
Saudi Arabia’s Plan to Extend the Age of Oil - jack_axel
http://www.bloomberg.com/news/articles/2015-04-12/saudi-arabia-s-plan-to-extend-the-age-of-oil
======
beat
This is a basic challenge to our attempts to get off fossil fuels. The only
way for alternative energy sources to be viable is if they are cheaper than
fossil fuel. But since fossil fuel supply outstrips demand, and prices have
been set since the 1970s by cartel rather than market forces, there's always
been the potential for the cartel to simply drop prices through the floor if
they felt it would advance their interests.

That time is here.

But as Ghandi said, first they ignore you, then they laugh at you, then they
fight you, then you win. They've gone from laughing at alternative energy to
fighting it.

~~~
emodendroket
There is no reason besides lack of political will that that goal couldn't be
achieved through policy.

~~~
beat
International policy, when there's a clear financial benefit to countries that
ignore the international policy.

Good luck with that political will.

~~~
emodendroket
It's very rare that any country's government consists entirely of people
acting in concert, so it seems strange to make a sweeping statement like that.
Besides that, there are also real costs to environmental devastation.

~~~
beat
Let's say government A implements a carbon tax that increases fossil fuel
costs by 25%. Government B chooses not to do so. So energy, the driver of the
economy, is 25% cheaper for government B, giving them a competitive advantage.

Now government A will be under massive internal pressure to abolish the carbon
tax, because they're losing market share to the cheap energy of government B.

That's why it won't work. Externalized costs are a problem, but they're not a
problem we're going to do anything about in a serious way.

~~~
emodendroket
The same could be said for international regulations on, say, fishery. We
nevertheless have a system in place that, while flawed, is considerably better
than just throwing our hands up.

~~~
beat
Good point, but it's a little different. It works well for fish with well-
defined fisheries in territorial waters, but it doesn't work for open ocean
species. Bluefin tuna in particular is an example. They often cross oceans to
get to breeding grounds, and that water is totally unregulated. It can be
fished without regulation or reprisal.

------
danieltillett
... and why do we have to follow? The sooner the world moves away from oil the
better.

~~~
ams6110
The world will move away from oil when the alternatives are more economical.
Any other conclusion is magical thinking.

~~~
acjohnson55
But this can be (and is) manipulated by government policy and social dynamics.
The externalities of the fossil fuel energy binge are becoming increasingly
impossible to ignore, which is depressing demand.

~~~
monk_e_boy
Do you think Africa, China, India all think like that? Most of whom are living
on or below the poverty line? They'll be driving old put-puts and crappy desel
trucks, tractors and cars for tens of years to come. How long before
second/third hand electric cars are being exported in tens or hundreds of
thousands to these countries? 50 years?

No one I know drives a NEW car, and I live in the UK. We all wait for 2nd/3rd
hand cars to get to us.

~~~
justincormack
Well India has very large kerosene subsidies for the poor, which they are
managing to cut because prices have fallen. Replacing these with solar
subsidies would make a huge difference, and cut fossil fuel use. And
e-rickshaws took off quite fast.

The UK had new car sales of almost 2.5 million last year, ridiculously high,
the highest in Europe, thats almost 10% of households bought a new car/

~~~
msandford
10% of households bought a new car, and that means that the average lifespan
of a car with its FIRST owner must be on average 10 years. Cars might last
20-30 years in the UK as the previous poster pointed out, and longer in the
rest of Europe which is already "rich" relative to India. I think you're
proving his point exactly.

~~~
magicalist
> _10% of households bought a new car, and that means that the average
> lifespan of a car with its FIRST owner must be on average 10 years._

Maybe I need more coffee, but wouldn't that only be true if every household
only bought new cars?

In any case, we don't have to guess these things. Simple search found that in
2011 the mean car age on UK roads was 7.44 years. Even accounting for the long
tail, that's actually pretty good.

~~~
msandford
Ah, excellent point. Yup, I got that one wrong!

------
fredkbloggs
"Demand destruction" is nonsense. There will always be demand for
hydrocarbons. Oil and its distillates remain the only viable means of fueling
most motor vehicles, Tesla's hype machine notwithstanding. Even if you could
somehow find the trillions of dollars needed to electrify every railway in the
world and the tens of trillions more to build enough lithium batteries to
replace every auto on the world's roads with an electric one (assuming you
didn't use that lithium for grid-tied residential storage instead), you would
still have shipping, industrial processes, home heating, forklifts, barbecues,
remote residential, mining, and forestry applications, trucking, job site,
datacenter, and medical generators, legacy power plants, and countless other
sources of demand for petroleum products. Plus some that probably don't even
exist yet (many of which may well be carbon-neutral, unlike fuel
applications). The notion that $150 oil's modest pinching of SUV drivers'
wallets will magically make all of the above go away is lunacy.

This is great for all the shale and other high-cost producers, at least for
those with patient investors. The Saudis are setting things up so that the
folks with shale will be the last people with accessible oil. The sooner the
shale producers shut down, the more oil they'll have available to sell later
at prices vastly higher than any ever seen. Meanwhile, the Saudis will have
pumped their fields dry at rock bottom prices, minimizing their total return.
Economically speaking, this is the biggest gift to the US and Canada that the
Saudis could possibly make. All that's left is for investors in shale to sit
tight, or failing that to sell out to wiser ones at fire-sale prices. Keep
careful watch on who buys up the leases from bankrupt shale producers over the
next year or two; if they have the right attitude they will be worth a dozen
fortunes a few decades down the road.

Thanks, Naimi!

