Monday, July 22, 2013

Global Oil Dashboard - Q2 2013

Here is the second installment of the of the "global oil dashboard" for Q2 2013. I created this tool to help me track the key quantitative indicators of peak oil. Oil is a finite resource and peak oil will happen eventually. Because some experts, such as the Energy Watch Group, believe that peak oil is happening right now, I want to keep track of these indicators on a real-time basis to determine whether we are indeed passing peak oil. I designed this dashboard to be mostly automated, in order to allow me to easily update it on a quarterly basis. This dashboard also allows me to keep track of the performance of various "peak oil proof" investments to determine whether my investment hypotheses are correct.  The dashboard is best viewed as a PDF - Click here to download the PDF.

The text of the PDF is as follows:

Page 1: Global Peak Oil Summary

The global rate of oil production is up slightly year-over-year.  However, during the same period global net exports of oil declined.  Production gains in Russia, the US and Canada are just barely offsetting production declines in Norway, UK, Latin America and the Middle East.  Global supermajor production continues to fall.  Based on this data, we are likely still on the "bumpy plateau" of peak oil and have likely passed "peak oil exports."

Global oil consumption was up slightly year-over-year with almost growth coming from the developing world.  The developed world continues to fall from its "peak oil demand" peak.  The economies of the developed world are shrinking on a relative basis to the global economy.  Europe is officially in a double-dip recession.  GDP growth remains strong in Asia and the developing world.  In Q1 2013 China overtook the US as the world's largest oil importer - the first time the top spot has changed hands in 41 years.

The price of Brent crude oil has been volatile and fell nearly 10% year-over-year, but remained well above historical averages.  Prices in futures and options markets seem to indicate a belief that oil prices will continue to fall, possibly due to slowing global economic growth.  The global money supply rose over 6% year-over-year as central banks pumped more money into their economies, but a falling velocity of money from economic stagnation has so far kept inflation from pushing up oil prices in real terms.

Page 2: Oil Supply: Global Oil Production Rates

The global oil production rate is up slightly year-over-year but has slowed since Q1 2013.  The growth rate of the global oil production rate has been declining for nearly 30 years and is well below its 1986 peak.  Major improvments in production rates in the past year have occured in the United States, Canada, Russia, China and West Africa.  US oil production increased dramatically due to shale fracking, helping to offset the decline in production from Alaska and the Gulf of Mexico.  Lybia experienced major production rate gains as it ramped back up following the Arab Spring.

Page 3: Oil Supply: Export Supply

The Top 10 Oil Exporting Countries Represent 81% of World Oil Export Supply
Global oil exports remain relatively flat year-on-year but are still down about 3 MMBPD from their peak in 2004.  Six of the top 10 oil exporting nations are now experiencing 5-year net export rate declines.  Saudi Arabia, Nigeria, Venezuela, Norway and Libya are all seeing lower rates of net exports.  This decline has been somewhat offset by huge increases in oil exports from Iraq and Canada.  Total liquid production rates continue to decline for the Supermajors.  Overall, global net oil exports do not appear to be responding to record-high oil prices, signaling that we may be on the "bumpy plateau" of peak oil and may have passed the point of "peak oil exports.

Page 4: Oil Supply: Export Supply: News Summaries

Russia Q2 2013 News
In Q2, Russian oil production continued past its a post-Soviet record achieved in Q1 2013.  Russia is now the worlds largest oil producer and world largest oil exporter.
In Q1 China passed Europe to become Russia’s number one oil market.  In Q2, the Sino-Russian energy relationship grew even stronger.  Russia announced that China National Petroleum Corp will begin exploring for Arctic oil in Russian waters alongside Rosneft.  Rosneft then signed a 25 year agreement to deliver 365 million tons of oil to China - one of the largest oil deals in history.
Russia gave temporary asylum to US whistleblower Edward Snowden -  harming US-Russian relations.

Saudi Arabia Q2 2013 News
Export cannibalization continues to grow in Saudi Arabia.  The Saudis have 3 new refineries under construction that will reduce net exports by 1.2 million BPD in 2017.  In Q2, Saudi Arabia passed Germany in total oil consumption.
Perhaps indicating Saudi Peak Oil is imminent, Saudi Arabia's Oil Minister Ali Al-Naimi was quoted as saying ""We don’t really see a need to build a capacity beyond what we have today.""
Stability remains precarious: oil revenue accounts for 93% of revenue for the Saudi government, which now needs $94/bbl oil to balance their budget.  Based on actuarial tables, the 88-year old King Abdullah has a 15% chance of dying in the next year.

Iraq Q2 2013 News
1/2 of Iraqi oil exports now go to China.  Chinese oil companies are increasingly displacing US ones.
Chaos continued in many parts of the country with car bombs going off on an almost daily basis.  1000 Iraqis were killed in attacks in May.  Southern Iraq is on the verge of a Sunni-Shiite civil war.
Kurdistan began exporting oil directly to Turkey, bypassing the federal Iraqi government completely.  In Q2 a brigade of Iraq’s Kurdish troops defected to Kurdistan, further hurting relations.  Turkey recently completed a new pipeline to Northern Iraq and signed an agreement Turkey to develop Iraqi oil fields.

United Arab Emirates Q2 2013 News
In Q2 UAE oil minister Suhail Al Mazrouei declared that the ""Days of Easy, Cheap Oil are Gone"" and announced that the country would begin constructing nuclear power plants to provide 25% of its electricity by 2021.
In Q1 the UAE opened the world’s largest solar plant, named Shams 1.

Kuwait Q2 2013 News
Kuwait announced that it plans to spend $56 billion over the next 5 years to raise production by 650,000 bpd by 2020.

The Kuwaiti central bank announced that its economy would likely grow at just 1.9% in 2013 – slowing oil export cannibalization.

Nigeria Q2 2013 News
Nigeria’s oil production continues to fall, mostly as the result of vandalism and oil theft. Crude oil theft now costs the country $7 billion annually.  Attacks on pipelines and offshore rigs and hijackings of tankers continues.  A nationwide blackout hit the country in May.  Nigeria's rebel MEND group, which frequently attacks oil infrastructure, announced it would begin attacking mosques.

Nigeria's government continues to fight Islamist militants in the Northern provinces.  Nigeria’s four main opposition parties formed a coalition, threatening President Goodluck Jonathan's hold on power.

Venezuela Q2 2013 News
In Q2 Nicolas Maduro was sworn in as president, following the death of  Hugo Chávez on March 5th, 2013.  Maduro will continue the oil industry policies of Chávez.  Maduro's oil minister, Rafael Ramirez, repeated his assertion that $100/bbl should be the floor for oil prices.
Venezuela announced a major currency devaluation in Q1.  As of Q2, the country is on the brink of hyperinflation, with annualized inflation topping 20%.  The government has begun rationing everything from toilet paper to chickens.  Blackouts are becoming more common and hyperinflation could collapse Venezuela's economy, forcing down oil production rates.

Norway Q2 2013 News
Norway proves how relentless peak oil can be.  Oil production continues to plummet; passing a 25-year low this year.  The state of Texas now produces more oil than the country of Norway.  Over the past 11 years, Norway has fallen from the world's 7th largest oil  exporter to the world's 14th largest today.

The oil ministry announced that it expects production to continue to decline in 2013 and bottom out next year as new projects come online.

Libya Q2 2013 News
Oil production hit 70% of its pre-Arab Spring levels.

Bombings, kidnappings and assassinations continue to make the prospects of stability uncertain.  Protests continue in Benghazi.  In Q2 NATO sent a contingent of soldiers to help train Libyan government forces against militants aligning themselves with Al Qaeda.

Canada Q2 2013 News
Canadian oil production is up dramatically year-over-year.  In Q2 Canada accounted for 38.7% of U.S. crude imports, the most ever by a single nation.

Oil sands production rose 13% during 2012 despite cost increases of more than 10% per year.  Oil sands production could rise from 1.8 MMBPD today to 5.2 MMBPD by 2030  if it isn't hampered by climate change legislation or lower prices.

In March, 5,000 barrels of tar sands oil being delivered from Canada spilled from Exxon's Pegasus pipeline into a residential neighborhood in Arkansas.

Page 5: Oil Supply: Production Costs and Operating Profits

Production costs continue to increase for oil drilling.  Despite record-high oil prices, these increasing costs are resulting in declining profits for oil majors

Page 6: Oil Supply: Global Oil Consumption Rates

Global oil consumption is up slightly year-over-year.  Most consumption gains came from China, India, Japan, Brazil & Thailand.  Consumption in the United States and Europe fell over the same period.

