Challenges ahead as KSA looks to long-term OPEC-Russia oil deal

An oil pump is seen operating in the Permian Basin near Midland, Texas, US. (REUTERS/Ernest Scheyder/File Photo)
Updated 29 March 2018
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Challenges ahead as KSA looks to long-term OPEC-Russia oil deal

NEW YORK: The potential deal between the Organization of the Petroleum Exporting Countries (OPEC) and Russia — announced by Crown Prince Mohammed bin Salman — is a game-changer in the global energy industry.
But it faces hurdles before it can be implemented and maintained according to the ambitious schedule outlined in New York.
Daniel Yergin, an energy expert and author of the Pulitzer Prize-winning history of oil “The Prize,” told Arab News that the possible deal “represents a realignment that reflects the new realities of oil and international relations.”
The crown prince said that the Kingdom and Russia were in talks to extend an agreement on output — sealed in Vienna in late 2016 on a temporary basis — to a longer-term pact of 10 to 20 years.
“We are working to shift from year-to-year agreement to a 10 to 20-year agreement. We have agreement on the big picture, but not yet on the detail,” the crown prince said.
If the deal goes through, it will put in place a new force in the global oil industry, with two of the top three producers, Saudi Arabia and Russia, acting in unison. With around 40 percent of the world’s output between the two producers and the rest of OPEC, the alliance would be a dominant force in the energy industry, able to control supply and — crucially — the price of oil for the next two decades.
But it is by no means a done deal. Ellen Wald, an expert on Saudi energy and author of the forthcoming book “Saudi Inc. The Arabian Kingdom’s Pursuit of Profit and Power,” said: “It would be impossible to extend the current production deal for 10 to 20 years because nobody knows what market conditions will be in the future.”
“What they must be referring to is a discussion on making Russia what amounts to a de facto OPEC member for a certain number of years,” she added.
But there are economic, financial and geopolitical challenges ahead before such a deal — likely to form the centerpiece of negotiations at the next OPEC meeting in Vienna in June — can be clinched.
The current arrangement — dubbed the “Vienna Alliance” by oil experts — has been credited with getting the price of crude back from the doldrums of 2014 and 2015. From a high of more than $100 a barrel after the global financial crisis, the price of a barrel of crude fell below $30 in early 2016.
The agreement on output helped stabilize that price last year, with a sustained recovery coming in the second half of the year as it looked as though the deal was going to hold longer than a few months. Brent crude was trading in New York yesterday close to the $70 a barrel level seen as the “Goldilocks” level — not too cheap and not too expensive — to balance the demands of global producers and consumers.
But the problem is that OPEC is not a cartel that can arbitrarily set the price of oil. It is an organization that has to serve the interests of its members, and the 14 nations — possibly increasing with the inclusion of Russia and other independent producers — that comprise OPEC are subject to the imperatives of their own domestic economic needs as well as the global market.
It has been an achievement — largely credited to Saudi Arabia’s Energy Minister Khalid Al-Falih — to get OPEC and Russian to coordinate supplies over the past 12 months. Maintaining that delicate relationship over decades would be much more difficult.
With global consumption just below 10 million barrels a day, it would only require one member to “go rogue” with a production surge to upset the delicate balance and cause another price collapse.
But perhaps the most serious barrier to any long-term deal is the fact that the global oil market is no longer a two-horse race. American shale producers have turned the international energy market on its head through sophisticated technology that has wrung oil from fields long regarded as impossible to exploit commercially.
The US is now the second largest oil producer, and with the shale industry in full boom, looks certain to overtake Russia and the world’s biggest sometime soon.
This is where the geopolitical challenge emerges. One American energy financier at the Saudi-US CEO Forum in New York explained: “It might be good for Saudi Arabia and the oil price, but it is a strategic play that might not go down well with American producers. It would add a long-term geopolitical element to the oil market that maybe we would not welcome.”
He also pointed to the difficulties of maintaining such a long-term relationship between OPEC and Russia. “There are so many variables. It is not just Saudi Arabia, but all the members of OPEC, which is a mixed bag. Is it in the interests of Venezuela or Iraq to go along with such a deal? And you cannot easily predict how Russia will be thinking in 10 weeks from now, let alone 10 years.”
Yergin said: “We’ve been calling this OPEC and non-OPEC agreement the ‘Vienna Alliance’. Now it looks like an effort to turn it into a lasting alliance.”


