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Page added on June 27, 2016

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Saudi Arabia Heads From Crude to Solar

Alternative Energy

Last week, my article on the Saudi Arabian oil and solar outlook, titled Saudi Arabia’s Solar Planning Is Paved in Oil Production, certainly shook up a hornet’s nest in the Twittersphere.

In the piece, I postulated that the Saudis – under the de facto leadership of 30-year old Mohammed bin Salman (MbS) – would move toward dramatically increasing their oil production over the coming years in order to move towards taking over the solar power market.

As espoused in public statements, Saudi Arabia intends to be as much a powerhouse in solar energy as it has been in oil.

MbS is a strategist. He realizes that by mid-century, oil will be worth a lot less – perhaps even zero, as the book The Energy World Is Flat postulates.

This theory, however, is not an entirely popular one.

Here are a few of the “nicer” tweets as a result of my original article:

@wallstreetdaily Author of the article thinks that his Highness the Crown Prince has read this book and be part of the vision inspired by the book.

@wallstreetdaily That’s just a guess from the author of that book ridiculous I don’t think we’re gullible idiocy to believe his heresy.

My Response

It’s true, I am not a member of the Saudi royal family and not privy to the thoughts of MbS. And I doubt that Mohammed bin Salman has actually read the book.

But MbS is the most western-savvy Saudi leader to govern an Arab nation. Notice that, during his recent visit to the U.S., he spent more time in discussion with Wall Street and Silicon Valley than to the talking heads in Washington, D.C.

Not to mention he has opened the Saudi stock market up to foreigners and intends to sell 5% of the Saudi crown jewel, Saudi Aramco, in an IPO.

He’s likely well aware of the threat the Saudis face in that a good portion of those 260 billion barrels of proven reserves could turn into stranded assets left in the ground.

The Threat Is Real

There’s no shortage of evidence that Saudi Arabian energy efforts are soon to evolve.

MbS is on high alert, especially since warnings that “peak oil demand” could occur somewhere around 2025 are coming not only from the former oil minister, but also Mohammed al-Sabban, a senior adviser to the Minister of Petroleum of Saudi Arabia.

As Jim Krane, a fellow at Rice University’s Baker Institute where he studies Saudi energy policy, told The Wall Street Journal: “If the Saudis want to avoid being stuck with most of their reserves stranded underground, the signs now say they better sell it off sooner rather than later.”

Further, a recent paper that appeared in Nature stated that Middle Eastern nations could, ultimately, have around 38% of their reserves stranded underground as a result of climate change as well as the expected global changeover to solar power by mid-century.

Oil giant BP also estimated that, at the current rate of production, Saudi reserves would last another 64 years.

Not surprising, then, is that the Crown Prince recently promised that the country could increase production by a million barrels immediately and raise the target to possible output of 20 million barrels daily. His words were: “We will sell at any opportunity we get.”

Talk, though, is cheap – including the recent chatter from the Saudis that the oil market glut was disappearing and the market rebalancing.

Despite all of this additional supporting evidence, the main reason I believe the Saudis want to get rid of as much oil as they can, while they can, is simple: I’m watching what the Saudis have actually been doing since the 1980s.

Just the Facts, Ma’am

They’ve been busy!

Saudi Aramco CEO Amin Nasser added his voice to that of MbS when he said, “Production will increase upward.” No kidding.

The rise this year is likely coming from the finish of the expansion project at the Shaybah field, which is increasing Saudi production capacity by 250,000 barrels.

Soudi Rigt Count

In addition, the Saudis are expanding the Khurais field. This will add another 300,000 barrels a day in production by the end of next year.

This is just the tip of the iceberg. Since 2014, the number of oil rigs has jumped from 58 to 67. And the number has nearly doubled since 2010. Last year’s number of rigs was at least a 20-year high for the Saudis.

This means the Saudis are working hard to expand those current fields and develop new ones. Unlike other oil producers, the Saudis have yet to cancel one project.

Arabian Surge: The number of rigs drilling for oil in three Arab countries has more than doubled since 2010

And when you hear the Saudis talk about a “slight” increase in production, keep in mind that, on a global scale, that’ll be much larger. An increase of a mere 5% in 2015 came to 500,000 barrels a day, enough to meet all demand growth in the developed world.

I’m sure many will continue to disagree with this forecast, but it looks to me as if MbS and the Saudis are moving on to phase two of their oil plan. That is, to produce more – shifting the risk of stranded assets to higher-cost producers in places like the U.S.

Or, as Jim Krane puts it: “Move their crude to market before the world moves on [from oil].”

