WINNING THE COLD WAR-LOSING THE OIL IMPORTS.

An interesting article came out in the Economist Magazine this week. It is entitled "Cars in Russia. Oil Crisis? What Oil Crisis?"

The thrust of the article is that while US automakers are being financially drained as fuel prices rise, Russian auto sales are booming. (Don't cry too much for US automakers. They sell vehicles in Russia.)

THIS week the death-knell sounded for America's love affair with pick-up trucks and sport-utility vehicles (SUVs). General Motors (GM) announced a 30% fall in car sales in May, compared with a year earlier, as high fuel prices prompted Americans to shun its gas-guzzlers for smaller, more frugal vehicles. Ford posted a 19% drop, and sales of its F-150 pick-up fell behind Toyota's Camry and Corolla for the first time. Most telling was the 62% fall in sales of Hummers, GM's hulking military-style SUVs. GM announced plans to close four truck factories and a “strategic review” of the Hummer brand. Total car sales fell for the third month in a row.

But there is one country where the high oil price is powering the expansion of the market, rather than painful restructuring. Thanks to abundant natural resources, Russia's economy has grown by an average of 7% a year for the past decade. Real disposable income has nearly doubled in the past five years and is growing by more than 10% a year. That means a lot of Russians can suddenly afford to buy cars.

FROM COMMUNIST AUTOCRACY TO OIL EXPORT LOTUS LAND. ALL IN A FEW US ELECTION CYCLES.

The Author's post from May 20th discussed the Oil Export Land Model.

The Export Land Model has two pieces. First, the exporting countries hit peak oil production and then production starts to decline. After that, production declines by about 5% per year.

The second effect is that domestic consumption in these exporting countries rises. It typically rises 2.5% per year. It seems like yesterday that the world was awash in North Sea Brent Crude oil.

You don't have to have an awful lot of gray hair to remember the excitement around England's massive North Sea oil fields. While discovered in 1969, it wasn't until well into the 1980s, on the back of surging oil prices, that the fields came into full production. Turning up the taps, the United Kingdom (as well as Norway and Germany, who also have North Sea production) became a significant exporter of oil.

But then, in 1999, something happened: the UK's North Sea production hit peak ... that tipping point after which reservoirs go into decline, setting in motion both reduced production and progressively higher costs related to extracting the remaining oil.

While the experience of North Sea oil production provides yet another useful example of the validity of the Peak Oil theory, what concerns us today is a critical but usually overlooked aspect of the discussion, exports.

At the time the North Sea peaked in 1999, the U.K. was exporting 1 million barrels of oil per day. By August 2004, it had become a net importer.

FOR RUSSIA, THE GOOD TIMES MAY BE OVER EVEN BEFORE THEY BEGIN.

From the Author's post of May 20th:

On April 15, 2008 the Russians, the world's second largest oil exporter, announced that their oil production appeared to have peaked, with production in the first quarter of this year declining for the first time in a decade. If they have indeed peaked then, based on the ELM, the world could lose Russia's current ~7 million barrels a day in exports within 6 to 9 years.

And you know the rest. When Russian oil demand exceeds domestic supply, they go looking for it on the international market. A then-tight export market rachets more miserly.

AS READERS KNOW, THE DESERT OF THE REAL IS A YOYOMF ZONE. JUST AS THE WORLD WILL BE AS PEAK OIL MOVES BY.