
Saudi Arabia's Oil Wealth Is About to Get a Reality Check - ayanai
https://www.bloomberg.com/news/articles/2017-02-23/saudi-arabia-2-trillion-aramco-vision-runs-into-market-reality
======
nopinsight
Human ingenuity + industriousness > Raw materials, even the most valuable one

Even princes born with black gold will sooner or later be surpassed by
organizations run by inventors, scientists, and engineers. The values and
abundance generated by hi-tech services are increasing while traditional
energy sources are being supplanted by renewables.

“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, a former Saudi oil
minister.

~~~
jseliger
Yes. And this may be the most important part of the original article:

 _Demand for oil will peak just before then, according to Royal Dutch Shell
Plc projections, as alternative fuels and electric cars gain popularity,
putting Middle East energy producers on shakier footing._

The minute Tesla and others get electric vehicles to have sufficient range and
low enough costs, we're going to see demand for oil go into structural
decline.
([https://news.ycombinator.com/item?id=13039490](https://news.ycombinator.com/item?id=13039490))

~~~
ricardobeat
The majority of oil consumption is not by cars, but the transport industry
(ships, planes) and plastics. Better replacements for those are not in the
horizon yet.

~~~
dredmorbius
Mostly false. Private autos aren't the _majority_ of petroleum use, but are
the largest share of the largest share: road transport.

About 6% each aviation and shipping.

About 8% plastics and manufacturing, plus more to non-energy uses.

Some generation, residential, and commercial use (much of it heating).

About half to all road transport (1865 Mtoe of 3744 Mtoe). I belive that's
about 2:1 private autos vs. lorries.

Oil as chemical feedstocks is fairly substitutable -- an alternative
hydrocarbon source, or carbon from, say, limestone, might substitute. Oil as
long-distance transport fuel, most especially in aviation, not so much.
Shipping once moved by wind, and might again. Overland electrically-sourced
rail and possibly trucks might work.

I've got my doubts on the scalability of battery-operated vehicles, though
progress to date has been fairly impressive.

Rocketry is another hard-to-substitute option. RP-1 is highly-refined
kerosene, and by volume, your best bet. (Hydrogen packs a bigger punch by
weight, but requires far larger tanks and cryogenics.) Solid rocket motors
tend toward hydrocarbon sources. SpaceX relies on RP-1.

[http://www.iea.org/sankey/](http://www.iea.org/sankey/)

[http://www.iea.org/sankey/#?c=World&s=Final](http://www.iea.org/sankey/#?c=World&s=Final)
consumption

~~~
greglindahl
SpaceX, ULA, Blue Origin, and eventually Ariane are all headed towards
methane.

~~~
dredmorbius
That's a Mars-driven strateegy, no?

~~~
neolefty
SpaceX claims methane's better for engine reusability (much less soot buildup)
but that's as yet unproven. Efficiency is similar to kerosene.

~~~
dredmorbius
Should be only 85% of the net energy by weight if I understand petroleum vs.
alcohol correctly.

Actually, much worse: 46 MJ/kg for kero, 19.6 MJ/kg for methanol.

[https://en.m.wikipedia.org/wiki/Energy_density](https://en.m.wikipedia.org/wiki/Energy_density)

~~~
maxerickson
Methane, not methanol.

Presumably liquefied. 53.6 MJ/kg at your link.

~~~
dredmorbius
And more on the RP11 vs CH4 tradeoffs:

[https://space.stackexchange.com/questions/3161/why-is-
spacex...](https://space.stackexchange.com/questions/3161/why-is-spacex-
considering-methane-as-fuel-for-their-next-engine-the-raptor)

2004 technical paper out of Germany:

[http://arc.aiaa.org/doi/pdf/10.2514/1.2672](http://arc.aiaa.org/doi/pdf/10.2514/1.2672)

------
brownbat
Others have talked about the taxation faced by Aramco. I also wonder how well
Aramco is run.

I've heard government jobs in Saudi Arabia involve coming into the office
maybe once a month.[0]

I'm not sure how representative that anecdote is, and I'm not sure if that's
standard in Aramco too or not. Even if that's primarily just a factor of the
public sector, I imagine it'd make it hard to compete for high quality labor
in that ecosystem.

A large company sitting on abundant natural resources could develop lots of
inefficient habits... has anyone written about management a/o culture at
Aramco?

[0] [http://www.npr.org/2016/02/11/466457128/saudi-arabia-
turns-t...](http://www.npr.org/2016/02/11/466457128/saudi-arabia-turns-to-
plan-b-as-oil-prices-continue-to-fall)

~~~
jpatokal
Saudi Aramco is reasonably well run, because like all functional companies in
Saudi Arabia, it's operated almost entirely by expat labor with a thin layer
of Saudis in management and a not-so-thin slice of Saudis sprinkled throughout
mostly to fulfill Saudization quotas.

Government jobs, on the other hand, are 100% Saudis and function essentially
as a welfare/patronage system.

------
philipkglass
_The rationale also assumes Saudi oil, due to last about 73 years if pumped at
the existing pace, will be viable for decades even if global warming curbs the
world’s appetite for crude._

This is correct but I think that it understates the actual risk. _Even in the
absence of_ sustained coordinated action against anthropogenic CO2 emissions,
I find it hard to believe that surface transportation is going to remain
dominated by liquid fuels for that long. An EV can go a lot further on a
dollar's worth of electricity than an internal combustion vehicle can go on a
dollar's worth of liquid fuel. That's even without any imputed price on CO2
emissions. Right now cheap electrical "fuel" use is hindered by the high up-
front cost of vehicle batteries, but in 15 years, let alone 50? Time is not on
Aramco's side.

I'd believe that Aramco can remain a profitable business even a century from
now by focusing on non-fuel chemical products from oil. But oil as a commodity
isn't going to maintain its outsized importance in world trade after demand
for oil-as-fuel peaks.

~~~
droopyEyelids
I want your points to be true, but there is NOTHING in history to indicate
batteries will see an increase in capacity/decrease in cost similar to other
technology products.

It's tempting to believe that all problems are soluble, but it's totally
possible for there to be a problem, like "cheap, dense, durable energy
storage" that ends up being more than humans are capable of solving.

~~~
tedsanders
Sorry you're being downvoted.

On the capacity front, I think your caution is very well founded. Since their
commercial release 25 years ago, lithium ion batteries have only increased in
energy density by like 2.5x. The vast improvement in battery life of
electronics has come from the electronics, not from the batteries. And lithium
ion is already near (within an order of magnitude) of its ultimate theoretical
potential. Future progress here is going to get harder and harder. No battery
expert I know expects future progress to be as fast as past progress.

However, on the cost front, I think there's less reason to be pessimistic.
Here the limit is more economics, and less physics. As the scale of production
has risen, costs have fallen substantially over the past couple decades. And
over the next few years, world lithium ion production is set to triple again
with the Gigafactory and others coming online. How much cost savings this
brings is uncertain, but there's no theoretical reason that greater automation
and scale won't continue to push costs down.

tl;dr: Non-chemists are too optimistic about technical progress in batteries.
Future progress will almost certainly be slower. But there are no physical
limits preventing prices from continuing to drop with experience and scale.

------
powera
This seems like a textbook case of "governmental risk".

Very specifically, whenever the Saudi monarchy falls, Saudi Aramco is likely
to be worth literally nothing, as the oil reserves are seized by whatever new
government comes into power.

Even without the risk of revolution, the fact that there's currently no real
difference between the Saudi government and Saudi Aramco opens a lot of ways
that current "profits" can disappear fairly quickly.

~~~
oh_sigh
Likewise, would the Saudi government ever let Saudi Aramco fail, or even lose
a lot of its 'value'?