Good investing,

Tim Maverick

Wall St Daily



36 Comments on "Saudi Arabia Heads From Crude to Solar"

  1. Anonymous on Mon, 27th Jun 2016 10:50 am 

    Complete and utter bollocks.

  2. dave thompson on Mon, 27th Jun 2016 10:50 am 

    http://postcarbon.podomatic.com/entry/2013-08-15T12_25_00-07_00

  3. shortonoil on Mon, 27th Jun 2016 11:03 am 

    “I’m sure many will continue to disagree with this forecast, but it looks to me as if MbS and the Saudis are moving on to phase two of their oil plan. “

    The Saudi have been saying that they can increase their production to 12 or 15 mb/d for the last 30 years. We are still waiting on the 12. The Saudi have not back dated their reserves in 50 years, but they stay at 280 mb.

    More garbage for the intellectually challenged!

    If the Saudis want out of oil its because they know that this graph is correct. It has been for the last 60 years:

    http://www.thehillsgroup.org/depletion2_022.htm

    It has a 60 year correlation coefficient of 0.955.

    The Saudis are going to replace 21.5 quad BTU per year with solar. Who are they planning on selling the electricity to – the camels?

  4. JuanP on Mon, 27th Jun 2016 11:08 am 

    Saudi Arabia’s oil production probably peaked in June 2015. We will know with more certainty by September. If they could pump more oil now they would which leads me to BELIEVE that they have entered terminal decline.

    This new prince is a real living fool if I ever heard of one. He reminds me of W. Everything he’s done so far has been a mistake. Look at Syria and Yemen. If stupid is as stupid does, this is one seriously stupid prince!

  5. HARM on Mon, 27th Jun 2016 12:00 pm 

    The KSA already has an infinitely renewable export: hate and terror. And they already export it all over the world, and this trade has been particularly “fruitful” in the west over the past several years. They should try to monetize that as the cornerstone of their “transition” economy. Who needs solar?

  6. PracticalMaina on Mon, 27th Jun 2016 12:04 pm 

    It must just be another subsidy for fuel…..right eroei negative on solar crowd?
    Short, they have an endless demand trying to desalinate enough water and provide ac to support a civilization in a land that is hotter than the devils dick.

  7. Apneaman on Mon, 27th Jun 2016 12:26 pm 

    Saudi Arabia Said to Tap JPMorgan, Citi, HSBC on Dollar Bond

    http://www.bloomberg.com/news/articles/2016-06-26/jpmorgan-citi-hsbc-said-to-be-hired-on-first-saudi-dollar-bond

  8. PracticalMaina on Mon, 27th Jun 2016 2:57 pm 

    Does that count as HSBC money laundering for terrorist again? Burn….

  9. makati1 on Mon, 27th Jun 2016 6:44 pm 

    Harm: “The KSA already has an infinitely renewable export: hate and terror.”

    They learned from the masters:

    “The … USA … already has an infinitely renewable export: hate and terror.”

    Nuff said.

  10. Survivalist on Mon, 27th Jun 2016 9:50 pm 

    World Leaders, and I use that term loosely, make statements for two different types of consumption; internal consumption and external consumption. It’s important to know first who MbS is speaking too before trying to decipher what he means. Most of what MbS has said publicly is for internal consumption. MbS knows that we know he’s full of shit. But Joe Saudi Sixpack doesn’t and these words are meant to placate the Saudi masses. He wants all the uppity princes who’ll soon be in the bread line to think everything is under control and the plan is working. This works to his advantage for many obvious reasons. MbS is a tyranny and quite possibly a dipshit but he’s far from stupid and he’s grabbing more power by the minute. That’s the plan. So far it’s working. Never hate your enemy. It causes you to underestimate them.

  11. Kenz300 on Tue, 28th Jun 2016 11:09 am 

    Around the world countries are moving to safer, cleaner and cheaper wind and solar power………

    Dubai Utility DEWA Said to Plan 1,000 MW of Solar Power Plants

    http://www.renewableenergyworld.com/articles/2016/06/dubai-utility-dewa-said-to-plan-1-000-mw-of-solar-power-plants.html

    Portugal ran entirely on renewable energy for 4 consecutive days last week | Electrek

    http://electrek.co/2016/05/16/portugal-ran-entirely-on-renewable-energy-for-4-consecutive-days-last-week/

  12. rockman on Tue, 28th Jun 2016 2:35 pm 

    Of course the KSA with its huge existing manufacturing infrastructure and hundreds of thousands of hard working and tech savvy citizens will easily strip China of a big chunk of its solar market share. LOL.

  13. PracticalMaina on Tue, 28th Jun 2016 2:55 pm 

    Rockman, why would they do that when China will come out there and set it up for them. A Spanish company comes into America to build a lot of our solar thermal.

