Shale oil boom in US and its impact on Kingdom
For the past few months I have been hearing many people from all over the world talking about shale oil. We hear the talk about this kind of oil as if it is being discovered on a faraway planet and energy companies are racing to get to it first. We have heard about it from world leaders like American President Barack Obama and from Saudi Minister of Petroleum and Mineral Resources Ali Al-Naimi. So what is the story of this shale oil and its impact on the world oil market? Media reports in the US insist that America will be self-sufficient in the energy sector in near future. And some of the American analysts even went as far as saying that it will be done by the year 2020. That is seven years from now. So can the oil industry and its key players miraculously change in seven years? I am not an oil or energy expert, but I grew up in a town located in the middle of the largest oil field in the world, Al-Ghawar oil field. The oil field was discovered in 1948 and it is more than 180 miles long and 20 miles wide.
So when I was a young boy I saw the lights of the flaming torches lighting up the skies around my home during the nights. No oil expert in the past ever dared to compare this oil field production capacity with another field. So this is why many people say that seven years is very short time in seeing dramatic changes in the oil industry. Or is it a short time?
The oil industry in Saudi Arabia had changed not in seven years, but many say it changed in seven days. Apparently, there must be something unique about the number seven in the oil industry.
In 1938, Saudi oil was discovered in oil well No. 7 which the American geologists had to dig deeper to find oil. It was their last chance to continue their presence in Saudi Arabia. In other words, if they couldn’t find oil in well No. 7, then they would have to leave. But at the end of the day they found oil. And the first thing that was done after they found oil was sending a cable from Dhahran to Bahrain to be transmitted to the mother company in the US. The cable said: “We found (struck) oil in Saudi Arabia.” And if my memory serves me right, the receiver of the cable was geologist Floyd Oliger who was on his way back to the US and someone was calling him and shouting, “Mr. Oliger, Mr. Oliger, we struck oil in Saudi Arabia.”
So the question is what would have happened to Saudi Arabia, the Saudi oil industry and the world if the cable was seven months or even 7 days late? If oil was not discovered in Saudi Arabia in 1938, then the map of the world political and strategic influence would have been very different.
Now, if oil discovery in one single Saudi well had changed the world map, then why can’t modern-day technologies change the course of the oil industry in seven years to extract the shale oil?
The WWII started in the same year Saudi oil was discovered and if the discovery was late, then the investment to find oil would have been stopped until after the war in 1945 and there would be no American company who was ready to invest any money to find oil in Saudi Arabia. So, after 75 years of seeing Saudi Arabia as the world’s major swing producer, the most influential country on the oil prices and a determining factor on the production quotas for each country, would things change in seven years from now in the year 2020?
As Saudis we need to know that the talks and the information about shale oil are not coming from bounty hunters. We now hear it from many energy analysts, top geologists and very well respected scientists. Nowadays, everyone is saying that State of Colorado is going to be the next Saudi Arabia seven years from now. So in the year 2020, the highway signs in Aspen, Colorado, will not read, ski area ahead, but, it will say oil well ahead. But the one billion-dollar question is if the shale oil real or is it a bubble?
With modern-day technology, we Saudis have to take the shale oil very seriously. We all know that Saudi oil will always have customers to buy it. The energy demand is always on the increase. There are many countries, which will be big consumers for a long time, such as China and India. Seven years from now we will know for sure the direction of the shale oil industry and its effects on the Saudi oil industry with two options. And, if the shale oil is a bubble, then we Saudis have nothing to worry about. But, if it is not a bubble and the shale oil is in abundance in the American states of Colorado, Utah and Wyoming then, the world oil industry influence will be shifted and we will see Denver overtaking Dhahran, Salt Lake City overtaking Kuwait City and Cheyenne will overtake Kirkuk, Iraq.
I am sure Saudi Aramco and the Saudi Ministry of Petroleum and Minerals have plans for the future and many accelerated programs to advance technology transfer and to find the best ways to utilize their assets to be ahead in the oil industry. But it is important to know that more steps must be taken into considerations. The government must review its energy subsidies and we must find ways to reduce the amount of energy consumption in the Kingdom. Saudi Aramco should be more aggressive in their search for the best ways to use their assets. And finally, I have another billion-dollar question. How long the Saudi proven oil reserve will last?
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