This note from UBS’ Andy Lees this morning points to peak oil/peak resources as a consideration in the ongoing troubles in the Middle East. Andy writes:
Just a few quick figures on African oil production. Libyan production, according to the BP world statistics peaked in recent years (subsequent to its 1970’s peak) at 1.82m bpd in 2007 and 2008 before falling in 2009 by 9.2% to 1.652m bpd. Overall African oil production peaked in 2007 at 10.238m bpd falling by 5.2% in 2009 to just 9.705m bpd. Over the same period African consumption rose by 5.15% from 2.931m bpd to 3.082m bpd which would have just been static in terms of per capita oil consumption. With production down 5.2% and domestic consumption up 5.15%, exports fell 9.14% or 684,000 bpd to 6.623m bpd.
The news wires say that 6% of Libyan production has been suspended in the last few days which would be another 99,000bpd of lost production. It is a similar picture with coal. African production has risen by 1.63% since 2005 to 143m tonnes of oil equivalent whilst consumption has risen by 5.9% to 107.3mtoe such that exports have fallen 9.8% over that period to just 35.7mtoe, and as you will recall only a few days ago the South African Mining Minister said that the government would prioritise domestic coal needs over exports. With domestic industry unable to compete on price with exports, Eskom has been proposing export quotas.
Northern Africa’s recent political turmoil suggests that these trends are likely to continue. The population is demanding a higher standard of living and therefore higher domestic energy consumption. Unless they can invest a higher proportion of capital, production levels will struggle to stay flat, let alone advance, and so exports will be squeezed even further. Unless Africa’s energy consumption is being used to produce higher value added exports of either manufactured goods, agriculture or services, this rapid decline in energy exports will be exporting inflation.
The real question here is how China responds to higher oil prices; will they pass on higher costs? And the Chinese are busy gobbling up a lot of African resource deals. Would that last in an environment of ever-increasing commodity prices? I doubt it. We are already seeing resource hoarding due to the increase in food prices. We should hope commodity price inflation slows down or it will be very destructive for the global economy.