Saudis recall history’s greatest TV event: Apollo moon landing

Updated 20 July 2019
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Saudis recall history’s greatest TV event: Apollo moon landing

  • The TV images beamed from 320,000km away in space left viewers astounded but happy
  • The TV coverage influenced thinking and attitudes in the Kingdom just like everywhere else

DUBAI: It was a sleepy afternoon in Saudi Arabia, just days before the end of the school vacation, and Saudis had their eyes glued to their TV sets as they waited for live coverage of the Apollo 11 moon landing.

Before July 20, 1969, the idea of a human walking on the moon was the stuff of science fiction. However, almost overnight, sci-fi had turned into reality with a live broadcast showing American astronaut Neil Armstrong’s dramatic descent onto the empty lunar landscape.

Between science fiction and science fact, the live coverage of the lunar landing amounted to an unusual fusion of news and entertainment.

Saudi TV technicians bring the first live images of Neil Armstrong’s 1969 moon landing to
viewers around the Kingdom. (Supplied photo)

The historic images — beamed back to Earth more than 320,000 km away — left Saudi viewers astounded and confused, but mostly elated to be witnessing such an epoch-making event.

The event was covered live on television and radio stations in Saudi Arabia. Most Saudis and residents living in the Kingdom watched it on Saudi channels 1 and 3, owned by Saudi Aramco.

Hessah Al-Sobaie, a housewife from Al-Dawadmi, recalled watching the moon landing from her grandparents’ backyard as an 11-year-old.

“It felt weird watching a human walk on the moon,” she told Arab News. “I remember the endless questions I asked as a child.”

While most people were aware that going to the moon was risky, many Saudis believed that such a journey was impossible and all but unthinkable.


EVENTS WATCH

1. NASA’s Apollo 11 mission control room in Houston has been restored to its 1969 condition and regular tours
will be conducted by the Johnson Space Center.

2. NASA ‘Science Live’ will have a special edition on July 23 on board the aircraft carrier that recovered the Apollo 11 capsule.

3. A summer moon festival and family street fair will be held in Wapakoneta, Ohio, from July 17-20.

4. Downtown Houston’s Discovery green will host a free public screening of the ‘Apollo 11’ documentary, with an appearance by NASA astronaut Steve Bowen.

5. Amateur radio operators will host a series of events on July 20-21.

6. The US Space and Rocket Center is staging a special ‘Rockets on Parade’ exhibition.


The Apollo 11 mission prompted discussions across the Middle East over the reality of what people saw on their TV screens. Some Saudi scholars found it hard to believe their eyes.

“I watched it, and I clearly remember each and every detail of the coverage,” Hayat Al-Bokhari, 68, a retired school principal in Jeddah, said.

“My father, Abdul, was 56 at the time. He said the landing was faked. He couldn’t believe or accept that a human could go to the moon.”

Khaled Almasud, 70, a retired university lecturer, was a student in the US state of Oregon at the time of the mission. “Americans were stunned and over the moon, happy with their national achievement. But many Saudis like me were either in denial or insisting on more proof.”

Since the beginning of the 1960s, King Faisal had been rapidly transforming Saudi Arabia, inviting foreign-trained experts to help build a modern country with world-class infrastructure.

Billie Tanner, now 90, lived in the Kingdom for many years with her husband, Larry, and their two children, Laurie and Scott, aged six and four. The family had just arrived in Saudi Arabia and headed to the Aramco compound in Ras Tanura in the Eastern Province.

A screengrab of video of the first lunar landing beamed toward Earth and shown on television worldwide. 

“We were going through a culture shock,” she told Arab News. “I wasn’t thinking of the moon landing, but we heard about it on the news from Dhahran.

“My kids tried to see the astronauts on the moon with their binoculars and said they could see them walking around.”

The Apollo 11 spaceflight has become a milestone in the annals of human history and science. Since 1969 space exploration has greatly expanded man’s knowledge of the universe, far beyond Earth’s limits.

The captivating live coverage of the moon landing inspired millions of people around the world, profoundly influencing their thinking and attitudes.

The people of Saudi Arabia were no exception.