Thursday, July 4, 2013

A Call To Arms: The End Of The Oil Drum

I felt a deeply saddened by the news that The Oil Drum was to stop publishing new posts at the end of the month. The comments both on the website and on Twitter have been resoundingly positive, with many long time readers/first time posters logging on specifically to say how much they had learnt and to thank all the contributors.

The end of something familiar is always hard to take but as seems the administrators cannot be swayed it is time to look elsewhere. I personally have chosen which is the relatively new reincarnation of the Post Carbon Institute’s Energy Bulletin.

Why then did Energy Bulletin morph into something quite different while The Oil Drum remained relatively unchanged over the years? I think the answer is survival. Many people may cringe to hear this but success on the internet is about how well you can market your product (website). You may have great content but unless lots of people are reading it then what is the point?

I think this is where the downfall of The Oil Drum lies. It has published incredibly important work but refused to change with the times and become more relevant. Public interest in peak oil peaked at the end of 2005 with another surge of interest in the middle of 2008. And yet The Oil Drum faithfully stayed the course, publishing in depth technical articles that often showed an alternative view to the mainstream story being fed through the media.

I think though at a certain point they began preaching to the converted and needed to change gear. Readers knew their was a problem, and rather than providing solutions The Oil Drum kept outlining the same problems in different ways. If you look at today compared to Energy Bulletin a few years ago the main difference is a lot more stories on growing your own food, building community and transitioning to a low energy lifestyle. This is all very important stuff that people are really want to learn about.

As an ecologist I am drawn to the the conversation biology metaphor of charismatic megafauna, also commonly known as umbrella species. These are your dolphins, whales, lions, tigers and pandas that people generally love and will spend a lot of time and money trying to save. The benefit of course is that when you conserve something like wild panda habitat, all the other less attractive plants and animals in that same area are also protected by association. While snails, cockroaches and rats are all ecologically important they would never gain as much attention as a panda. The main reason why The Oil Drum steadily lost readers is that its main topics were lowly cockroaches and rats which did little to bring in new readers. What was needed were some attractive topics that would bring in new people who would then hopefully stay around for the more in depth technical topics. I think those of us that have been into peak oil and energy issue for years forget that at the start it can be a very daunting topic with a steep learning curve.

This is not to say that the technical topics should have been watered down, just that more variety should have been provided if the goal was to attract and maintain new readers.

As Robert Rapier mentioned on Twitter, it may have been the Bakken that ultimately killed The Oil Drum, but I think it is also the stubbornness of the The Oil Drum administrators to stay the course rather than move with the times. This is not to dig the knife in, merely to serve as a warning to other sites and content creators out there that also do important work. Stay relevant.

So where are we at with peak oil right now? Oil production continues to grow in the States thanks to shale, the media keeps trumpeting ‘energy independence’ despite countless rebuttals of this by a small number of journalists and bloggers and the general public are carrying on business as usual. We have been on a global production plateau since 2005 and  we keep getting told the global economy is getting better. Most people want to believe that and so they do, despite all the evidence to contrary. It’s basic human nature to ignore a problem until it affects you personally. This has been displayed recently with Hurricane Sandy and the resurgence of interest in climate change.

Peak oil is still a problem and while many peakers were saying it should be here by now, shale oil can only delay the real shocks for so long. As John Michael Greer has written, we are in for a long descent with many short lived ‘recoveries’ along the way. Until oil prices become personally  unbearable and the global economy grinds to another halt no one will take any notice of those of us still plugging away and preaching to the converted few.  That won’t stop me at least and neither should it stop you. Pick up a pen or tap away on a keyboard and add your voice to the mix. Because while no one may be listening right now they sure will be when the time comes. We need all the voices we can get.

