-- Published: Sunday, 17 June 2018 | Print | Disqus
By Steve St. Angelo
Certain areas of the world are more vulnerable to economic and societal collapse. While most analysts gauge the strength or weakness of an economy based on its outstanding debt or debt to GDP ratio, there is another factor that is a much better indicator. To understand which areas and regions in the world that will suffer a larger degree of collapse than others, we need to look at their energy dynamics.
For example, while the United States is still the largest oil consumer on the planet, it is no longer the number one oil importer. China surpassed the United States by importing a record 8.9 million barrels per day (mbd) in 2017. This data came from the recently released BP 2018 Statistical Review. Each year, BP publishes a report that lists each countries’ energy production and consumption figures.
BP also lists the total oil production and consumption for each area (regions and continents). I took BP’s figures and calculated the Net Oil Exports for each area. As we can see, the Middle East has the highest amount of net oil exports with 22.3 million barrels per day in 2017:
The figures in the chart above are shown in “thousand barrels per day.” Russia and CIS (Commonwealth Independent States) came in second with 10 mbd of net oil exports followed by Africa with 4 mbd and Central and South America with 388,000 barrels per day. The areas with the negative figures are net oil importers.
The area in the world with the largest net oil imports was the Asia-Pacific region at 26.6 mbd followed by Europe with 11.4 mbd and North America (Canada, USA & Mexico) at 4.1 mbd.
Now, that we understand the energy dynamics shown in the chart above, the basic rule of thumb is that the areas in the world that are more vulnerable to collapse are those with the highest amount of net oil imports. Of course, it is true that the Middle Eastern or African countries with significant oil exports can suffer a collapse due to geopolitics and civil wars (example, Iraq, and Libya), but this was not a result of domestic oil supply and demand forces. Rather the collapse of Iraq and Libya can be blamed on certain superpowers desire to control the oil market as they are strategic net oil importers.
The areas with the largest net oil imports, Asia-Pacific and Europe, have designed complex economies that are highly dependent on significant oil supplies to function. Thus, the areas and countries with the largest net oil imports will experience a higher degree of collapse. Yes, there’s more to it than the amount of net oil imports, but that is easy gauge to use. I will explain the other factors shortly. If we look at the Asia-Pacific countries with the largest net oil imports, China, India, and Japan lead the pack:
China is a net importer of nearly 9 mbd of oil, followed by India at 4 mbd and Japan with 3.9 mbd. Thus, as these net oil imports decline, so will the degree of economic activity. However, when net oil imports fall to a certain level, then a more sudden collapse of the economy will result… resembling the Seneca Cliff.
We must remember, a great deal of the economic infrastructure (Skyscrapers, commercial buildings, retail stores, roads, equipment, buses, trucks, automobiles, etc and, etc.) only function if a lot of oil continually runs throughout the system. Once the oil supply falls to a certain level, then the economic system disintegrates.
While China is the largest net oil importer, the United States is still the largest consumer of oil in the world. Being the largest oil consumer is another very troubling sign. The next chart shows the countries with the highest oil consumption in the world and their percentage of net oil imports:
Due to the rapid increase in domestic shale oil production, the United States net oil imports have fallen drastically over the past decade. At one point, the U.S. was importing nearly three-quarters (75%) of its oil but is now only importing 34%. Unfortunately, this current situation will not last for long. As quickly as shale oil production surged, it will decline in the same fashion… or even quicker.
You will notice that Saudi Arabia is the sixth largest oil consumer in the world followed by Russia. Both Saudi Arabia and Russia export a much higher percentage of oil than they consume. However, Russia will likely survive a much longer than Saudi Arabia because Russia can provide a great deal more than just oil. Russia and the Commonwealth Independent States can produce a lot of food, goods, commodities, and metals domestically, whereas Saudi Arabia must import most of these items.
Of the largest consumers of oil in the chart above, Japan and South Korea import 100% (or nearly 100%) of their oil needs. According to the data put out by BP 2018 Statistical Review, they did not list any individual oil production figures for Japan or South Korea. However, the U.S. Energy Information Agency reported in 2015 that Japan produced 139,000 bd of total petroleum liquids while S. Korea supplied 97,000 bd. Production of petroleum liquids from Japan and South Korea only account for roughly 3% of their total consumption…. peanuts.
Analysts or individuals who continue to believe the United States will become energy independent are ignorant to the impacts of the Falling EROI – Energy Returned On Investment or the Thermodynamics of oil depletion. Many analysts believe that if the price of oil gets high enough, say $100 or $150; then shale oil would be hugely profitable. The error in their thinking is the complete failure to comprehend this simple relationship… that as oil prices rise, SO DO the COSTS… LOL.
Do you honestly believe a trucking company that transports fracking sand, water or oil for the shale oil industry is going to provide the very same costs when the oil price doubles???? We must remember, the diesel price per gallon increases significantly as the oil price moves higher. Does the energy analyst believe the trucking companies are just going to eat that higher cost for the benefit of the shale oil industry?? This is only one example, but as the oil price increases, inflationary costs will thunder throughout the shale oil industry.
If the oil price shoots up to $100 or higher and stays there (which I highly doubt), then costs will start to surge once again for the shale oil industry. As costs increase, we can kiss goodbye the notion of higher shale oil profits. But as I mentioned in the brackets (), I don’t see the oil price jumping to $100 and staying there. Yes, we could see an oil price spike, but not a long-term sustained price as the current economic cycle is getting ready to roll over. And with it, we are going to experience one hell of a deflationary collapse. This will take the oil price closer to $30 than $100.
Regardless, the areas and countries with the highest oil consumption and net oil imports will be more vulnerable to collapse and will fall the hardest. Just imagine the U.S. economy consuming 5 million barrels of oil per day, rather than the current 20 mbd. The United States just has more stuff that will become worthless and dysfunctional than other countries.
Lastly, the end game suggests that the majority of countries will experience an economic collapse due to the upcoming rapid decline in global oil production. However, some countries will likely be able to transition better than others, as the leverage and complexity of the economies aren’t as dependent on oil as the highly advanced Western and Eastern countries.
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-- Published: Sunday, 17 June 2018 | E-Mail | Print | Source: GoldSeek.com