The Oil Import Curse

Why oil imports might fall far faster, far sooner than supply

Into the mist. Photo by Zetong Li on Unsplash

Countries depending on oil imports are in for a rough ride and the US will be no exemption either. Should world oil supply fall to half of its present value by mid century, as forecast by energy intelligence company Rystad, oil importing regions are posed to lose 75% of their imports in a matter of 15–20 years. And no, it won’t happen because the professional managerial class has managed to convince itself that electric cars are the future. Instead, we are facing a highly uneven decline, where the zero-sum game of importing oil turns into a game of musical chairs.

Thank you for reading The Honest Sorcerer. If you value this article or any others please share and consider a subscription, or perhaps buying a virtual coffee. At the same time allow me to express my eternal gratitude to those who already support my work — without you this site could not exist.

Global net oil export capacity has reached its maximum potential by 2004 and hasn’t changed much in the past 21 years. During these two decades nations could only increase the amount they bought from abroad at the expense of others giving up consumption, or substituting imports with new sources of supply. And this is exactly what’s been going on since 2005, when the shale revolution has begun to turn the US (the world’s largest oil importer back then) into a net exporter. American oil imports, substituted by this new-found wealth, allowed other nations (China, India and the rest of the Global South) to more than quadruple (!) their consumption during the same time period, despite stagnating global export capacity. Were it not for shale oil, China and India could not have risen to their present status.

Estimated world net oil export potential. Since the source data was not provided for each and every country, some nations had to be grouped together, hiding minor differences between exports and imports (hence the use of the word: estimated). Since these groupings represent only 2% of world oil supply, the graph still depicts the world net oil export potential with a 98% accuracy. Data source: Energy Institute | Visualization: own work

But what is this net export capacity? Simply put, it is the difference between the amount of oil a country or region produces and the amount it imports. If a nation extracts more oil than it buys from abroad, it’s called a net exporter. On the other hand, nations buying more than they’re selling are net importers. But why do oil producing nations import oil in the first place? Well, because not all oil is equal: some fields produce heavy, dense, thick liquids, while others yield light, thin, gasoline-like fluids. In order to satisfy demand for all sort of oil products even oil producing nations need to import the right kind of petroleum to make everything they need from ethylene (used in plastics manufacturing) and gasoline, to jet and diesel fuel, not to mention heavier products such as lubricants, asphalt etc. (Alternatively, they would have to import the missing products themselves). Thus, in order to judge whether a nation is a net importer or exporter, the weight of all crude oil plus condensate and natural gas liquids (separated from the production of natural gas) has to be taken into account on the production side, just like all the inland demand (plus international aviation, marine bunker fuels, refinery fuel and losses) has to be accounted for on the consumption side. The result of that calculation is what you see on the chart above, and the ones below.

Now let’s drill one level deeper, exposing some myths about the US being an energy superpower. The chart below speaks for itself.

Data source: Energy Institute | Visualization: own work.

Despite all the marketing, the US has become a net exporter in 2023 only. Before that — ever since WWII at least — the American economy was dependent on oil imports to a varying degree. Viewed through this lens it would be hard to call the US as “the world swing producer”, as many energy analysts like to describe the country. In fact, as the shale revolution slowly fizzles out due to resource depletion (1) America will likely lose its “energy independence” in a matter of years, returning to a net importer status far faster than most would expect. Compare that to the situation in Russia — a country which never lost its status as a major oil exporter, despite having a substantial scientific, industrial, aerospace, military, agricultural and mining base all demanding more and more oil to run. Thanks to it’s relatively low population size compared to the amount of its resources, Russia remained the only country which could truly fend for itself: food, energy, raw materials, weapons, you name it.

For comparison take a look at the data for the three other major exporting regions: Canada, Latin America and Africa. Here, Canada is also helped by its low population density compared to the size of its oil reserves. The other two regions barely stay above break even, despite being continent sized producing areas with a relatively low per capita oil consumption.

Data source: Energy Institute | Visualization: own work.

Last but not least, let’s take a look at the biggest oil importers of the world: Europe and the major Asian economies, alongside the rest of the world.

Net Oil Import Demand. Rest of the world refers to all net oil demand from countries outside the ones listed above and on the other charts in this essay. Data source: Energy Institute | Visualization: own work.

As you can see, outside the major net exporters shown above, everyone else depends on oil imports. What’s even more interesting, is the fact how little to no effect the alleged electrification of road transport had on oil consumption. Europe imports just as much oil as it did twenty or thirty years ago. At the same time China surpassed the old continent as the world’s biggest buyer of fossil hydrocarbons, despite its high electrification rate. Let’s not forget, though, that EV-s replace gasoline use only; the rest of the product mix from plastic precursors to diesel and jet fuel, asphalt and lubricants still has to be accounted for when it comes to oil consumption... Petroleum products, without which mines could not produce metal ores, components could not be delivered to factories, roads could not be paved, or plastic dashboards, seats etc. could not be manufactured. Oil isn’t being phased out. Neither in Europe, nor in China, or elsewhere. If you ever wondered why the question of who controls oil exports and shipments around the world is such a hot topic nowadays, look no further for an answer.

“He who controls the spice controls the universe”

Dune by Frank Herbert

Oil remains the lifeblood of this world spanning industrial civilization. Losing access to it means, losing access to mechanized agriculture, long distance transport, construction, mining and military power. Diesel fuel, powering all these technologies, cannot be substituted with any other form of energy. After more than a century of development the electrification of transport remains limited to passenger vehicles and short distance freight. Agricultural and mining machinery, main battle tanks, ocean faring container ships and long haul trucks all remain hopelessly dependent on oil and the diesel fuel derived from it. Less oil means less transport, less food, less raw materials, a smaller military, and an even smaller economy.

None of these beasts run on pixie dust, either. Photo by Heiko Janowski on Unsplash

Enter the woefully unreported Rystad Energy study published last year, stating that we have effectively maxed out our oil reserves, worldwide. Any adjustments since then were purely cosmetic, coming from upgrading or downgrading resources. True discoveries are not enough to replace even one tenth of the amount of oil consumed every year. Their report this year only confirmed these facts:

“Global recoverable oil resources, including estimates for undiscovered fields, stabilized at approximately 1.5 trillion barrels. The most significant revision over the last 10 years has been in yet-to-find resources, where our projection has been reduced by 456 billion barrels. This is due to a steep decline in frontier exploration, unsuccessful shale developments outside the Americas and a doubling in offshore costs over the past five years. Rystad Energy expects reserve replacements from new conventional oil projects to be less than 30% of production over the next five years, while exploration would replace only about 10%.”

Another study from the IEA, this year, found that as oil fields mature (read: deplete) production decline accelerates. At first just by a little, easily offset by enhanced oil recovery techniques, then ever faster and faster… Till the increased energy and material investment needed to keep the juices flowing no longer worth it, and extraction stops. Bad news is that, in 2024, around 80% of global oil production and 90% of natural gas production came from fields that had passed their peak in production (including unconventional production). This is why even techno-optimist organizations, such as Rystad or the EIA, had to present their audiences with reality. According to their most realistic scenario oil production (from all sources) will reach an all time high by 2030, then it’s expected to fall by 50% during the following two decades. That is, by 2050. Quote:

“In a more realistic outlook for oil production, total output would peak in 2030 at 108 million bpd and decline to 55 million bpd in 2050, with oil prices staying around $50 per barrel in real terms. Under this scenario, about one-third of the world’s recoverable oil, 500 billion barrels, would become stranded due to unprofitable developments.”

That is what peak oil and natural gas looks like, my friends. Not a cliff’s edge, but no stroll in the park either. Source: IEA

Now let’s play with this idea… what could such a drastic decrease in oil output mean to the various regions of the world? As of 2024 less than three quarters of the world population lived in countries and regions requiring substantial oil imports to support their current standard of living. By 2050, in contrast, nine out of ten people would have to find ways to reduce their demand… By a lot.

While today oil exporting regions produce 42 million barrels more than they consume every day, this figure could drop to 11 million barrels per day in 2050.

