Posts Tagged 'oil export'

Saudi Arabia’s oil: essential, but how vulnerable?

By Torgeir Fjærtoft

Saudi Aramco is a main sponsor of this year’s Norwegian oil, gas and off- shore fair, ONS, in Stavanger. When the Norwegian organizers accord such a role to the Saudi Arabian oil company, it is probably in recognition of the essential role of Saudi Arabia in the global oil supply , and therefore in the shaky global economic stability. To manage this role Saudi Arabia maintains spare capacity to adjust its volume of oil production to maintain supply and price stability.

How vulnerable is this role?

Currently two main factors bear on the Saudi ability to maintain its oil exports: the technology available to recover oil from the fields, a main topic at this year’s ONS, and the political stability in the region, essential to stable shipping lanes. The shipping lanes in the Gulf would be highly vulnerable in case of hostilities with Iran. To reduce this vulnerability Saudi Arabia maintains spare capacity in a cross country pipeline to divert oil exports to Red Sea ports. Skeptics point out that the Saudi surge capacity in production and contingency plans for shipping have yet to be proven viable and may not be dependable. Also, a new, emerging risk is the looming disintegration of Yemen which could turn into a new Somalia, lining both sides of the alternative shipping lanes with pirates and terrorists. The vulnerabilities are aggravated by the nerves of market actors and the calculations of speculators.

Beyond the current crisis over Iran, both regional political stability and global economic stability will hardly be viable without a degree of Iranian Saudi cooperation. There are even unconfirmed reports about nascent projects

In the longer-term, the relationship between oil and gas is the central issue in the future of the whole region as global energy supplier. To escape the current trend of increasing domestic energy consumptions over exports, at the expense of both export earnings and the global oil supply, Saudi Arabia needs to replace as much as possible of its current domestic oil use with gas, in power production, desalination and manufacturing.  Since Saudi Arabia is not a gas producer, at least not yet, such substitution takes regional cooperation.  Iran holds the second largest gas reserves in the world, and shares its huge South Pars field under the Gulf with Qatar.

In an even longer-term, the global dependence on fossil fuels from Saudi Arabia is not sustainable. Oil is a finite resource inflicting serious climate damage. In this perspective the Saudi oil minister is reportedly concerned about what the optimal oil price would be to provide effective incentives to several compelling policy goals: make marginal fields profitable in the interest of global oil supply, and at the same time encourage conservation of this essential, but finite resource. The price of oil should also be high enough to make alternative energy sources profitable and provide necessary incentives for research and development.

Saudi Arabia may tap the power of the burning sun for solar power, but drifting sand and dust in the desert makes this difficult with the current state of technology. Saudis are concerned that sand and dust are increasing due to climate change: less rain, more wind.  At ONS Saudi Aramco engineers told about their program to inject the climate gas CO2 to recover more oil, rather than water, a scarce, precious resource.

The ONS will hopefully continue to be a venue for discussions with Saudis on solutions to pressing global problems. Saudi Arabia will either be part of the solution or part of the problem. It will be their decision, but we can influence them by dialogue.