Saturday, January 19, 2008

Saudi Arabia's Longview

Although it might seem strange for U.S. officials to continually "beg" Saudi Arabia to increase its oil output (subsequently increasing supply and lowering prices), as the world's largest producer, Saudi Arabia also has a vested interest in combating sustained high oil prices; which are not good for their oil export revenues in the long run.

As Adel al-Jubeir, current Saudi ambassador to the U.S. stated in 2004, "We've got almost 30 percent of the world's oil. For us, the objective is to assure that oil remains an economically competitive source of energy. Oil prices that are too high reduce demand growth for oil and encourage the development of alternative energy sources." -Wall Street Journal, May 27, 2004

Not surprisingly, between 2002 and the first half of 2005, in response to large oil price increases, Saudi Arabia's production rose dramatically from 8.5 mbbl/d to 11.1 mbbl/d. (EIA Data, 2006)

As a result, both net oil consumers and net oil producers have vested interests in keeping oil prices at competitive levels in the long run. Although many nonconventional oil resources, such as Canada's oil sands, are arduous and relatively expensive, ever-increasing oil prices would make them economically feasible at some price point.

As Smil notes in Energy at the Crossroads, Canada's Suncor Energy has been "producing a modest, but rising, volume of crude from northern Alberta's Athabasca oil sand deposits since 1969..." and output is estimated to nearly quadruple by 2010-2012. (Smil, p. 204-205); alluding to the fact that the "unconventional" could become more "conventional" if oil prices reach, and remain at, high levels.

No comments: