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Page added on June 14, 2016
Forget about peak oil … here’s the real reason Saudi Arabia is selling its oilfields
The Stone Age did not end for lack of stone, and the Oil Age will end long before the world runs out of oil,”
Sheikh Zaki Yamani, Saudi Arabia’s energy minister in the 1970s
This sentiment arguably still chimes with Riyadh’s outlook in 2016 particularly with countries such as China exploring long-term alternative sources of clean energy.
Saudi Arabia’s Vision 2030, announced in April by Deputy Crown Prince Mohammed bin Salman, the first phase of which, the National Transformation Plan, was approved last week by the cabinet in Riyadh, envisages a huge diversification of the Saudi economy away from its dependency on oil production over the coming decades.
In the near term, Saudi Arabia continues to target oil market share, pumping at near record highs, although, as current Saudi energy minister Khalid al-Falih said on June 2 at a meeting of the Organization of Petroleum Exporting Countries “there is no reason to expect that Saudi Arabia is going to go on a flooding campaign”.
Undoubtedly Saudi Arabia’s pumping strategy continues to reflect, at least partly, Riyadh’s desire not to hand market share to its regional rival Iran as the latter seeks to ramp up oil production following the easing of Western sanctions related to Tehran’s nuclear programme.
But it likely also includes a calculation that targeting price over market share is no longer a viable policy.
The higher the price of a barrel of oil, the easier it is to justify the production of energy where the extraction costs are significantly greater than those of Saudi Arabia, especially when low interest rates allow projects to secure cheap financing.
Equally, newly-developed extraction technologies do not disappear.
Saudi Arabia may have hoped to bear down, through increased production, on the ability of the US shale oil industry’s ability to compete but those US producers have, so far, proved tenacious.
Shale oil potentially becomes stranded in the ground if the global oil price is too low to justify its extraction but as the price ticks up, the production comes back on-stream while technological advances may even lower the extractive costs.
But as Riyadh looks out to 2030 it also has to factor into its calculations that major energy-consuming economies, including China, are ploughing money into efforts to develop dependable sources of clean energy.
On the consumer side, Hong Kong itself is already championing the use of electric vehicles but that electricity is still largely sourced from carbon-energy.
The ultimate prize is to create that electricity from a carbon-free energy source.
And one way to do that is by exploring the feasibility of nuclear fusion technology to re-create on planet Earth the conditions that generate the energy that powers the sun and the stars. The International Thermonuclear Experimental Reactor (ITER) Project, after the Latin word iter meaning the way, is a collaboration of 35 nations including China.
The aim, as ITER explains it, is to create “the tokamak… an experimental machine designed to harness the energy of fusion”.
“Inside a tokamak, the energy produced through the fusion of atoms is absorbed as heat in the walls of the vessel. Just like a conventional power plant, a fusion power plant will use this heat to produce steam and then electricity by way of turbines and generators,” ITER says.
Science fiction? Yet in February Chinese scientists in Hefei, the capital of Jiangsu province, managed in their own Experimental Advanced Superconducting Tokamak (EAST) to heat, as the POST reported, “a hydrogen gas – a hot ionised gas called a plasma – to about 50 million Kelvins (49.999 million degrees Celsius). The interior of our sun is calculated to be around 15 million Kelvins.”
Previous experiments by European and Japanese physicists could only hit that temperature for periods of less than a minute. The EAST team maintained that temperature for 102 seconds which was a breakthrough.
Energy produced from fusion technology is many decades away even if it is shown to be achievable but Riyadh understands it is just another example of how the world is seeking alternatives to carbon energy.
Saudi Arabia may not have been looking EAST when it mapped out its 2030 Vision but the Hefei success, and indeed technological advances in shale oil extraction, surely underscore why Riyadh is targeting oil market share, not price, and help explain its determination to diversify the Saudi economy over the next few decades.
As a major energy consumer, China can surely only benefit from this as Saudi Arabia has apparently realised that Sheikh Yamani had a point.
15 Comments on "Forget about peak oil … here’s the real reason Saudi Arabia is selling its oilfields"
yoshua on Tue, 14th Jun 2016 11:05 am
Saudi Arabia produces 10 million b/d… consumes 3 million b/d… and exports 7 million b/d.
Someone estimated that Saudi production will fall and the consumption will rise to the production level around 2025-2030.