Page 7: Oil Demand: World Relative GDP Growth Rates

The global economy grew slightly in real terms year-over-year.  As measured in oil or gold (as opposed to Dollars) the world's economy is growing strongly.  Most of this growth came from the developing world and in particular from Asia.  The GDP of the developed world fell in relative terms, as measured by its share of total world GDP.  All of Europe  and North America experienced negative real GDP growth year-over-year.

Page 8: Oil Demand: Global Oil Import Demand

The Top 5 Countries/Regions (US, EU, China, Japan & India) Represent 52% of World Oil Import Demand
For the top oil importing countries, GDP continues to increase but at a slowing rate.  Almost all of Europe is now in a recession.  Some countries, such as Greece and Portugal are in a severe recession.  The economies of the United States and Japan are both growing on a real basis but shrinking on a relative basis to the rest of the world.  Economic growth remains robust in China and India, propping up global oil import demand, pushing the date of global peak oil closer.

Page 9: Oil Demand: Global Oil Import Demand: News Summaries

China Q2 2013 News
In 2013 China overtook the US as the world’s largest net oil importer - a spot the US had held since 1972.  Chinese car sales rose 20% year-over-year, but China’s economy grew at its slowest rate in 13 years as exports fell.  In April, a short-lived cash crisis hit the country.

China signed a major gas deal with Russia to import natural gas from Russian fields.  Russia also announced that it would double its exports of oil to China.  China awarded contracts to 16 companies to drill in China’s shale gas reserves, but not a single one has ever drilled a gas well before.  So far China has drilled 60 shale wells and they have all come up dry.

China is the world's largest emitter of carbon dioxide and at current pace will produce 4 times more CO2 than the US by 2020.  Air pollution levels in Beijing went literally off the scale in Q1 2013.  Not coincidentally, China’s coal consumption levels reached a record high.  China now burns as much coal as the rest of the world combined.  It is estimated that 1.2 million Chinese die a year from the horrendous air pollution.  In March 16,000 dead pigs were found floating down the river that supplies drinking water to Shanghai.
In Q1 Chinese Premier Wen Jiabao called for action to alleviate the pollution and tax minister Jia Chen announced that China would introduce a carbon tax.   In Q2, China announced it will begin setting up a carbon trading market.  China continued to pull ahead as the world leader in renewable energy.  Wind power overtook nuclear power in China, producing 2% more electricity overall.  For 2013, China announced it will install more than 5 times more wind power than nuclear power and more than 3 times more solar power than nuclear power.  China now installs three times more solar each year as the United States – accounting for a third of the total world solar panels installed each year.

China announced plans to build a second aircraft carrier and Hong Kong, a Chinese protectorate, gave temporary asylum to US whistleblower Edward Snowden -  harming US-China relations.

United States Q2 2013 News
In Q1 US oil production reached a 20-year high, hitting 7 million bpd for the first time since March 1993.  Meanwhile, the US has almost certainly passed “peak oil demand.”  US oil demand dropped to an 18-year low and us oil imports fell to their lowest level in 25 years.  Gasoline consumption is at its lowest level since 2004.  In Q1 Obama’s State of the Union address specifically endorsed the McCain/Lieberman cap and trade bill; If climate change legislation is enacted, US oil demand would drop further.
While shale oil production rose dramatically, all other forms of US oil fell.  US Gulf of Mexico oil production continued to decline off its 2009 peak.  Production from Alaska’s North Slope continues to fall from its 2002 peak and was down 8% year-over-year.  Shell Oil gave up on the 2013 Arctic drilling season after its oil rig, the Kulluk, ran aground in Alaska.  Worryingly, the Bakken shale oil boom in North Dakota may be slowing down, with the initial productivity of new wells dropping.  Companies are shifting their focus to California’s Monterey shale, where they may face heavy environmentalist opposition.

In Q2 Obama announced a series of executive actions designed to address Climate Change, including limitations on carbon emissions from existing power plants, increased appliance efficiency standards and promotion of renewable energy development on public lands.  Renewable energy in the US continues to grow with solar capacity increasing 76% year-over-year.  Obama announced Ernest Moniz, a supporter of fracking, as his nomination for Secretary of Energy.  Obama also announced Gina McCarthy, a former Mitt Romney aide, as his pick to head the EPA.  In Q2 the EPA announced its new ""Tier 3"" gasoline regulations which will bring US sulfur requirements in line with California's.