  14. PracticalMaina on Tue, 28th Jun 2016 2:59 pm 

    They have money, sand and heat… that is the building blocks of most solar apparatus.

  15. JuanP on Tue, 28th Jun 2016 10:25 pm 

    Impractical “They have money, sand and heat… that is the building blocks of most solar apparatus.” What they have is an overpopulated desert without enough food and water to sustain their backward tribal population and a government that is running huge, unsustainable budget deficits. If there is one country in the world to get out of before its too late it is Saudi Arabia, IMO.

    Do you really expect a solar energy boom there? You’ve got to be kidding!

  16. makati1 on Tue, 28th Jun 2016 10:46 pm 

    JuanP, not to mention that most Saudis never worked a day in their life. They have foreign slaves do almost everything for them. Especially if any labor is involved. That country is the last place on earth I would want to live.

  17. rockman on Wed, 29th Jun 2016 2:16 am 

    Practical – “.why would they do that when China will come out there and set it up for them. ”
    I take the statements of MbS differently: not solar expansion for their internal consumption but selling to the rest of the world. He’s been talking about new industries to began replacing oil with respect to export revenue. While increased internal solar is a good idea it doesn’t generate less dependence on oil exports but more: they would have even more to export. Which would actually be required to pay for their internal use of solar.

    Which is directly opposite of decreasing the importance of their oil exports.

  18. Lawfish1964 on Wed, 29th Jun 2016 7:04 am 

    Great strategy. Keep adding rigs to an already declining oil field to create the illusion of increased production. Kind of like poking more holes in the bottom of a gas tank in order to get more gas out of it. You just deplete it that much more quickly.

  19. PRacticalMaina on Wed, 29th Jun 2016 8:22 am 

    JuanP, Sounds kind of like China, or the Southwest, it wont be pretty, but there is no other option, you cant keep pumping oil to desalinate water when you can just use the sun.
    Rockman, I have a feeling it is cheaper to desalinate water in the dessert using the intense sun, than use oil that you have to gained using expensive secondary recovery systems. I see Morocco or Tunisia as a better geographical location to export solar juice, SA neighbors are mostly sworn enemies with their own ff resources.

  20. PRacticalMaina on Wed, 29th Jun 2016 8:24 am 

    Alright, so the Southwest produces a ton of food and China is only a fraction dessert, but it is expanding, both China and SA are trying to expand food production beyond their borders.

  21. PRacticalMaina on Wed, 29th Jun 2016 8:26 am 

    Let me put it this way since comparing SA to other places doesn’t really make a great argument.. They tried to subsidize wheat production there, they should be able to throw a ton of non water consuming solar in.

  22. PRacticalMaina on Wed, 29th Jun 2016 8:34 am 

    In a world where you can borrow cheap, why not, I would think investors would have a little bit more confidence in solar than crude right now, since the non refining industry is taking a bath.

  23. makati1 on Wed, 29th Jun 2016 8:39 am 

    The KSA is dreaming the same techie dreams as some on here who never look at total systems. Time is not on their side. Nor is finance. They have to borrow the cash to make their dreams possible. They already run deficits from their oil sales. As oil slips lower in the price range the pain will only increase. Too little, too late.

  24. PRacticalMaina on Wed, 29th Jun 2016 8:43 am 

    Makati, I am not saying for sure that they are going to be a PV paradise, but when you run out of water and oil, a clear sheet of plastic and some seawater is a better bet than trying to squeeze the last bit of carbon out of an ancient field. Using ff for raw thermal energy in the hottest area of the world is bad business.

  25. makati1 on Wed, 29th Jun 2016 9:01 am 

    I understand. That method works under some conditions and can provide enough water to keep you alive, but not much more. To make it work in the quantities that they need is probably impossible. Certainly impractical.

  26. GregT on Wed, 29th Jun 2016 10:13 am 

    “a clear sheet of plastic and some seawater is a better bet”

    Clear plastic sheeting is a product derived from fossil fuels, and the UV resistant variety has less than a five year lifespan in direct sunlight.

  27. Rick Bronson on Wed, 29th Jun 2016 7:41 pm 

    Saudi’s have smashed the US Shale oil industry and here is the latest stats.

    Currently US production stands at 8.622 million b/d which is 988,000 b/d less than the peak set in 9.610 million b/d set in 2015-06-05.

    Now they will control the oil prices until their production falls down and then they will go down together with USA.

    https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=WCRFPUS2&f=W

  28. PracticalMaina on Thu, 30th Jun 2016 9:45 am 

    GregT, they have UV treated polycarb that can last way longer now.. Check out build it solar.com the guy has made dozens of collectors out of one specific brand of clear corregated roofing that holds up well. In a humidity and heat heavy environment it would have a reduced lifespan, but they can get more than 5 years out of uv treated polycarb.