~~~
crdoconnor
>Tesla's hype machine notwithstanding.

The Nissan Leaf demonstrates the real future of electric vehicles, not Tesla.

>The notion that $150 oil's modest pinching of SUV drivers' wallets will
magically make all of the above go away is lunacy.

Running your car on electricity is already way cheaper than gasoline and has
been for some time. The only thing needed to get most people to switch is a
_slightly_ cheaper and hardier battery. A more expensive electric car is often
still cheaper in the long run.

The Saudis can see this, which is why they're worried, and that is the main
reason why oil is so cheap right now and will remain so, possibly
indefinitely.

------
josefresco
Does a documentary or any in-depth information exist for the King Abdullah
University of Science and Technology? I found the details of this university
fascinating.

FTA:

 _Heavily armed guards on land and at sea protect the facility, where unveiled
women study and work side by side with men, undisturbed by the religious
police who patrol Saudi cities. Research there is aimed at scientific and
commercial breakthroughs using those things Saudi Arabia has in abundance,
such as sun, sand, and saltwater._

~~~
seivan
The irony, when necessary, islamic laws don't apply because you need to do
scientific break throughs.

~~~
iwwr
The bigger headache is keeping those educated people in SA, a country unlikely
to reform socially very much to accomodate them, let alone the competition for
skilled people in general. The social exclusion of women alone is a great drag
on productivity.

~~~
mark_l_watson
You might be underestimating the happiness factor of the SA middle class.

A few years ago two SA college professors hired me to remotely tutor their
daughter in computer science. She seemed very content with the status quo and
her prospects for a happy life. I have to admit to some surprise about her
attitudes, and I realize this is only one data point.

~~~
pakled_engineer
The Saudi regime now offers fully paid foreign school and a comfortable living
allowance, thousands of them are in my city going to university. They are all
total hedonists here but told me they want to go back home after and enjoy
their privileged status there. None of them want to stay overseas that I've
met.

------
venomsnake
Seems that nobody is getting peak oil right. The rise of the North Dakota
shale is the confirmation of that theory.

Also Saudi Arabia is doomed. The kingdom will be collateral damage in the
poaching war (its not hot, its not cold) ... to hit russia, the US is doing
its best to bring Iran back online. US is self sufficient so they don't fear
supply crunch, Europe is moving fast with renewable energy ... and we have
nice battery progress lately which is main roadblock.

~~~
wcoenen
> _US is self sufficient so they don 't fear supply crunch_

The USA is a net importer of crude oil and petroleum products. At a level of 5
million barrels per day.

[http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=mt...](http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=mttntus2&f=a)

~~~
criley2
Majority of US imports come from Canada. American reliance on Middle Eastern
oil is small.

America is down to 27% imports:
[http://www.eia.gov/tools/faqs/faq.cfm?id=32&t=6](http://www.eia.gov/tools/faqs/faq.cfm?id=32&t=6)

America imports roughly three times as much from Canada as it does Saudi
Arabia:
[http://www.eia.gov/tools/faqs/faq.cfm?id=727&t=6](http://www.eia.gov/tools/faqs/faq.cfm?id=727&t=6)

America currently has 690 million barrels in strategic reserve (It's silly to
assume that Canadian imports would ever be cut off, but if the 3 million
barrels elsewise got cut, we could potentially last for years on the reserve).

That 690 million barrel reserve doesn't count the nation stock of oil. The
United States is experiencing a massive oil glut with the oil inventories
currently at an 80 year high (and sitting near maximum national capacity) at
482.4 million barrels of inventory.
[http://www.arkansasonline.com/news/2015/apr/13/tanks-full-
of...](http://www.arkansasonline.com/news/2015/apr/13/tanks-full-of-oil-u-s-
refineries-to-pum/?f=latest)

So yeah, the US imports about 5,000,000 barrels a day (strong majority of that
from Canada), but has over 1,000,000,000 barrels of oil stored inside our
borders as inventory and reserve.

~~~
maxerickson
Am I doing the arithmetic right, that it is a 200 day reserve?

That creates some flexibility, but it isn't that long a period of time.

~~~
pixl97
200 days at current usage. If the supply was cut off, of course, prices would
go up and usage would go down. Prices going up would re-open a huge amount of
U.S. production that is currently shut-in.

------
woodpanel
Interesting throughout. As I understand it, this policy is a tool for buying
the Saudi ruling class time to reshape the society into somthing that is
compatible with and competitive in the future, yet saudi-arabic.

Such Top-to-Bottom approaches are often loathed upon but I'd say good for
them. Still, at some point the money spent on its citizens well-being will
have to exceed the money spent on mistreating them. How many educated Saudis
does it take to stand up for the whip-lashed ones?