Sunday, May 26, 2013

Drilling Faster Just To Stay Still: A Proposal To Use ‘Production Per Unit Effort’ (PPUE) As An Indicator Of Peak Oil

Within the fields of harvest and fisheries management catch per unit effort (CPUE) is one method that is used to determine the health of a biological resource. The underlying assumption is that as a population declines it becomes harder to catch and therefore CPUE decreases.

Effort can be measured in a number of ways. In fisheries this unit of effort could be vessels in a fishery, days fished, hours fished, number of tows or sets in a season or any number of other units of measurement. Theoretically these should all show similar results.

As a very basic example of CPUE, if in the first year a vessel fishes 10 hours per day for the season and catches 4,500,000 kg of fish and in the second year still fishes 10 hours per day for the season and catches only 2,000,000 kg of fish the CPUE has dropped from 5000 kg/hr to 2778 kg/hr. A standardised CPUE would show a drop from maximum catch of 100 (the maximum of the data set) in the first year to 56 in the second year. A drop of almost half.  All other things being equal this would give fisheries managers reason for concern as the effort has stayed the same while the catch has decreased. However, an increase or no change in catch can also sometimes mask an underlying problem. If in the second year the vessel fishes 15 hours per day for a season and still catches 4,500,000kg the CPUE drops to 3333 kg/hr. This is a standardised CPUE of 67. This represents an increase in effort for the same amount of catch.

There are a number of limitations to CPUE in fisheries management that largely come from fish stocks being highly mobile, impacted by a number of environmental conditions, disease and predation from other species. That being said, what if we applied the concept of CPUE to a non-biological resource such as oil? What if instead of catch per unit effort we calculate production per unit effort (PPUE)? This is exactly what I am proposing and what the rest of this post will address.

Production Per Unit Effort (PPUE)

In the case of oil these units of effort could be number of rigs, footage drilled or money invested. We can hypothesise that when peak oil occurs we would expect to see PPUE decline for all these factors. As rig numbers increased the amount of production would decrease, as footage drilled increased the amount of production would decrease and as the money invested increased the amount of production would decrease.

I have standardised the PPUE figures below so that they can be easily compared across all regions. The basic calculation is simply to divide the production figure (thousands of barrels per day) by the corresponding unit of effort for each year. This is then standardised by dividing each figure by the largest figure in the data set and then multiplying by 100 to assign a ranking of 1 to 100. A PPUE of 100 represents a minimal amount of effort for the maximum amount of production while a PPUE of 1 represents a large amount of effort for minimal production. Obviously it is in the best interests of oil producing nations to be at the upper end of this scale. From what I have calculated below this is by and large not the case. The majority of regions around the world are facing falling PPUE which signals one thing: oil is getting harder and harder to get out of the ground. If this is indeed the case then high oil prices are here to stay and will only continue rising in the future.

The Global Outlook

By taking oil production figures from the 2012 BP Statistical Review (includes crude oil, shale oil, oil sands and NGLs) along with international active rig counts from Baker Hughes and calculating the PPUE we can compare how each region is faring.

We can see that PPUE for most regions peaked around 2000. The big exceptions being Canada in 1992 and Europe and Africa in the mid 2000s. What this means for the majority of the world is that in little over ten years the average number of barrels of oil a single rig produces has almost halved. Put another way oil companies have had to double the number of rigs in operation just to maintain oil production at 2000 levels. This is the very definition of drilling faster just to stay still.



PPUE 100 Year

PPUE 2011

Years Between

Decline in PPUE






Asia Pacific















Latin America





Middle East















World PPUE has dropped almost 50% since 1999 after a steady climb from 1981 up to 1999. Despite huge investment individual wells are on average producing less oil.


Africa is past peak PPUE.


Asia Pacific is past peak PPUE.


Canada is past peak PPUE. It appears that after Canada’s peak PPUE in 1991 it plateaued and bounced around the 40-50 mark for most of the last 20 years. The increase in PPUE in the late 2000s can somewhat be explained by the Athabasca tar sands ramping up production since 2003. Roughly half of Canadian oil production now comes from tar sands oil.