    There are also alternatives to petrochemicals in plastics. Didnt Henry Ford make a hemp based plastic car? http://www.collective-evolution.com/2013/02/25/henry-ford-hemp-plastic-car-stronger/
    Actually I guess Hemp was only a small part of the cellulose portion, it was primarily pine and straw, but 70% by weight was simply cellulose.

    Aparently they can make clear plastic out of a bacteria bi-product from the breakdown of sewage. We got over 7 billion worth baby!

    https://en.wikipedia.org/wiki/Bioplastic

  29. PracticalMaina on Thu, 30th Jun 2016 9:49 am 

    Rick Bronson, I don’t think they will do much to the price, the global economy is on a weak footing with oil prices being somewhat in the middle between pain for the consumer and pain for the producer. They increase the price any significant amount, and everyone on the highway slows down, weekend trips get cancelled, demand gets damaged. Plus those frackers ramp up the poison campaign….

  30. GregT on Thu, 30th Jun 2016 10:00 am 

    “Aparently they can make clear plastic out of a bacteria bi-product from the breakdown of sewage.”

    Problem solved then Practical. Nothing to worry about.

  31. JuanP on Thu, 30th Jun 2016 10:50 am 

    Wow! Us oil production has fallen by one million bopd in the last year! How much will it fall in the next year? Another million?

    The USA is headed for a world of economic, political, and social pain. When this shit crashes it is going to sink. We have the biggest Real Estate bubble, stock bubble, currency bubble, and bond bubble in history happening right now in the USA. Will they all pop each other and blow up at the same time? That would be the perfect moment to start a nuclear war to try to scare and control the American sheeple!

  32. PracticalMaina on Thu, 30th Jun 2016 11:01 am 

    It makes sense the more I think about it, natgas is nothing but glorified shit air anyway 🙂

  33. PracticalMaina on Thu, 30th Jun 2016 11:04 am 

    GregT, if the forces, such as dupont, that helped stop the bioplastic car from entering the car market in the 40s get out of the way, there would be massive area for improvement.
    Anyone catch the article I posted a couple weeks ago about the Mexican engineer who figured out how to efficiently turn urine into power? It was on the web briefly but I haven’t heard anything about it since, he was claiming crazy efficiency which I was skeptical of, but the idea itself makes sense to me.

  34. Alan on Sun, 14th Aug 2016 4:17 pm 

    This should be a serious warning sign for what is yet to come. This is the turning point warning.

    Saudi Arabia has increased production to its proposed max. The numbers about the reserves are hogwash, they always have been, and are to simply protect production quotas. If they wait, to ride this out till the end they will face the same issues that the US faced once we peaked. Except there will be nobody for them to import from. They are making themselves dependent on the sun, not oil. They will let the world pay for it while they stop using it themselves. We have 30 years max (10-15 before importing countries pay through the nose)

    They have gone against OPEC recommendations and have exposed a “subliminal concern’ They are not going to come out and say it yet. This is a touchdown landing so they aren’t even dependant on their own supply.

    They know whats coming, whether or not they say its just the initiatives to reduce consumption or pollution. The world has exceeded peak supply. All the “gravy” easy access, cheap oil is used up. They see China and India’s increasing consumption while trying to be like the US. This is it folks. They are cashing out, this is the end of the gravy train. The next 10 years watch the prices. Petrochemicals fertilizer, farming, transportation all costs will increase. Everything is tied to this. This will keep gas/oil/heat/food low for now, while Saudi Arabia is going solar to not stay dependent on its own shortcomings and lack of oil to run itself. Its doing what we in the US should have done a long time ago.

  35. Alan on Sun, 14th Aug 2016 4:26 pm 

    Someone else said Saudi Arabia cant even exceed its 12MB production. They keep some, and export the rest, but yes they can barely prove up to the max.

    They are in the 18MB – 20 MB production range max, all fields combined wether or not on the OPEC books but keep close to 1/3 off the books, “pumped/produced reserves” the reserves they talk about are in the ground. There are “pumped reserves” and “produced reserves” that never get published, so who really knows. It appears that they are selling out now while they can.

  36. Boat on Sun, 14th Aug 2016 5:04 pm 

    Alan,

    Was your previous name geopressure? That whack made crazy posts like yours. Besides the idea the Saudi could hide 10’s of millions of barrels which is bat shyt crazy, your math is bad. The Saudi are pumping around 10.2 mbpd. 18-20 mbpd is just a smidgen higher. lol

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