Some very interesting, energy-related moves are coming to the fore. These may appear to be unrelated and independent, yet are linked, one way or the other, and could have immense geopolitical consequences. Indeed one cannot help underlining, time and again, energy and politics go hand in hand. The global energy chess board rarely shows a dull moment.
China has become the top destination, the largest market, for Saudi crude — replacing the United States in the process. Saudi Aramco is now exporting about 1 million barrels a day to China. “We are already exporting more to China than to the US,” Saudi Aramco Chief Executive Officer Khalid Al-Falih stressed in an interview. “We are prudent and careful about where to invest but our eyes are focused on China and we will continue to look for all opportunities.”
Over the past two years, Saudi oil exports to China have increased by 60 percent. And in the meantime, the Chinese appetite for crude continues to grow and grow. Chinese crude oil imports could surge by more than 40 percent over the next three months after hitting an all-time high of 5 million barrels per day in December. The share of Saudi crude in the Chinese markets has now increased from 16 percent to 20 percent.
China and Saudi Arabia also aim to boost bilateral trade by at least 50 percent to $60 billion by 2015, the Chinese Trade Minister Chen Deming said last month. And energy remains the glue of this burgeoning relationship, one has to concede here.
On the other hand, despite being a historical, key crude supplier to the US, Saudi crude exports to the US have fallen dramatically in recent months. In August 2009, the US crude imports from Saudi Arabia fell to 745,000 barrels per day — the lowest in more than two decades (22 years to be exact). According to the US Energy Information Administration (EIA), the US imported 1.014 million barrels of oil a day from Saudi Arabia in the nine months through September 2009. In November 2009, Saudi Arabia was only the fourth largest exporter to the US, and not the top, as some may believe. The top five sources of US crude oil imports for November 2009 were Canada (1.984 million barrels per day), Mexico (0.951 million barrels per day), Nigeria (0.948 million), Saudi Arabia (0.837 million), and Venezuela (0.809 million).
A report from oil-industry consultant PIRA says Saudi Arabia accounted for only 11 percent of total US oil imports last year, down from 18 percent only as recently as in 2003.
This has been the result of a slowly emerging reality. For last many years, especially in the wake of 911, there has been a growing emphasis within the political chatterbox in Washington to diversify away from the Gulf Arab producers — and that is taking its toll.
And this has all been happening at a point in time, when the demand in the developed, industrialized world is at best stagnating — if not diminishing. Even the Paris-based IEA (International Energy Agency) now concedes so. Oil demand in the US, still the world’s largest consumer, has already gone down by 4 percent in 2009.
There is a definite concern among the producers’ on the political rhetoric and its repercussions. President Barack Obama has been openly stressing that the United States should depend less (and less) on oil and more on so-called clean energy. The stress has been to move, and rather quickly, to increase reliance on alternative fuels (implying reduction in reliance on Arab crude). A presidential panel advocates greater use of biofuels and clean coal technology. The president is also seen encouraging increased production of coal, using environmentally friendly technology.
Some market analysts maintain that the US is now producing about as much ethanol as it is importing crude oil from Saudi Arabia, and on the current trend one could expect the US ethanol production to be over the US import of Saudi crude oil in 2010. Saudi Arabia was thus forced into action — to redraw its priorities. Market focus had to change. And in an otherwise unrelated, yet connected, move, Saudi Aramco announced abandoning storage installations in the Caribbean, preferring instead on storage installations in Japan, apparently to better service, the market — China.
Aramco has been keeping the Caribbean storage facilities since 1995 — so as to keep oil near its primary market then — the United States. However, with the market focus shifting for Aramco, the need to have storage somewhere near the relevant market — China — had more business rationale. The facilities it snapped up in Japan instead are a mere three days sailing distance from Shanghai — more pertinent to the emerging business realities.
Charles K. Ebinger, director of the Energy Security Initiative at the Brookings Institute, says the move is “purely a reflection that the world (crude) market is changing (and the) Saudis want to make sure they don’t lose those markets.
For decades Riyadh and Washington were believed to be bonded through the crude glue. No one could undermine the eminence of Riyadh in satiating and quenching the global energy thirst, yet Washington is striving to chart an independent course — though at a cost to itself. Alternatives are not going to come cheap.
The Gulf Arab producers are endeavoring to safeguard their interests. The fact remains that most of the Gulf Arab economies continue to be a single product economy. And the policy planners in Riyadh and other Gulf capitals — from Kuwait to Abu Dhabi and Doha — are getting into the act to protect their interests. And all this carries strategic consequences of immense order. What a fascinating transition — indeed markets dictate!