Europe is past peak PPUE.


Latin America is past peak PPUE.


The Middle East is past peak PPUE. The dip from 1979 onwards can be attributed to the Iranian Revolution which severely disrupted global oil prices. OPEC countries made huge profits by reducing production and keeping the price of oil high during this period.


The U.S. is past peak PPUE. The massive rise in the PPUE from 1981 onwards is the other side of the coin showing the impact of the Iranian Revolution. We see a short term rise in PPUE after the global financial crisis but this gain appears to largely now have been lost.


An American Case Study

If we then look specifically at U.S. data (because it’s the easiest to find) we get similar results no matter which unit of effort is chosen.

All oil production figures are from the BP Statistical Review of World Energy 2012.

The average depth of wells is getting deeper and yet greater oil production is not reflected by this increase in effort.


U.S. Average Depth of Crude Oil Exploratory and Developmental Wells Drilled from EIA.

The increased number of crude oil rotary rigs in operation has not helped oil production either.


U.S Crude Oil Rotary Rig counts from EIA

The two graphs below both essentially show the same picture. The cost of drilling per foot has skyrocketed since 2000 driving up the cost of each individual well. Unfortunately the EIA data cuts off at 2007 so we can’t see the impact of the global financial crisis. If well costs are anything like production levels it is likely that the cost fell considerably after 2007 and then climbed back up to to pre-GFC levels.



Cost of crude oil wells from EIA.  Converted to real 2011 using GDP Deflator figures from World Bank.

When the above two graphs are converted to a standardised PPUE we see the same trend as other all other metrics. As costs per well and per foot drilled have continued upwards production has not followed suit.



Potential Issues With PPUE

Now it may be that I have missed something fundamental and PPUE is completely useless as an analytical tool. Or it may be that it just needs a tweaking of inputs. No doubt there are some harvest management experts out there that can point out where I have gone wrong. I have outlined a few issues I have identified below that I have some doubts about.

  • PPUE has not been standardised appropriately.
  • PPUE does not represent increases in effort accurately
  • PPUE data cannot generally provide information needed to assess resource management
  • PPUE is inappropriate to assess peak oil

I in no way think PPUE represents the whole picture but see it as supplementing other methods already out there such as EROEI. I welcome comments and criticisms.

For deeper reading on issues surrounding CPUE there are two excellent papers here and here.