~~~
kogepathic
_> or even lose a lot of its 'value'?_

Yes? I mean, unless they're planning to run a pyramid scheme, by selling off a
portion of Aramco they will be reducing the value of their stake in Aramco.
It's not like a minority stakeholder in Aramco is going to be able to push
changes that would result in more value being created.

Things are about to get real for Saudi Arabia. The price of oil will probably
never recover the point where their government budget will balance. The whole
house of cards comes tumbling down if they piss off their populace by reducing
subsidizes and/or introducing taxes.

~~~
Cyph0n
The Gulf countries have already started implementing VAT on certain goods, and
I believe that the UAE will start charging VAT by next year.

And even after they implement widespread taxation, they won't have to worry
much about "pissing off their populace". You wouldn't believe just how much
they invest in surveillance, weaponry, and military training. Some of the top
dogs have their own private armies - usually military contractors - in case of
conflict within the monarchy itself. It's crazy stuff.

On top of that, citizens of Gulf countries are usually _very_ trusting of
their leaders for cultural reasons. It goes back to the bedouin way of life.
As for non-citizens (i.e., expats), they usually keep their mouth shut to
avoid ending up on the next flight back home.

The two reasons above are mainly why nothing happened in the Gulf during the
Arab Spring. Bahrain was an exception: the motivation there was more sectarian
than political. The Shia majority were not satisfied with the Sunni monarchy,
and so they wanted to install Shia rulers in their place. It's rumored that
Iran was heavily backing a coup attempt, which is why the Saudis were called
in.

------
macspoofing
Isn't Aramco the personal piggy bank of the royal family and Saudi government
in general? Aren't Aramco profits used to prop up the Saudi economy and pay
for things like major infrastructure projects?

How does all square with being a publicly traded company?

~~~
kevindong
> Aramco, formally known as Saudi Arabian Oil Co., pays a 20 percent royalty
> on revenues and an 85 percent income tax.

At those tax rates, basically yes.

> How does all square with being a publicly traded company?

Investors must take into the account those problems and change how much
they're willing to pay for Aramco accordingly.

------
bitL
How much of this is just a negotiation strategy to lower the amount somebody
has to pay to get the shares?

If there were WW3 including total technological collapse, then Aramco will be
amongst few ones that could still supply oil easily, as other sources in
shallow depths are mostly depleted, hence unreachable with a more primitive
technology. Then Saudis will be the only ones that could maintain a
civilization somehow resembling ours.

~~~
secfirstmd
They could start by building a civilisation in the first place that doesn't
treat women, gay people, minorities like second class citizens.

~~~
golergka
And people could just all get along. And everything just could be good forever
and ever. This "could" you used is far into hypothetical that I can't really
understand your point here.

------
tn13
Saudi's story has Spain written all over it. Spain once discovered huge silver
deposits quickly rised to a major global power but they totally failed to
invest in human capital eventually turning a poor country when the deposits
were over.

Saudi's downfall is going to be good for entire humanity. Saudi's oil money
has fueled wahabism across the world with disastrous effects.

~~~
mbroncano
Maybe I'm mistaken and you are surely referring to a different Spain, not the
one that established the first global empire, spawning half the globe barely
after medieval times, and lasting over three hundred years [0]. I'm pretty
sure Saudies (heck even USA) could settle with half of that.

* The Spanish Empire (Spanish: Imperio español) was one of the largest empires in history. It reached the peak of its military, political and economic power under the Spanish Habsburgs,[2] through most of the 16th and 17th centuries, and its greatest territorial extent under the House of Bourbon in the 18th century, when it was the largest empire in the world. *

[0]
[https://en.m.wikipedia.org/wiki/Spanish_Empire](https://en.m.wikipedia.org/wiki/Spanish_Empire)

~~~
Mao_Zedang
Does spain still have a global empire spanning half the globe? No, I think
their point stands, maybe spend less time name calling people pseudo
intellectuals.

~~~
kbart
_" Does spain still have a global empire spanning half the globe?"_

There were no eternal empires throughout the history and probably will never
be. Current world dominating countries are still in infancy compared to some
empires of the past. Spain _was_ one of the world dominating powers for
centuries and that counts for something.

