end of the 19th or beginning of the 20th century, and all present and near-term projects geared toward attempting to move into a late 20th century society, it seems to me China is simply trying to emulate the US model at a point in history when such an endeavor is almost certainly doomed to failure. With their enormous population and such a long way to go to actually match the US in per-capita wealth and modernity, it seems likely they will never achieve such a goal, however hard they try.

[Plantagenet]

I'm not convinced they are positioning themselves for any change. On the contrary, with much of their infrastructure at the level of the US at the end of the 19th or beginning of the 20th century, and all present and near-term projects geared toward attempting to move into a late 20th century society, it seems to me China is simply trying to emulate the US model....

China is modernizing. Some of that involves emulating the US model, some of it doesn't.

For instance China is building high speed rail networks across China, and has developed the internal factories and technology to build their own high speed trains, rail bed and monorails and tracks, electronic infrastructure etc.-----none of which the US is doing or has the capability to do right now.

[Plantagenet]

China is also manufacturing the inexpensive --$4000-- 83 mpg "auto moto" 3-wheeled car and is now exporting it to the US---I posted about this several days ago.

As gas prices inevitably go to $10/gallon, the US has nothing on the market that matches it.

[Ludi]

Yes, they are modernizing, but their people remain poor compared to US citizens.

Chinese per capita income in 2008 was about $$3,180

If it continues to rise at about 8% per year, it will reach $8,500 by 2020, in 2030 about $20,000.

http://www.economywatch.com/world_econo ... ncome.html

Much of China is not yet electrified; most of the US has been electrified since the 1950s.

US per capita income as of 2008 was about $40,166. In 2009, it was about $39,138.

China's per capita income is rising, the US per capita income is falling. But looking at both nations in the light of peak oil, it is difficult to imagine China catching up with US per capita income.

This is not to say they have not made huge leaps toward modernity, just that it is possible they are aiming for a model which is already outdated, assuming peak oil to be the problem many of us think it is.

[Plantagenet]

Chinese per capita income in 2008 was about $$3,180

If it continues to rise at about 8% per year, it will reach $8,500 by 2020, in 2030 about $20,000.....

US per capita income as of 2008 was about $40,166. In 2009, it was about $39,138.... it is possible they are aiming for a model which is already outdated, assuming peak oil to be the problem many of us think it is.

The effect of peak oil will be increase energy prices and reduce affluence.

I suggest that China, with many hundreds of millions of peasant farmers living on the land using minimal amounts of oil as they have done for thousands of years and a per capita income of $3180 is probably currently better adapted to cope with the future effects of peak oil then the US with its decaying urban infrastructure and hollowed-out industrial sector and dependence on factory farming and heavy use of oil and oil-based fertilizers and a per capita income of 39,138.

[Pops]

I don't pretend to have any insight into what the Chinese are planning, I've never even met anyone from China.

My point is simply that whatever amount of future production they tie up is that much less oil on the market at a future date.

Obviously whatever amount of demand that pre-paid oil satisfies, in 2020 for example, is that much less demand that will be bidding up the price in 2020. But lets just say on the off chance oil is something crazy like $200/bbl, they won't be paying it, you and I will.

I can only assume they think the price is going up or they wouldn't be out on the world stage laying in a supply. If they think the supply is going to get tight I gotta think they probably are thinking about what to do further down the road. This is the year lots of governments (accidently or not) come out of the closet about the reality of supply constraints and I just can't see the Chinese being completely blind.

And a final point. I've said it before but I'd walk the 5 miles to town to carry home a gallon of gas for the chainsaw - even if gas was $20/gal - there are some uses for petrol that make it worth far, far more than we have been used to paying.

Consider the average American and average Chinese, the Chinese peasant I'm sure gets a far larger benefit from a gallon of fuel even if it costs half a day's income than the American gets from a gallon at a tenth of an hours salary.

[Ludi]

Consider the average American and average Chinese, the Chinese peasant I'm sure gets a far larger benefit from a gallon of fuel even if it costs half a day's income than the American gets from a gallon at a tenth of an hours salary.

That's probably quite true! I guess what I was mostly posting about was the idea that China is going to be equal to the US in modernity any time soon. They may be preparing for peak oil, and a large segment of their population may be more prepared for it than the average US citizen, however, from their actions, it seems as though they intend to continue modernizing as fast as possible in a way that looks like they are trying to emulate the US model, a model which may not be the best for a peak oil future.

[Pops]

Nasiriyah, Iraq (dpa) - Iraq's oil ministry announced Friday that it would begin drilling for oil in the southern Gharraf oil fields by the end of the year.

Officials said initial production levels of 50,000 barrels per day from eight oil wells are expected.
Gharraf is located near Nasiriyah, some 375 kilometers south of the capital Baghdad.
Malaysia's state-owned oil company Petronas and the Japan Petroleum Exploration Company (Japex) [34% owned by the government] late last year signed a deal with the Iraqi government to develop the Gharraf oil fields.

http://www.rigzone.com/news/article.asp ... 2&rss=true

[Pops]

Ghana and China have signed deals totaling $15 billion during a five-day state visit to Beijing by Ghana President John Atta Mills, signaling the west African country's rising prominence as an investment destination and future oil producer.

The China Exim Bank and the government of Ghana on Wednesday signed a $10.4 billion concessionary loan agreement for infrastructure projects, payable over 20 years, the government of Ghana said on its website. The loan is subject to approval by the Ghanaian parliament and cabinet.

A separate loan of $3 billion, from the China Development Bank, is slated for Ghana's burgeoning oil and gas sector. Ghana is set to begin oil production later this year and will soon pump 120,000 barrels a day, according to government and oil company estimates. The China Development Bank also guaranteed more than $400 million for water and e-governance projects in Ghana, according to the government website.

http://www.rigzone.com/news/article.asp ... 0&rss=true

[efarmer]

China is pursuing trade agreements without cultural and behavior changes required from it's suppliers.
We like to use these additional human rights and policy issues as a carrot and stick in such dealings based on learning that we could and it makes us feel good from when we were a more singular source for such aid to the 3rd world, with possibly the Soviet Union being the other pole.

I think the Chinese model will continue to rack up the bilateral deals, and the trade and cultural contact and infrastructure will build them a lot of new friends in the 3rd world.