Thursday, April 4, 2013

5 Reasons Why Oil Companies Get Away With Overblown Field Estimates

We’ve all seen the big headlines over the few past few years proclaiming various new oil fields. These stories often go on to claim how the Age of Oilquarius is now upon us and we will swim and bathe in seas of energy until the sun explodes and the universe ends. We are often showered with numbers and statistics that upon closer inspection don’t mean anything useful at all.
Case in point is the announcement earlier this year that a large oil field had been discovered in the Australian outback. Check out these three headlines and bylines below:
Up to 233 billion barrels of oil has been discovered in the Australian outback that could be worth trillions of dollars, in a find that could turn the region into a new Saudi Arabia.
$20 trillion shale oil find surrounding Coober Pedy 'can fuel Australia' 
  • Coober Pedy has between 3.5 billion and 233 billion barrels of oil
  • Australia could change from oil importer to exporter
  • Boom and bust: How mining has shaped Australia's history
Oil discovery in Australia’s outback could ‘transform world’s oil industry’
Pretty heady stuff. The first headline goes straight for the Benjamins, mentioning an undefined ‘trillions of dollars’ and then follows up with the astronomical number of 233 billion barrels. It ends with the George Clooney of the oil world, the country that everyone wants to be, Saudi Arabia. Where do I sign up?
The second headline also carries the money line and adds that holy grail in energy circles of ‘ENERGY INDEPENDENCE.’ The headline asks us to dream of the Australian oil utopia where true blue Ozzies no longer have to buy oil from those troublesome Arabs. Neither does anyone else because Australia is now a net oil exporter! Hooray! Unfortunately they also mention that pesky detail that Coober Pedy has somewhere between 3.5 billion and 233 billion barrels of oil. One of those numbers is quite a bit bigger than the other one (we will revisit this later).
Finally we have the slightly more sober ‘transform world’s oil industry’ which isn’t really that much more sober when you consider that the revenue for Conoco Phillips is larger than the GDP of Pakistan, the revenue for Chevron is larger than the GDP of the Czech Republic and the revenue for Exxon Mobil is larger than the GDP of Thailand, i.e when we we talk about transforming the world’s oil industry we are talking about some major world changing activities.
So I hear you ask: why are these headlines so fantastic? The first reason is just one word. Hype.
1. Hype
Hype is what marketers do to sell people things they don’t really want or need. The above headlines are the news story equivalent of a store proclaiming ‘up to 70% off selected items.’ Never mind that once your in the store you find you don’t actually want any of those luckily selected 70% off items: half the battle is already won. You are already in the shop and that greatly increases the likelihood of you buying something else .
Like stores, oil companies want people to buy their product. Although in the case of oil exploration companies initially the product they are selling is an investment with the potential to have a large pay off down the line. Of course the larger they can hype the market the more people will be interested and more likely to invest. A few might be turned off by deeper reading into the flaky numbers but there are more than enough people out there with wads of cash who are willing to take a gamble. Hence the company attracts investors and the board of directors live sweet for a couple of years on the investment capital until the next big find.
2. Most people don’t understand basic mathematics
The second reason why oil companies get away with overblown estimates is because most people don’t understand basic mathematics.
Taking the example above the Coober Pedy could hold somewhere between 3.5 billion and 233 billion barrels. Most people don’t stop and think about how huge the difference in those numbers actually is. If we converted that to a salary of $3,500 and compared it to $233,000 we see very easily how the former wouldn’t last more than a few months while latter would provide a wealth of excess. Another way of thinking about it is that 233 billion is over 6550 percent larger than 3.5 billion.
Scientifically the confidence intervals would be so wide as to be absolutely meaningless. But most people don’t get this and so oil companies continue to pedal this hogwash.
3. The bystander effect
It’s basic human nature to avoid a problem until it starts affecting you personally. It is also basic human nature to avoid a problem if everyone else is also avoiding the problem. The is called the bystander effect or Genovese syndrome. For example an accident with a crowd standing around: because the majority of bystanders are doing nothing about it, the less likely it is for anyone individual to break the mold and help those involved in the accident. This is occurs because as the number of bystanders increases an individual is less likely to notice the situation, interpret it as a problem and less likely to assume responsibility for taking action.
In the realm of energy activism there are only a small number of people willing to risk their careers and reputations in calling for an end to the status quo. The majority of people don’t even notice our addiction to oil  let alone see it as a problem. Therefore the oil companies throw around any numbers they like and barely anyone not already interested in energy takes any notice.
4. Keeping business as usual
Given that we live in an age of sound bites and miniscule attention spans what we read in the form of headlines is incredibly powerful. This creates problems when those headlines aren’t entirely truthful and we can’t even have a frank and open discussion about our energy future because “everything’s fine, they keep finding big ones everywhere.”
If we look at the figures above comparing oil company profits to countries GDP’s we can see that oil companies are doing pretty darn well for themselves. They don’t want anything to change that could threaten their profit margin. They have a vested interest in keeping business as usual.
There is a concerted effort to downplay the occurrence of peak oil and to reinforce that there is plenty of affordable oil left in the world. Because if people really start getting spooked en mass then governments could be forced into seriously looking into alternative energy, the last thing  any oil company really wants.
By reporting overblown field estimates oil companies keep people passive and unconcerned about their future. This means oil companies can get on with making as much money as they possibly can while cheap oil is still relatively accessible.
5. Warding off effective action on climate change
There is a wealth of evidence that oil companies have invested huge amounts of money in disinformation campaigns to confuse the public about climate change. By downplaying climate change and continuing to attract investment with overblown field estimates oil companies can continue with the most environmentally damaging industry on earth.
Overblown field estimates keep investors away from alternative energy projects and keep governments away from effective climate change policy as they vie for petro dollars.
In these tough financial times governments are jumping over each other to look attractive towards oil companies. Oil companies promise huge financial benefits for the relaxation of pesky environmental laws and the increase in penalties for protesting against oil companies. 
So next time you see an article proclaiming a huge amount of oil or gas in an area, stop for a second and think about how those companies might be benefitting from such positive press. Because more than likely the truth might be buried a little more deeply than the provocative headline.