Zero exports of oil would lead to zero imports of food.
rockman on Tue, 14th Jun 2016 11:43 am
Just more BS IMHO. The biggest turd: they aren’t “selling their oil fields”: the KSA may eventually sell a very small portion of its national oil company thru a public offering. We’ll have to wait to see if it goes thru at the price the KSA requires.
In any case it’s just an effort to immediately monitize a small portion of their future oil revenue in an effort to fix their current budgert deficit. And if it works they’ll be offering it at a discount…otherwise there will be little interest in folks buying the stock.
Lawfish1964 on Tue, 14th Jun 2016 12:30 pm
When the oil runs out, those barbarians will be back riding camels.
george on Tue, 14th Jun 2016 1:01 pm
They need more money to clean up the turds that all those peaceful Muslims leave behind while dancing around the big black cube.
joe on Tue, 14th Jun 2016 3:35 pm
Saudi has 2 things. Oil and Hajj. Thats it. They have little useful farmland and they occupy a streach of coast which on one side is owned by America and Iran on the other by Egypt. Saudi has no significant navy and thus no real regional influence. The problem is that Saudi has made Sunni Islam so extreme that opec cant function as cartel and in the face of disruptive tech at high prices, they are trapped at low.
Oh, what will millions of obese Saudi Arabs do! Maybe they will have to do a bit of work some day.
Rick C. on Tue, 14th Jun 2016 4:27 pm
Stranded assets. Pump it now as fast as you can, get whatever money you can, since you won’t be able to do it later. .
B Fitzgerrell on Tue, 14th Jun 2016 4:41 pm
Wow! Really Feelin’ The Love In These Comments… You Folks Might Want Think What Would Happen In The Middle East If The Saudi Arabia DID Collapse. Imagine The Saudis In Chaos Like Say Libya, Iran, Afghanistan Etc And A Strong Iran To Boot. Sounds Pretty Scary To Me.
Andrew Currie on Tue, 14th Jun 2016 5:01 pm
In researching material for my book, Beyond the Inflection Point: An Economic Defense of the Limits-to-Growth Theory, I found so much ‘peak oil’ material written by doomsday neo-Malthusians who seemed to be completely clueless about economic issues related to oil depletion, with the Club of Rome study being a particularly vivid example. Yet in reading your article, it was really excellent to find a concise, very-well explained analysis of relevant oil/energy issues. It is a view found in the gray tones of the truth that lies between the untenable black and white positions of hardcore neo-Malthusians and rabid techno-optimist cornucopians. Great work SCMP.
Davy on Tue, 14th Jun 2016 5:12 pm
Andrew, sounds like an interesting topic. When does it come out. It is not at Amazon yet.
frankthetank on Tue, 14th Jun 2016 8:30 pm
How long does Saudi Arabia have before they can’t export oil because they are using everything they produce? 25 years–more or less?
rockman on Tue, 14th Jun 2016 9:58 pm
B – “You Folks Might Want Think What Would Happen In The Middle East If The Saudi Arabia DID Collapse.” Many of us think about it often. And it isn’t a question of “if” but when. The KSA is subject to depletion just like every other country. The significant difference is how their society is completely dependent on oil exports.
frank – I’m pretty sure all hell will break loose long before that point is reached. Today they are surviving on that big fat “savings account”. But eventually it will also deplete. There will be a point when they’ll still have oil to export but not enough revenue to maintain civil stability. At that point I would expect a foreign power would attempt to occupy the country in order to stabilize what production they have left. I can’t imagine such an effort not being a major nightmare for all involved.
peripato on Wed, 15th Jun 2016 6:47 am
This article is a pile of horse sh*t…
larrgfremont on Wed, 15th Jun 2016 9:54 am
I don’t understand how a tokamak diversifies SA’s oil-export economy, unless you can run a fusion reactor on sand.
PracticalMaina on Wed, 15th Jun 2016 12:38 pm
There gonna switch to making glass artwork using a magnifying glass and the dessert, beautiful.
Magnum Analyst on Wed, 15th Jun 2016 6:32 pm
This article is a lot less interesting than the headline would lead one to believe.
Saudi Arabia is not selling its oil. It probably will sell some interest in its refining capacity. But its oil reserves are a state secret that would be released if they made the reserves part of the deal.