Saturday, August 15, 2015

Saudi Arabia Might Just Have Blinked In The Oil War




The picture is not pretty and low prices are here to stay for some time.  The head of Exxon thinks two years at least.


That is not enough to sink Saudi Arabia but it is enough to allow the advent of Dark Matter Energy or DME to become properly established.  Understand that this will mean a shift for the entire automotive industry in a single season.  

Gasoline sales will then enter a rapid decline lasting less that five years as all old stock is either mothballed or converted.  Add in the conversion of all grid power to a similar system and the market for oil will be completely over.  


We can now predict time frames rather well.  Development work is well underway and  2018 through 2023 should see a global conversion to DME that ends the oil industry.

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Saudi Arabia Might Just Have Blinked In The Oil War

Saudi Arabia’s oil minister Ali al-Naimi attends OPEC’s 6th International seminar at Hofburg Place on June 3 in Vienna. (JOE KLAMAR/AFP/Getty Images) 

http://www.forbes.com/sites/timtreadgold/2015/08/06/saudi-arabia-might-just-have-blinked-in-the-oil-war/

Kenny Rogers is probably not well known in Saudi Arabia but if recent speculation about the kingdom resorting to the international debt market is correct then the words of The Gambler should be called, loudly, from every minaret in Riyadh.

If you don’t know Kenny’s signature song, it’s the one which includes the refrain: “You’ve got to know when to hold em, know when to fold ‘em, know when to walk away, know when to run.”

In the case of Saudi Arabia, and the unconfirmed reports of it seeking $27 billion in debt via an issue of bonds, it appears to be adopting the gamblers strategy of seeing off its opponents in the increasingly competitive oil world by calling “raise ‘em.”

Betting The House (Of Saud)

What the debt raising signals is that the kingdom is prepared to bet the house of Saud on a high-risk gamble based on a belief that its vast oilfields can outlast everyone else’s oilfields, especially the newcomer, U.S. unconventional (or shale) oil.

Until now, Saudi Arabia’s low cost oil and its cash reserves, estimated to be around $670 billion, was believed to be sufficient to frighten rival oil producers out of the business, clearing the way for a much-needed increase in the price, once the oil-glut subsides.

Several recent events indicate that the tactic of flooding the oil market to drive high-cost producers out of business might not be going to plan.

More Rigs Drilling Not Fewer

The first hint that all is not well on the Saudi side of the table came in the form of last week’s count of active U.S. oil and gas drilling rigs by the oilfield consulting firm Baker Hughes BHI +0.41%.

Rather than decreasing, which had been the trend for months, the rig count rose, only by five to 664 active rigs, but the increase indicated that the tactic of oil-market flooding is not working as well as was expected when launched last November.

The next clue that the oil flood will not abate soon comes with estimates of U.S. unconventional oil production efficiency improving dramatically since the oil price started to fall because of the Saudi-led flood.

Shale Drillers Becoming More Efficient

One claim is that U.S. unconventional oil producers are 50% more efficient than this time last year, and that more savings have been identified which could keep oil output at near record levels for months and possibly years.

Saudi Arabia’s rumored resort to the debt market is not a sign that the kingdom is about to “fold,” but it is a pointer to the increasing pressure under which the big oil producer has found itself, with oil income falling as it seeks to spend more on defense to counter the likely reemergence of Iran as a regional power.

A year ago, the Saudi government was confident that the traditional approach to an oil glut, a cut in production, was not the correct approach in the current situation.
The Technology Is Out Of Its Box

The concern was that a production cut would encourage even faster expansion of U.S. unconventional production and a worldwide spread of the technology which has made it possible to extract oil and gas from rocks once considered too tightly packed to ever produce commercial quantities of oil.

Increasing, rather than decreasing output was seen as a clever move because in a war of attrition the leaders of Saudi Arabia were confident that they would win.

But, rather than U.S. unconventional oil producers being squeezed out of business a dangerous game of bluff has developed with everyone in the energy business being hurt in some way.

The question which no-one can answer yet is: Who will blink first because the pain has become too great? While the Saudi debt plan might not be a blink, it is a hint that other gamblers at the oil table might see as a sign of weakness.

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