~~~
mbroncano
Far beyond the point, which was KSA and the Spanish Empire are nothing alike.

Unless I'm missing a deeper point, for which I'll appreciate clarification.

~~~
tn13
Read Thomas Sowell here:

\---In 16th and 17th century Spain — its "golden age" — the windfall gain was
gold and silver looted by the ton from Spanish colonies in the Western
Hemisphere. This enabled Spain to survive without having to develop the
skills, the sciences or the work ethic of other countries in Western Europe.

Spain could buy what it wanted from other nations with all the gold and silver
taken from its colonies. As a Spaniard of that era proudly put it, "Everyone
serves Spain and Spain serves no one."

What this meant in practical terms was that other countries developed the
skills, the knowledge, the self-discipline and other forms of human capital
that Spain did not have to develop, since it could receive the tangible
products of this human capital from other countries.

But once the windfall gains from its colonies were gone, Spain became, and
remained, one of the poorest countries in Western Europe. Worse, the
disdainful attitudes toward productive work that developed during the
centuries of Spain's "golden age" became a negative legacy to future
generations, in both Spain itself and in its overseas offshoot societies in
Latin America.

In Saudi Arabia today, the great windfall gain is its vast petroleum reserve.
This has spawned both a fabulously wealthy ruling elite and a heavily
subsidized general population in which many have become disdainful of work.
The net result has been a work force in which foreigners literally outnumber
Saudis.

Some welfare states' windfall gains have enabled a large segment of their own
citizens to live in subsidized idleness while many jobs stigmatized as
"menial" are taken over by foreigners. Often these initially poor foreigners
rise up the economic scale, while the subsidized domestic poor fail to rise.

Do we really want more of that? \-----

[1] [https://www.creators.com/read/thomas-sowell/06/16/is-
persona...](https://www.creators.com/read/thomas-sowell/06/16/is-personal-
responsibility-obsolete-part-ii)

------
tbihl
Looking at the chart of largest reserve nations, you really have to commend
Canada for being as free and fair as their society is.

~~~
ue_
Canada is not a free society. There are various restrictions on pornography,
just like the US for example. They have no problem with censorship.

Edit: to be clear, I am referring to _written or drawn_ pornography depicting
fictional minors engaged in sexual acts. Not photography or video of child
abuse, or rape porn, or even bestiality (although I am against the lattermost
item being illegal too).

~~~
edblarney
Of all the 'freedoms' we can worry about, as a Canadian, not having the right
to see 'hand drawn child porn' is not remotely one that I am concerned about.

The 'real' issue of freedom in Canada is that it's basically the only country
in the world wherein it's illegal to pay a doctor to help you. That's actually
pretty crazy when you start to think about it.

~~~
guyzero
Ah, I replied to the wrong comment. "Canada is that it's basically the only
country in the world wherein it's illegal to pay a doctor to help you" \- this
is factually untrue. There are private medical clinics in Canada. Doctors are
not allowed to bill both provincial health systems as well as the patient at
the same time.

Geez, here's a 10 year-old article about private clinics:
[http://www.theglobeandmail.com/news/national/private-
health-...](http://www.theglobeandmail.com/news/national/private-health-
clinics-continue-to-quietly-multiply-in-ontario/article18180506/)

~~~
guyzero
Here's a 2001 article about the interaction of private and public billing in
Canada:

[https://www.ncbi.nlm.nih.gov/pmc/articles/PMC80881/](https://www.ncbi.nlm.nih.gov/pmc/articles/PMC80881/)

My personal medical advice to get get some ice on that burn.

------
jonknee
> Aramco, formally known as Saudi Arabian Oil Co., pays a 20 percent royalty
> on revenues and an 85 percent income tax.

No wonder they want to IPO!