The Federal Reserve has keep interest rates near 0% for four years and has tripled its balance sheet by continuing pump $85 billion each month into the economy.  In Q2 FED Chairman Ben Bernanke announced plans to "taper" such money printing; the market reacted swiftly to the negative and Bernanke quickly reversed his rhetoric.

European Union Q2 2013 News
Europe was officially in a double-dip recession in Q1 2013, shrinking by 0.6%.  Greece’s economy shrunk by 6.4% year-over-year.  Unemployment in the Eurozone rose to 12% - the highest level since the Eurozone was created in 1999.  Europe has passed “peak oil demand”, with oil demand now down 2 million BPD from 7 years ago.  In Q2 US exports of diesel to Europe hit a 23 year high.  The EU now produces 13% of its energy from renewable sources.

In Q1 Cyprus announced a one-time bank levy on all Cypriot bank accounts on March 15th as part of a €10 billion bailout.  A panicked bank run ensued and the government was forced to close all banks for 12 days.  The government reopened its banks after it promised not to confiscate money from accounts smaller than €100,000.

In Italy, the government will likely remain in political gridlock after parliamentary elections split three ways, leaving no party in a position to govern.

Japan Q2 2013 News
Japan remained in a recession, with its economy contracting for the third straight quarter.  The escalating rhetoric between Japan and China over the Senkaku islands cooled when Japan’s new prime minister Shinzō Abe send a letter to Chinese president Xi Jinping, expressing his interest in a peaceful resolution.  The new prime minister also announced he would approve the construction of new nuclear reactors – a complete 180 from former Prime Minister Yoshihiko Noda, who planned to shut down all Japanese nuclear power plants by 2040.  Japan announced it would begin restarting its idled nuclear power plants by the end of 2013 but in Q2 announced it would be impossible to restart the plants on schedule.  New safety regulations are expected to shut down 10 more nuclear reactors.

In Q1 2013, after spending $700 million on the decade-long project, Japanese scientists announced that they had successfully extracted natural gas from subsea methane hydrates.

India Q2 2013 News
In Q1 India became the 4th largest oil consumer after China, the US and Russia.  Meanwhile, India’s oil production rate fell 4% year-over-year.  Amidst continued electricity shortages, Indian coal imports fell 11% year-over-year.  In Q1 the Indian government announced that it would raise gasoline and diesel prices as it continues to slowly phase out fuel subsidies.

In Q2 Prime Minister Manmohan Singh announced plans to double India's renewable energy generation by 2017.

Page 10: Oil Prices

Global oil pries are down year-over-year.  This 1-year and 2-year trend of declining oil prices has reversed the 5-year and 10-year trends of rising oil prices.  Both Brent and WTI crude oil futures are in backwardation, indicating that traders expect the price of oil to fall in the future.  This backwardation benefits investors who take long positions in futures ETFs (like DBO & OIL), as there is no negative “roll yield,"  like when oil is in congtango.  The commitment of speculative traders and the difference in expected payoffs from put and call options contracts, however, tell us that traders believe that a price drop is le3ss likely than a price rise over the long term.

Page 11: Oil Demand: Money Supply Growth Rates

While supply and demand fundamentals affect the real price of oil, currency fluctuations affect its nominal price.  The money supply for most countries continues to grow at unprecidented rates as central banks attempt to prop up their economies.  For countries in the midst of severe recessions, such as Portugal and Ireland, the money supply is shrinking significanty, risking a deflationary spiral.  Venezuela is in the opposite position, on the brink of hyperinflation, which could collapse the country's economy and severely harm the global oil export market.  The global money supply is up over 6% year-over-year.  This increase in money supply, however, has not resulted in severe inflation, as the velocity of money continues to shrink by over 3% per year.

Page 12: Peak Oil Proof Portfolio Investments

The Peak Oil Proof Portfolio rose in value year-over-year but underperformed the overall equity market.  This could be expected as the global oil production rate has not yet peaked.  The biggest winners were timber, industrials,  health care, media, global real estate.  Clean Energy gained significantly year-over-year but is still down on a 5-year basis.  The biggest losers were precious metals and zero-coupon bonds.  Q2 2013 saw a major crash in gold prices and rising interest rates (spured on by FED talk of "tapering") caused bond prices to fall.  Outside of the portfolio, railroads, car sharing and bitcoins all has dramatic gains.  Bitcoins had a dramatic bubble and bust in Q2 2013, but are still up over 1000% year-over-year.