Friday, March 22, 2013

Energy Literacy 101 – 40 Terms To Help You Become An Energy Expert

The energy industry is full of industry specific jargon that can make it difficult for an outsider to understand exactly what they are reading. Have you ever wondered exactly what the difference is between tight oil, shale oil and oil shale? Read on for those terms and more explained in a succinct, easy to digest form.

API gravity - The American Petroleum Institute gravity is a measure of how heavy or light a petroleum liquid is compared to water.

Barrel of oil (bbl) – A unit of volume for oil that equates to 42 US gallons or 159 litres. 

Barrel of oil equivalent (BOE) – A unit equivalent to the amount of energy found in a barrel of crude oil. This is approximately 5.8 million British Thermal Units (MBtus) or 1,700 kilowatt hours (kWh).

Brent oil – A light, sweet crude oil sourced from fifteen fields in the North Sea. Brent is the traditional benchmark of global supply and demand for oil.  

British Thermal Units (BTU) – The amount of heat energy needed to raise the temperature of one pound of water by one degree Fahrenheit. This is the standard measurement used to state the amount of energy that a fuel has as well as the amount of output of any heat generating device.

Conventional oil – Oil produced by a traditional well requiring a relatively low energy input. Conventional oil flows through a well without stimulation and through a pipeline without processing or dilution.

Crude oil – Synonymous with petroleum.

Development Well - A well drilled in a proven producing area for the production of oil or gas. 

Downstream – The sector of the oil and gas industry that is involved with the refining of crude oil and the processing and purifying of raw natural gas as well as the marketing of the products derived from fossil fuels.

Economically recoverable reserves - The volume of petroleum which is recoverable using current exploration and production technology while still being economically viable. Synonymous with proved reserves.

EIA – United States Energy Information Administration. They provide official energy statistics from the U.S. Government.

Exploratory Well – A well drilled in an unproven area that an oil or gas company hopes will be successful.

Fracking – Short for hydraulic fracturing, the process of injecting a high pressure mixture of sand, water and chemicals into rock formations in an effort to increase the flow of oil and gas by creating and widening cracks in the rock.

Futures – A financial contract that obligates the buyer to purchase an asset (or the seller to sell an asset) such as oil at a predetermined future date and price.

IEA – International Energy Agency. Implements an international program of energy cooperation among 28 member countries. Established in 1974 in the wake of the 1973 oil crisis.

Light oil- Refers to the ability of the oil to flow freely which makes it easier to transport and refine.

Natural Gas Liquids (NGL) - Components of natural gas that are artificially separated from the gas state in the form of liquids. Natural gas liquids as classified based on their vapour pressure:
Low = condensate
Intermediate = natural gas
High = liquefied petroleum gas

Oil in place - The total estimated amount of oil in an oil reservoir, including both producible and non-producible oil.

Oil shale – Any fine-grained sedimentary rock that contains solid organic matter (kerogen) and yields significant quantities of oil when heated.

Oil sands - Sand and rock material which contains crude bitumen (a heavy, viscous form of crude oil).