~~~
astrodust
85% income tax is more like a skim given how that money's dispensed.

~~~
Animats
It's a tax dodge. Taxes paid by ARAMCO to the Government of Saudi Arabia are
meaningless, because ARAMCO is owned by the Government of Saudi Arabia.
However, those taxes can be deducted from US taxes by US companies which
import Saudi oil.

------
lacker
I hadn't heard the term "Tesla shock" before this article, referring to
lowered expectations for oil companies once people started predicting that
electric cars would eventually win out. It's a useful phrase ;-)

~~~
ntelson1s
I prefer Chevy Bolt Shock myself

~~~
erikpukinskis
Why? Planned Chevy Bolt production is tiny, won't make a dent in petrol
markets.

------
kchoudhu
The $2T valuation may have stood if they didn't socially kneecap themselves at
every turn while putting themselves at risk of internal and external collapse
by funding (and fighting) wars in their backyard.

------
cft
Can someone explain why they decided to suddenly go public after all these
years?

~~~
salimmadjd
My assumption is to prevent any future sanctions against the Saudi regime.
Once the markets and 401Ks are invested in the Saudi oil, the US government
will have a lot less options to put sanctions on them as the Wall Street
powerful lobby system will block it.

~~~
bogomipz
>"My assumption is to prevent any future sanctions against the Saudi regime."

I'm not aware of any impending sanctions by the UN against Saudi Arabia. I
haven't even heard this suggested. What would these be for? Can you elaborate?

~~~
JumpCrisscross
Good strategic planning shouldn't be driven solely by crisis.

~~~
cft
The argument about the Wall St lobby would have been always valid however. I
still wonder what triggered this specific timing.

------
ricardobeat
The chart is missing Brazil's pre-salt reserves, estimates range from 80b to
170b barrels.

------
HenryBemis
I hope the whole planet (and not _just_ the people who control oil and the
media) get a reality check and switch to renewable/green energy sources as we
are really poisoning our planet. But since Oil is a big-business the fight to
get rid of it before IT gets rid of us will not end any time soon.

~~~
exabrial
It's a bit more complicated than that. Roughly 1/3 of hydrocarbon use in the
USA's goes to 'cars', 1/3 'electricity production', and 1/3 makes 'stuff'.

Of the rough thirds, the 1/3 that makes energy is mostly domesticly sourced,
which is a good thing. We can ethically produce that as a backup to renewables
(safety and reliability reasons).

The third that 'makes cars go' was majority foreign until the 90s. Fortunately
we've turned that number around. Electric vehicles don't have the energy
density of gas cars yet. If you don't live in the desert of
California/NYC/etc, they're quite inconvenient. We need stronger magnets and
denser batteries. We can drive innovation in this area by letting market
forces act. Qe need to be careful about over regulation, as to not drive
reverse progress. I'm very hopeful and happy for electric in this area to
dominate.

The final third that goes to 'making things' can't be easily replaced ATM.
Hydrocarbon feedstocks to make everything from medicine to lightweight carbon
fiber are made from oil. We could possibly produce this domestically and at
least be assured it's being done ethically and safely. This is the slowest
area of innovation unfortunately, and if you're reading this, in your lifetime
will likely not be replaced by a process that doesn't involve hydrocarbons. A
breakthrough in this area would be sorting waste materials for recycling, or
an electric power source so dense, reliable, and cheap we could capture co2
and turn it into hydrocarbons (maybe nuclear here?)

~~~
astrange
Making things from hydrocarbons is less of an environmental issue, since the
carbon ends up becoming plastic instead of being released into the air. It's
still worrying that some clean freak countries like Japan wrap everything in 3
layers of plastic that can't be recycled.

------
known
Starts with bloom.bg/1O04ymn

------
kerhackernews
AHAHAHAHA.

They seriously think it'll bring it more than Microsoft, Google, Apple, and
Amazon combined?