Following Rystad’s realistic scenario, projecting a 50% drop in oil-output worldwide, only Saudi Arabia and Russia could retain their major net exporter status, still selling 1.7-1.8 million barrels of their daily output abroad (2). Azerbaijan, Kazakhstan, and Norway combined could add another 1.5 million barrels a day, while Canada, Argentina, Venezuela together another 1.1 million. The rest would come from some still exporting African and Middle Eastern states.

Coming to theaters near you. Photo by Ashlee Attebery on Unsplash

But why such a disproportionate drop in exports? — you might ask. Why would a 50% drop in world oil output result in a 75% fall in exports, combined with a marked increase in the number of people in need of oil imports? According to the Export-Land Model, proposed by Dallas geologist Jeffrey Brown (building on the work of others and discussed widely on The Oil Drum and elsewhere), exports decline at a far faster rate than the decline in oil production alone. That is, even as domestic oil production falls, demand does not, leaving a disproportionally smaller amount for export. It’s not hard to understand why. Unless you are the head of a client regime, backed by the military might of a much larger power, you will make absolutely sure that your population gets all the fuel they need… Lest you want to be overthrown in a rapid succession of events.

The Export-Land Model implies that oil exporters will cut their export volumes first, and only when there is nothing left to be shipped abroad start rationing fuel at home. This policy, however, only works in an era when falling production from country A could be easily substituted with exports from elsewhere. How major players like China or the US would respond to a drop in their import volumes, at the same time when their domestic production is already falling and there is not enough oil to be found in international markets either, is another matter. Again, even though oil exporting regions still produce 42 million barrels more than they consume these days, we still found ourselves in a zero-sum game in the past two decades. No wonder why most foreign policy decisions revolved around oil exports: whom to exclude from oil trade and how not to end up without enough oil to go around. (Just think about the recent senate revolt over Venezuela strikes, exposing US oil anxiety.) Imagine the situation 25 years from now, when net exports could drop to 11 million barrels per day, or less. A figure smaller than what Europe alone could consume.

And this brings us to an intriguing question. Will these remaining exporters be able to maintain (let alone grow) their economic output, and thus fuel consumption, in a world where everyone else experiences a rapid decline in living standards? How would their goods reach the market (or how could they import anything) in a world where there is not enough fuel to run ships? It’s not terribly hard to imagine, that these remaining net exporters would either have to close their boarders quickly and try to become autarkies — entirely self sustained economies shielded from the chaos outside as much as possible — or share their oil wealth willingly or not. And while Russia could certainly do the former, protected by the largest nuclear arsenal in the world, Saudi Arabia and other Middle East countries would increasingly have to sell their oil to buy food to feed their people.

Europe 2040 — and that’s the optimistic scenario. Photo by Krisztián Korhetz on Unsplash

Europe, on the other side of the Mediterranean, would become utterly dependent on Norwegian, Azerbaijani and Kazakh oil. Problem is, that their combined export volumes could barely cover 15% of Europe’s 2050 import demand… That amount of oil would be (perhaps, but just perhaps) enough to produce and distribute food in the old continent, and to fill up the gas tanks of police cars, but nothing else. Construction, mining and industry would grind to a complete standstill. Owning a car would become a luxury. On the other hand, Europe’s complete deindustrialization would at least free up enough natural gas and electricity to keep the lights on and homes warm in the winter.

Europe, in this scenario, would become a poor agricultural economy, selling grains for oil and gas. Without reliable, independent energy resources of its own — and no, nuclear fuel bought from Kazakhstan or solar panels imported from China do not belong to that category — Europe would need to return to a more pragmatic trade and foreign policy (3). Not realizing this fact, or starting a major war would only make its situation far, far worse. The sooner Europe comes to its senses, the better future it can carve out for itself.

The US, meanwhile, could still produce half of the oil it consumes today, despite a drastic drop in production in the 2030’s and 2040’s. That would be still more than the present day per capita petroleum consumption of the EU 27… This means, that modern standards of living, combined with a sensible industrial policy and a largely self-sufficient agriculture would still remain in reach. A word spanning military empire, on the other hand, would not. Combined with Canadian, and potentially Venezuelan oil exports, America could still be an enviable place to live — if it doesn’t fall into a complete political, economic and social disarray till then. Something, which increasingly looks like a fait accompli with every passing day, sadly.

