Posted by on December 7, 2016 4:09 pm
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Categories: Business Cartels Economy Energy crises Export Land Model Fail Kuwait Middle East OPEC Organization of Petroleum-Exporting Countries Peak oil Petroleum Petroleum industry Petroleum politics Precious Metals Saudi Arabia


By the SRSrocco Report,

Yes, it’s true.  Middle East net oil exports are less than they were 40 years ago.  How could this be?  Just yesterday, Zerohedge released a news story stating that OPEC oil production reached a new record high of 34.19 million barrels per day.  To the typical working-class stiff, driving a huge four-wheel drive truck pulling a RV and a trailer behind it with three ATV’s on it, this sounds like great news.

Unfortunately for the Middle East, this isn’t something to celebrate.  Why?  Well, let’s just say, there’s more to the story than record oil production.

While the Middle East oil companies were busy working hard (spending money hand over fist) to produce this record oil production, their wonderful citizens were working even harder to consume as much oil as they could get their hands on.

In the past 40 years, Middle East domestic oil consumption surged more than six times from 1.5 million barrels per day (mbd) in 1976, to 9.6 mbd in 2015.  This had a seriously negative impact on rising Middle East oil production:

Middle East Oil production vs Net Exports

According to the 2016 BP Statistical Review, the Middle East produced 30.10 mbd of oil in 2015 compared to 22.35 mbd in 1976.  This was a growth of 7.75 mbd.  However, Middle East domestic oil consumption increased from 1.51 mbd in 1976 to 9.57 mbd in 2015.   Thus, the Middle Eastern economies devoured an additional 8.06 mbd of oil during that 40 year time-period.

NOTE:  The production data shown in the chart above only represents Middle East oil production.  OPEC members not included are Algeria, Angola, Ecuador, Gabon, Libya, Nigeria and Venezuela.  I only listed the production data for the Middle East as the data was readily available.

Regardless, if we look at the two bars on the right side of the chart, we can see that Middle East net oil exports were higher in 1976 at 20.84 mbd versus 20.44 mbd in 2015.  Basically, all the hard work the Middle East oil companies spent on increasing production over the past 40 years went to supplying their own insatiable domestic consumption.

Here is a breakdown of the some of the Middle Eastern countries oil consumption:

Middle East Oil Consumption

In 1976, Kuwait only consumed 84,000 barrels per day (bd) of its own oil, but this jumped nearly ten times to 818,000 bd in 2015.  While Iran’s oil consumption increased nearly four times from 1976 to 2015, Saudi Arabia wins the award as its economy is now consuming a staggering eight times as much oil than it did during the same time period.

If we look at it another way, Middle East domestic oil consumption now represents 32% of its overall production compared to only 7% in 1976:

Middle East Oil Production versus Consumption

This is defiantly bad news for the Middle Eastern National Oil Companies.  If these oil companies are spending a lot of their oil profits just to increase production to feed their growing domestic economies, what happens when production finally starts to decline?  This is what Jeffery Brown wrote about when he developed his Export Land Model:

It models the decline in oil exports that result when an exporting nation experiences both a peak in oil production and an increase in domestic oil consumption. In such cases, exports decline at a far faster rate than the decline in oil production alone.

The Export Land Model is important to petroleum importing nations because when the rate of global petroleum production peaks and begins to decline, the petroleum available on the world market will decline much more steeply than the decline in total production.

A perfect example of this is Indonesia.  Indonesia has been a apart of OPEC for decades (until it was suspended in 2009).  However, it is now consuming more oil than it produces:

Indonesia Oil Production vs Consumption

This is an older chart from a 2012 Silverseek presentation, but we can clearly see that Indonesia’s net oil exports declined significantly since 1980.  In 1980, Indonesia’s net oil exports were 1.18 mbd versus net imports of 489,000 bd in 2011.  And according to the 2016 BP Statistical Review, Indonesia’s oil production has fallen to 825,000 bd compared to domestic consumption of 1.63 mbd.

Thus, Indonesia had to import 805,000 bd of oil in 2015 just to meet its domestic oil consumption.  Which is why I found this article on Zerohedge completely hilarious, Vienna Shocker: Indonesia Suspended From OPEC:

But the most shocking announcement is that Indonesia appears to have been suspended from OPEC, and that its oil output, which according to the latest OPEC monthly report was 722kpd, will be distributed among other OPEC nations, in what may amount to a production “shuffle” not a cut.

Why in the living hell is OPEC getting so worked up about Indonesia.  Not only should Indonesia be suspended from OPEC, it should be kicked out.  I have nothing against Indonesia, but why is Indonesia still apart of OPEC if it is now importing 805,000 bd more oil than it is producing… who cares???

Why isn’t that mentioned in the Zerohedge article?

Now, what happened to Indonesia is also taking place in the Kingdom of Saudi Arabia.  The chart below shows the damaging impact of rising domestic oil consumption on rising production:

Saudi Arabia Oil production vs Consumption

The olive-green color in the chart represents Saudi Arabia oil production, while the orange denotes net oil exports and the red is their domestic consumption.  In 2005, Saudi Arabia’s net oil exports were higher at 8.72 mbd versus 8.12 mbd in 2015.  This was due to Saudi’s domestic oil consumption increasing 1.5 mbd in the past ten years.

Even though Saudi Arabia’s total oil production reached a new high of 12 mbd in 2015 compared to 10.9 mbd in 2005, its domestic economy consumed all of that extra increase, and more.

What happens when Saudi Arabia’s oil production finally declines and heads south as its domestic oil consumption increases?  Well, we can look above at Indonesia as a perfect example.  This is the double whammy most folks in the Mainstream or Alternative media fail to understand.

Unfortunately, most precious metals investors do not read my energy articles.  I have had this discussion with several websites that I do interviews with.  For some strange or silly reason, most people put “Energy” into a category such as “Health Care”, “Transportation”, “Housing” and “Technology Stocks” for an example.  They just look at Energy as a separate industry that they don’t have to pay any attention to.

This is the most frustrating and at the same time “ABSURD & INSANE” thing I have to deal with on an ongoing basis.  I plan on writing more articles in the future on why ENERGY IS THE KEY to everything, especially the precious metals.

The World economies are in big trouble and they don’t even know it.  While oil depletion is by far the number one NAIL IN THE COFFIN, falling Middle East (and other OPEC members) net oil exports will be number two.

Time to wake up and smell the coffee.

Lastly, if you haven’t checked out our new PRECIOUS METALS INVESTING section or our new LOWEST COST PRECIOUS METALS STORAGE page, I highly recommend you do.

Check back for new articles and updates at the SRSrocco Report.

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