JEDDAH: KHALIL HANWARE | ARAB NEWS STAFF
Published — Thursday 16 May 2013
Last update 21 May 2013 6:34 am
Saudi Arabia will continue to make the most of the competitive advantage presented by its hydrocarbon reserves despite rising US shale oil production, says a Riyadh-based analyst.
"I think that these new sources of oil and gas are welcomed by everyone, including Saudi Arabia," John Sfakianakis, chief investment strategist at Masic in Saudi Arabia, told Arab News.
His remarks follow a recent statement made to the the Financial Times by Khalid Al-Falih, chief executive of Saudi Aramco, that Saudi Arabia welcomes the boom in US shale production because it will reassure consumers about the reliability of oil supplies.
The CEO said the shale revolution had helped ease fears about excessive reliance on the Middle East, and encouraged governments to be more "pragmatic and rational" about energy policy.
Jarmo T. Kotilaine, a regional analyst, told Arab News that the US shale supplies will "obviously push out, potentially significantly, the depletion date of the national hydrocarbons reserves, which is significant in a world that looks likely to continue to depend on oil for a long time".
Kotilaine added: "It is also significant as a buffer in the face of growing demand and the increasing industrial use. It will likely necessitate changes in pricing policy in light of the higher cost of extraction but the debate on this had started in any event."
Kotilaine also said: "Depending on the distribution of the shale reserves, it may have implications on regional policy and development. The shale boom in the US is happening in some of the most sparsely populated parts of the country."
In the long term, Al-Falih also said that Saudi Aramco believes US production, while very significant for North America, will not take away its market.
"We always look at ourselves being in this business for generations to come, and want to position the industry for that long-term prosperity and harmony with society," Al-Falih told the Financial Times.
Commenting further on the shale impact, Sfakianakis added: "There is a change in the energy scene, in the US, as well as other countries as a result of the shale evolution. I think that these new sources of oil and gas are welcomed by everyone, including Saudi Arabia. There is, however, a danger to move from the notion of scarcity which dominated the minds of many to one of plenty which is beginning to gain traction today."
Sfakianakis also said: "Economics teaches us all too well that there are always limited resources even if technology makes leaps and moreover economics is never static and as a result growth and demand will put additional pressure on hydrocarbon supplies. The new US supplies into the global oil market are welcomed. These additional resources will add depth, and hopefully bring increased stability, to global oil markets. I believe these reserves will lead the US into a much deeper engagement in world energy markets. This is good news. Saudi Arabia will continue to be a strategic provider of oil to global markets given its spare capacity of between 2.5 million and 3.5 million barrels.
Saudi Arabia's aim is to diversify away from its reliance on oil revenues. In 1973, the contribution of oil to Saudi Arabia's real GDP was 65 percent. Last year, it was under 30 percent. Saudi Arabia is creating a sustainable economic growth for the long term."
Fawaz H. Al-Fawaz, a Riyadh-based economic consultant, also commented to Arab News on rising shale supplies from the US.
He said: "The shale story in the US is really more about gas rather than oil, although the shale oil story is still significant with significant implications for the oil exporters in the Middle East.”
“ This fact is clear if one looks at the price of gas in the Us compared to the gas price in other regions in the world and fact that price of oil has been firm in spite of the recent declines over the last few weeks."
Al-Fawaz added: The effect on Saudi Arabia has two aspects. For one, the key story in Saudi Arabia is the inability to tackle the growing domestic demand because of the high energy intensity which in turn is caused by the large subsidies implied in the domestic pricing structure in all utilities and fuel. This aspect has implications for Saudi Arabia to expand exports to finance budgetary outlays. The second aspect is given the centrality of the energy in the Saudi economic system it has become over due to reform the sector and start to manage demand not only the supply as Aramco has been trying to do with commendable competency."
According to The Financial Times, the shale oil boom, which has raised US crude production by almost 50 per cent since 2008, has encouraged hopes that North America could cease to be a net importer of oil, driving down world prices.
Speaking on a recent visit to the US, however, Al-Falih welcomed the rise in US output.
"For us it just cements in the public and in the global consensus what we've already known," he told the Financial Times..
"Oil is going to be the fuel of choice, in terms of its overall performance, for an extended period of time, and we need to manage it, we need to invest in it."