Saudi prince: The American shale boom is kinda' bad news for OPEC countries

For the United States, the shale oil-and-gas boom — thanks largely to the practice of hydraulic fracturing and destined to only gain momentum in the coming years (and even more so if we manage to vote in an administration with more favorable domestic energy policies, hem hem) — has been a much-needed and welcome bright spot in an economy that’s otherwise been struggling to add jobs and wealth and is now in its fifth year of so-called “recovery.”

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For certain OPEC nations? Not so much. Via the WSJ:

Saudi billionaire Prince Alwaleed bin Talal has warned that the kingdom’s oil-dependent economy is increasingly vulnerable to rising U.S. energy production, breaking ranks with oil officials in Riyadh who have played down its impact.

In an open letter dated May 13 addressed to Saudi Oil Minister Ali al-Naimi and several other ministers, a link to which was published Sunday on Prince Alwaleed’s Twitter account, he warned that the boom in U.S. shale oil and gas will reduce demand for crude from members of the Organization of the Petroleum Exporting Countries. …

Not long after the prince issued his warning, a report from OPEC published Monday showed the group’s oil export revenue hit a record high of $1.26 trillion in 2012. However, forecasts from the group raise questions over whether that level of earnings can be sustained amid the competition from shale oil.

Saudi Arabia, the world’s biggest oil exporter, is now pumping at less than its production capacity because consumers are limiting their oil imports, Prince Alwaleed said in the letter. This means the kingdom is “facing a threat with the continuation of its near-complete reliance on oil, especially as 92% of the budget for this year depends on oil,” said the prince.

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OPEC officials have largely been acting pretty confident about the future impact of America’s growing shale boom on their economies and profits so far, and indeed, the United States’ newfound supplies are only going to add to an already global market with many moving parts and buyers and sellers from all over the world. The added competition and the probably sizeable dropoff in demand from the United States, however, will definitely cut into their regular market share — and considering the huge fiscal dependence on oil to keep things running to which they’re accustomed, they might want to consider coming up with some kind of Plan B.

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David Strom 3:20 PM | November 15, 2024
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