OPEC – Organization of the Petroleum Exporting Countries. An intergovernmental organization originally formed in 1960 by Iran, Iraq, Kuwait, Saudi Arabia and Venezuela to coordinate and unify petroleum policies amongst member countries.

Peak oil – The point at which the maximum amount of oil possible is produced after which oil production enters terminal decline. While proven for individual wells and countries it has yet to be conclusively proven on a global scale.

Play A group of oil or gas fields or prospects in the same geographical area that display similar geological properties. 

Possible reserves -– Reserves which cannot be regarded as “probable” and are estimated to have a significant but less than 50 percent chance of being technically and economically recoverable. Referred to as P10 or P20 reserves

Petroleum – Synonymous with crude oil. 

Proved reserves - The volume of petroleum which is recoverable using current exploration and production technology while still being economically viable. Synonymous with proved reserves. Referred to as P90 reserves.

Probable reserves – Reserves which are estimated to have a better than 50% chance of being technically and economically producible. Referred to as P50 reserves.

Liquefied Natural Gas (LNG) A natural gas consisting mainly of methane (CH4) that has been converted to a liquid form for ease of transport or storage.  

Reserves The producible fraction of oil that can be brought to the surface due to reservoir characteristics and limitations in petroleum extraction technologies.

Shale Oil – An unconventional oil produced from oil shale in an energy intensive process.

Sour oil - Oil that has a relatively high sulphur content, typically over 0.42 percent. 

Sweet oil – Oil that has a low sulphur content, typically lower than 0.42 percent. This oil sells at a premium to sour oil as it easier to process into high quality products.

Tight oil – Light crude oil contained in petroleum-bearing formations of relatively low porosity and permeability. Commonly extracted by using hydraulic fracturing.  It should not be confused with shale oil as it differs by the API gravity and viscosity of the fluids, as well as the method of extraction.

Tar sands - Synonymous with oil sands but typically not used by the oil industry due to the negative connotations of the word “tar.” More commonly used by environmental groups.

Technically recoverable reserves - The volume of petroleum which is recoverable using current exploration and production technology without regard to cost, which is a proportion of the estimated in-place resource.

Upstream - The sector of the oil and gas industry responsible for exploration, drilling of exploratory wells, and subsequently drilling and operating the wells that recover and bring the crude oil and/or raw natural gas to the surface.

Unconventional oil Oil that is produced by techniques other than traditional oil well extraction. The primary sources of unconventional oil are oil sands, oil shale and tight sands.

Undulating plateau - A phase where oil production and consumption cycle around the horizontal over a period of time. This appears to have been the state of the global oil supply since 2005.

URR – Ultimately recoverable resource. An estimate of the total amount of oil that will ever be recovered and produced. It is a subjective estimate based on only partial information.

WTIWest Texas Oil is lighter and sweeter than Brent and sourced from around North America. It is priced from the trading hub of Cushing, Oklahoma.

Wednesday, February 20, 2013

Oil Consumption & GDP Growth

The economy is getter better, isn’t it? It seems that no matter how hard the New Zealand government tries to convince us there are a range of statistics released from it’s own departments that pour cold water on the notion of any kind of strong economic recovery. Unemployment hitting the highest rate in 12 years is just one of those statistics. 

So what does this really mean for the future?

Chris Martenson from Peak Prosperity recently wrote a great article called The Real Reason the Economy Is Broken (and Will Stay That Way). He referenced Gail Tverberg’s work on investment sinkholes and the link between oil consumption and GDP.

Figure 1. Comparison of 2005 to 2011 percent change in real GDP vs percent change in oil consumption, both on a per capita basis. (GDP per capita on a PPP basis from World bank, oil consumption from BP's 2012 Statistical Review of World Energy.

Figure 1: Comparison of 2005 to 2011 percent change in real GDP vs percent change in oil consumption, both on a per capita basis. (GDP per capita on a PPP basis from World Bank, oil consumption from BP’s 2012 Statistical Review of World Energy.) Source

Martenson explains:

Oil and GDP are highly correlated and always have been.  The general observation is that growth in GDP is usually higher than growth in oil consumption - as growth in oil consumption powers economic growth.  Without growth in oil consumption, GDP growth doesn't advance.