South America, Africa and Australia would, under this scenario, become/remain poor resource colonies, mining ores in return for food and some oil to run what remains of the rest of the economy. As mines deplete and world trade grinds to a snail’s pace due to a lack of diesel fuel, however, economic activity in these regions would also decline fast. This, in turn, would result in a fall of energy demand, leaving more oil for agriculture and internal logistics. If global heating permits, a self-sustained, low-tech lifestyle will remain a viable option to these nations for many decades to come.

China and India, on the other hand, could find themselves at a hot war fought over access to Middle Eastern oil... Unless they can both agree to give up 44–47% of their present day per capita consumption, going back to where they were in 2012. Not impossible, but hoping that EV-s will somehow save fuel for agriculture will not cut it. World politics will thus increasingly revolve around the relationship / rivalry of these two 1.4 billion strong nations. Interesting times ahead, that’s for sure.

The Seneca cliff, proposed by prof. Ugo Bardi. Here prof. Bardi uses ever increasing pollution as the limiting factor (leading to a rapid decline). Ever increasing resource extraction costs, however, can also come from an ever increasing energy and material demand as easy-to-get deposits deplete, leading to rapidly worsening energy returns on investment. Either way, the result is the same: a rapid decline, which only gets worse as we push harder and harder against these limits.

Every nation around the world should prepare contingency plans on how to manage the coming decline. Oil is a finite but, unfortunately, irreplaceable resource… And it really doesn’t matter whether we find a technical method to push out peak oil into 2035 or even 2040. The IEA study showed us (in line with systems science) that the longer we push out the downswing of the production of a finite resource, the steeper that decline becomes. With that said, I don’t think that we will have to wait decades to see the first fall in net oil export volumes. I suspect these events will start to take shape already by 2030. Yet, even though it might sound drastic, a 50% drop in world oil supply would still not mean the end of the world, if nations manage to retain their ability to cooperate and share their dwindling resources. What our ruling class and permanent bureaucracy presiding over an ultra-fragile financial and economic system will have to say in the matter, however, is another story.

Keep your pop-corn and dosimeter close at hand.

Until next time,

B

Thank you for reading The Honest Sorcerer. If you value this article or any others please share and consider a subscription, or perhaps buying a virtual coffee. At the same time allow me to express my eternal gratitude to those who already support my work — without you this site could not exist.

Notes:

(1) “StanChart’s forecast of looming output cuts by U.S. producers is supported by the fact that U.S. shale production costs have been rising, driven by the depletion of prime resources and the need to drill in more speculative, complex areas and formations. Analysts at Enverus have predicted that the marginal cost to produce oil in the U.S. Shale Patch could increase from ~$70 per barrel to $95 per barrel by the mid-2030s. This shift is happening as the industry moves from easily accessible core inventory to less proven resources, leading to higher costs. Many U.S. oil producers, particularly smaller ones and those in regions like the Permian Basin, need oil prices above $65 a barrel to turn a profit on new drilling, a figure that has been rising due to inflation. Larger producers may have a lower breakeven point, sometimes in the high $50s, while older, existing wells can still be cash-flow positive at lower prices because initial drilling costs have already been covered.” — Source

(2) For the sake of simplicity I presumed an evenly distributed drop in oil production worldwide. However, should prices stay depressed long enough (due to a global economic crisis lasting for decades, for example), more expensive to produce non-conventional oil production in Canada, Venezuela, Argentina and increasingly in China could drop by more than 50%, or even collapse altogether. This would leave only Russia, Kazakhstan, Azerbaijan, and the Middle East as the world’s only net exporters.

(3) Breaking away from the Trans-Atlantic Networked Empire, using Europe as a launch pad to wage wars in the Middle East and Eastern Europe, could be a good starting point. Reestablishing diplomatic ties, seeking mutual benefits, might prove to be an even better idea. Besides, why would anyone want to conquer this region with a rapidly failing economy, bereft of resources and full of retirees? To pay pensions and benefits?