Saudis face waning power in North America
While the green movement naively harbors hopes it will be able to shut down unconventional oil and gas development, in Saudi Arabia they are already contemplating a time when North American fossil fuel will replace their oil.
Looking past the din of protesters, state-owned oil giant Saudi Aramco is resigned to the fact that its influence will wane because of the massive unconventional fossil-fuel development underway in North America. As such, Saudi Arabia has no plans to raise its production output to 15 million barrels per day from 12 million, said Khalid Al-Falih, the powerful chief executive of Aramco.
“There is a new emphasis in the industry on unconventional liquids, and shale gas technologies are also being applied to shale oil,” Al-Falih, president and CEO of Saudi Aramco, warned a domestic audience in a speech in Riyadh Monday.
“Some are even talking about an era of ‘energy independence’ for the Americas, based on the immense conventional and unconventional hydrocarbon resources located there. While that might be stretching the point, it is clear that the abundance of resources and the more ‘balanced’ geographical distribution of unconventional’s have reduced the much-hyped concerns over ‘energy security’, which once served as the undercurrent driving energy policies and dominated the global energy debate.”
Aramco is the powerful state entity that manages the Kingdom’s nine million barrel-plus oil output. Saudi Arabia has long dominated oil markets by leveraging its spare oil capacity and, as the OPEC kingpin, striking a delicate balance between the interests of oil consumers and the exporter group.
But the oil chief’s remarks reveal Saudi fears that the market dynamics are changing and its dominance over energy markets is under threat by new unconventional finds.
OPEC estimated in a recent report that global reserves of tight oil could be as high as 300 billion barrels, above Saudi Arabia’s conventional reserves of 260 billion barrels, which are currently seen as the second-largest in the world after Venezuela.
Global output of non-conventional oil is set to rise 3.4 million bpd by 2015, still dominated by oil sands, to 5.8 million bpd by 2025 and to 8.4 million bpd by 2035, when tight oil would be playing a much bigger role. By 2035, the United States and Canada will still be dominating unconventional oil production with 6.6 million bpd, the group forecasts.
Last year, even as the world consumed nearly 30 billion barrels of oil, not only was the industry able to replace this production but global petroleum reserves actually increased by nearly seven billion barrels, as companies increasingly turned toward higher risk areas, Al-Falih noted.
Clearly, the Kingdom is preparing for new market realities as the discussion on energy has changed from scarcity to abundance, particularly due to the new finds that can be produced feasibly and economically.
In the past, Saudi Arabia, along with its OPEC allies, could drive prices down by opening the taps to ensure unconventional fossil fuels remained firmly buried in the ground. But most analysts now expect oil prices to remain high, at least over the medium term, thanks to tight supplies and continued demand from emerging markets. That’s great news for Canadian oil sands developers, which need prices around US$60 to US$70 per barrel to make their business models economically feasible.
Saudi Arabia’s own break-even oil price has also risen sharply in the past few years, making it less likely to pursue a strategy of lower prices. The Institute of International Finance estimates that Saudi Arabia’s break-even price has shot up US$20 over the past year to US$88, in part due to a generous spending package of US$130-billion announced this year to keep domestic unrest at bay.
The Saudis now find themselves between a shale rock and a hard place: While high crude prices mean the Saudis can maintain their excessive domestic subsidies for citizens, in the long run that means the world is developing new sources, making it less dependent on Saudi oil.
Although the Saudis have vigorously fought the Ethical Oil ads, which paint them in a negative light, they already know their oil is less welcome in the Americas – Saudi oil made up a mere 9.3% of U.S. oil imports last year, down from 11.2% five years ago, according to the U.S. Department of Energy.
But while Saudis would be cheering on the green groups with ‘No KXL’ signs, they don’t hold out much hope for renewable energies either. Calling them ‘green bubbles,’ Al-Falih says governments should stop focusing on unproven and expensive energy mix, as there is frankly no appetite for massive investments in expensive, ill thought-out energy policies and pet projects.
“The confluence of four new realities – increasing supplies of oil and gas, the failure of alternatives to gain traction, the inability of economies to foot the bill for expensive energy agendas, and shifting environmental priorities – have turned the terms of the global energy dialogue upside down. Therefore, we must recast our discussion in light of actual conditions rather than wishful thinking,” the pragmatic chief said.
Somebody should explain this wishful thinking to the green movement.
- New oil reserves seen reducing Saudi Arabias importance (theglobeandmail.com)
- Saudis worry over North American shale oil surge (business.financialpost.com)
Posted on November 23, 2011, in Saudi Arabia, Unconventional and tagged Institute of International Finance, OPEC, Riyadh, Saudi, Saudi Arabia, Saudi Aramco, Shale, Unconventional oil, United States. Bookmark the permalink. 1 Comment.