So if we run some similar numbers for New Zealand how do we fare, given our high oil consumption per capita (38th in the world) and reliance on primary industries as the basis of our economy?

imageFigure 2: Comparison of 2005 to 2011 percent change in real GDP vs percent change in daily oil consumption, both on a per capita basis. (GDP per capita on a PPP basis from World Bank, oil consumption from BP’s 2012 Statistical Review of World Energy, NZ population data from Statistics New Zealand.)


Back in 2009, in a piece entitled Oil - The Coming Supply Crunch (Part I), I calculated that every 1% increase in global GDP was associated with a 0.25% increase in oil consumption in other words, a roughly 4:1 ratio.

Based on Figure 2 the ratio for New Zealand over this period is a 0.6% increase in GDP associated with a 0.25% increase in oil consumption which falls well below the global average.

That being said, compared to the Eurozone and the United States the New Zealand economy hasn’t fared too badly. While there has still been economic contraction and rising unemployment we are still a lot better off than our foreign neighbours. Figure 2 shows that GDP per capita rose just shy of 19 percent  over the 2005-2011 period while oil consumption has risen just under eight percent. One of the New Zealand’s economies saving graces has been the 2008 free trade deal with China. Exports to China rose $1.5 billion (37 percent) in 2010. 


Figure 3: New Zealand GDP per capita vs. daily consumption of oil per capita. (GDP per capita on a PPP basis from World Bank, oil consumption from BP’s 2012 Statistical Review of World Energy, NZ population data from Statistics New Zealand.)

Figure 3 shows we have seen GDP per capita rising steadily for the last 30 years with a flattening off after the global financial crisis. Over this period we also see the consumption of oil per capita peak during the consumerist decade of the 80s and then more or less decline.


Since 2007, something quite remarkable has happened in the world of oil, and that has been a decline in the consumption of oil in the U.S. and Europe -- with China and India pretty much making up the difference for everything that the West didn't consume.

New Zealand’s oil consumption per capita has actually increased from 2007, most probably due to growth in fossil fuel reliant primary industries.  But before that period GDP steadily grew while oil consumption steadily fell. How do we reconcile that with Chris Martenson’s view that “without growth in oil consumption, GDP growth doesn't advance.”?

As with most things economic it’s not quite that simple. Gail Tverberg explains further:

In Figure 1, we see that for several groupings, the increase (or decrease) in oil consumption tends to correlate with the increase (or decrease) in GDP. The usual pattern is that GDP growth is a little greater than oil consumption growth. This happens because of changes of various sorts: (a) Increasing substitution of other energy sources for oil, (b) Increased efficiency in using oil, and (c) A changing GDP mix away from producing goods, and toward producing services, leading to a proportionately lower need for oil and other energy products.

The situation is strikingly different for Saudi Arabia, however. A huge increase in oil consumption (Figure 1)…does not seem to result in a corresponding rise in GDP.

New Zealand matches up with both (a) and (b) causing per capita oil consumption to decrease. However given our export based economy, (c) does not ring true at all. Most of our economic growth has come from an intensification of farming practices (mainly dairy), more efficient forestry practices and a large increase in crude oil exports. This coupled with new markets such as China has been a great benefit to New Zealand.

The trouble is when we are so reliant on other countries economies being strong we are incredibly vulnerable when they weaken. There is already murmurs that the commodity boom in Australia is on shaky ground and that the aging population of China spells real trouble when a huge proportion of the population can’t work and needs to be supported. If we want to know how New Zealand economy will do in the future these are the two key countries to watch.

So while we might be doing ok for now, unless our current trading partners perform miracles and stay strong for the foreseeable future don’t expect the New Zealand economy to get much better than this.