Betting that transformation-process on the oil-market seems like a risky
business to me.

------
crdoconnor
Well, they've moved on a little. In 2009 their plan was to ask for
_compensation_ from countries like the US should their use of oil start to
fall:

[http://www.nytimes.com/2009/10/14/business/energy-
environmen...](http://www.nytimes.com/2009/10/14/business/energy-
environment/14oil.html)

~~~
altcognito
I think this is the real underlying issue. SA is looking at all this oil
inventory, and if their oil ends up going unsold, they lose money in the long
run. This may end up being a clearance sale. My guess is that they'll try to
seek a maximum price without reigniting the US shale insustry over the next
year. That price might be $60/$70.

~~~
crdoconnor
Well, it costs them virtually nothing to extract, which is why they are able
to sustain such low prices for such a long time.

In the long run they are screwed by the Dutch disease. They don't create
_anything_ apart from oil, so once demand dries up, their exports shrink 90%
and their economy shrinks 55%. This probably means violent revolution as well
as impoverishment.

------
tormeh
tl;dr: SA is lowering prizes not only to kill shale, but also to prolong the
age of oil and buy time in order for the country to find other sources of
income.

------
wahsd
We should be pushing legislators to dump massive amounts of money into
alternative energy and (anther issue that is grossly overlooked) alternative
materials research and policy changes.

Even if we were able to sever the ties to oil for energy, it still does
nothing for all the various products that are made from oil. I don't most
people quite realize how much of basically everything around them is made
primarily from oil based products. Heck, you even eat and drink oil based
products.

------
btilly
Here is my brother's pet theory on why the price of oil fell.

Saudi Arabia wanted the USA to intervene against ISIS. The USA wanted the
price of oil the fall to hamper Russia and Venezuela. Russia because they are
getting aggressive and doing things in the Ukraine and Syria that we don't
like. Venezuela because they are the center of anti-Americanism in South and
Central America.

Which is exactly what happened. We bombed ISIS. The price of oil fell. Russia
and Venezuela have been hurting.

There will likely never be proof whether this theory is correct. But
leadership in both Venezuela and Russia have come out with the same theory.
Articles like [http://www.nytimes.com/2015/02/04/world/middleeast/saudi-
ara...](http://www.nytimes.com/2015/02/04/world/middleeast/saudi-arabia-is-
said-to-use-oil-to-lure-russia-away-from-syrias-assad.html?_r=0) make it clear
that the USA and Saudi Arabia are playing the geopolitical angle with Russia.
And our current efforts to normalize relations with Cuba sure looks to me like
an attempt to strip Venezuela's closest ally away from them.

~~~
nailer
Why would Saudi Arabia be against ISIS, except as a rival? Wahhabism
originates in Saudi Arabia.

[http://www.independent.co.uk/voices/comment/iraq-crisis-
how-...](http://www.independent.co.uk/voices/comment/iraq-crisis-how-saudi-
arabia-helped-isis-take-over-the-north-of-the-country-9602312.html)

~~~
beat
ISIS is fundamentally different from Al Qaeda and the sort of Wahhibist
terrorism that the Saudis have historically been involved in. It is a direct
threat to the Saudi government, and every other Arab government.

I'll point out that the Saudis have actively bombed ISIS. They're militarily
involved in this war. It's a huge, huge deal for them.

~~~
crdoconnor
ISIS was actually partially funded from Saudi Arabia.

~~~
Mikeb85
Individuals in Saudia Arabia who are against the monarchy. Not the Saudi
government per se. Although the lines are certainly blurred when you consider
that both the US and Saudis funded 'moderate' rebels in Syria, many of whom
weren't so moderate and joined ISIS. And then of course Qatar and Turkey have
also funded and assisted various rebel groups in Syria, many of whom are now
ISIS as well.

~~~
beat
ISIS has tremendous popular support. A lot of ordinary people throughout the
Arab world applaud their return to a pre-westernized Arab society. They
actively provoke Arab governments, because it can lead to revolution in those
other countries.

So yeah, lots of wealthy individuals in Saudi Arabia have funded them. But the
government itself is terrified.

------
IBM
So the good news is that their intentions seem to be to keep oil prices low
for a prolonged period. Was wondering how long they'd keep prices at current
levels. Should be a lot of carnage and opportunity for finding bargains once a
lot of these over leveraged oil companies start defaulting.

~~~
eternalban
s/their intentions/their instructions/g

------
ddorian43
They came from the desert and they will return to it desert.

Question: If your land/country is a desert, it's very costly to live there,
right?

~~~
josefresco
Maybe the desert they'll return to will be one with schools, technology and
...progress.

~~~
TheHypnotist
I think he's quoting (paraphrasing) a Saudi Arabian prince/king.

~~~
mikeash
For those unfamiliar:

"My grandfather rode a camel, my father rode a camel, I drive a Mercedes, my
son drives a Land Rover, his son will drive a Land Rover, but his son will
ride a camel."

From
[http://www.gluckman.com/DubaiBiz.html](http://www.gluckman.com/DubaiBiz.html).

~~~
josefresco
Thanks for this.

------
andyl
carbon tax - now!

