K.J. Rodgers
Crownsville, Maryland
….
….
The use of fracking technologies for oil and gas production is liberating the U.S. from foreign oil dependence causing OPEC’s Saudi Arabia to have trouble paying its bills.
Since the 1960’s, Saudi Arabia has been one of the world’s largest oil suppliers. As part of OPEC, we have watched the country lead oil embargoes and threaten world policies with by cutting off supplies. For those who remember the Gas Crisis of 1973, it was, perhaps, the first and best example of how the Saudis have used oil to influence international relationships, employing a form of blackmail over other countries.
OPEC has been such a large dictator of energy supply that many members have built lavish countries and allowed for several members of the royal families to flamboyantly live playboy lifestyles and purchase gold vehicles – often running afoul of the law. We have also seen these oil rich countries funding anti-fracking causes in attempts to slow down exponentially expanding natural gas technologies such as CNG and LNG as the alternative to their own oil production and exports.
Rapidly evolving technologies are also being applied to natural gas development and, as we discussed a few weeks back, American oil output is up 88% from 2008 to 2015. That is a lot of stock being pulled out of the hands of OPEC and they are starting to feel the burn (no pun intended).
A recent article by Bloomberg points out money is so tight in the Kingdom, that Saudi Arabia is now offering contractors IOU’s. By offering something similar to bonds, contractors are being told to hold on to them until they mature or sell them to a bank. The article states “the country will probably post a budget deficit of about 13.5 percent of economic output this year, according to International Monetary Fund estimates, pushing the government to borrow an estimated 120 billion riyals ($32 billion).” Moody’s has downgraded the country’s ratings due to the decreases in oil prices and their inner price war with fellow OPEC member, Iran, is not helping their efforts.
OPEC’s list of member countries includes many counties that historically haven’t had the best track record for playing nice with the U.S. and that is even more of a reason America needs to continue to play a part in natural gas exports. In March, when the U.S. sent its first LNG export to Brazil, it was another step toward energy independence from OPEC nations (including the rapidly deteriorating socialist paradise of Venezuela) for not only us but others. These exports also set a path forward for natural gas prices to stabilize.
The boom that came from fracking and horizontal drilling had the effect such things have in all commodity businesses; production soared and prices fell to the benefit of consumers and detriment of producers. We now have an abundance of natural gas and the resulting prices have depressed production with some reduction of labor, but it’s normal and, as Cabot Oil & Gas Director of External Affairs, George Stark has stated, the industry is still a blessing to those areas where it is taking place and will be back with vengeance. This is all the more reason we need to ensure our policy makers are thinking with reason and not simply responding to ideological pressure from so-called environmentalists whose real objective is to kill industry.
When we have the infrastructure we need with projects such as the Constitution Pipeline, we can be better situated to supply our homes, our energy production, and our neighbors with affordable natural gas not to mention fueling CNG vehicles and supplying LNG to other countries. With this kind of plan in place to reduce dependence on foreign oil from countries such as Saudi Arabia, we will probably continue to see them sending checks to fund fractivist propaganda like Promisedland but it isn’t going to much good for them. The game is up for them, thanks to fracking. They’ll just have to get over it.
This is GREAT!
Great article! It’s a thing of beauty to witness poetic justice. Now if we can expand capacity in current refineries for WTI, and build new ones for the same purpose, then we will be closer to eliminating imports and gaining independence.
Hydraulic Fracturing and horizontal drilling has increased the USA’s ability to produce about 9 MM Barrels of oil per day. Initially this USA shale oil reduced the world demand and with lifting the ban on USA oil export the split between Brent Oil and West Texas Intermediate has just about disappeared – indicating that USA shale oil is being bought on the world market. Please note however the drilling cost of USA shale oil is between $20-30/barrel while Saudi Arabia’s unit drilling is about 90% less. So Saudi Arabia and most of OPEC could lower their prices the drive out USA shale oil – but will they? Dropping prices reduces profit requiring the use of National Reserve Funds to pay for governmental services and underwrite the low cost of energy etc.
Shale oil, thanks to hydraulic fracturing and horizontal drilling, has made the USA energy independent. The side effect of lowering the world price of oil has the most serious effect on Syria and Iraq whose oil revenues help fund terrorist activities
Richard W. Goodwin 5/23/16
When I followed your link to the Bloomberg article, the title is “Saudi Arabia Considers Paying Contractors With IOUs” but, while making your creditors take a haircut is a low Donald Trump move, you can only go to that well once. Any new construction in the kingdom just went up as least as much as the discount for cashing bonds in early. I suspect the country is in far better shape than you think and will get prices low for a while.
On the other hand, the Saudis have crushed both the Russian and Iranian economies for the time being, as well as creating much doubt about any long term debt based on oil revenue. The deep in debt gas companies might want to consider paying off their billions of debt and securing a less expensive and more secure local market, before attempting to finance risky export ventures. The Saudis have only to wait a year or two and flood the world with oil for a month or two to freak out the bankers and the lines of credit for US gas companies dry up. Banks hate FUD (fear, uncertainty and doubt).
it’s nice to see OPEC lose some leverage at least, that region of the world would have nothing if not for the oil that has financed the obscene luxury of their privileged ruling class.
new drilling tech here has been incredibly beneficial for lower and middle income earners in driving down energy costs, for now. and it should, in theory, make us more independent, unless the profit motive takes over as exporting restrictions are eased.
Democrats are now the anti-technology party: a bunch of sign waving utopian clowns and hypocrites, the Church of Climatology. they vilify the only realistic grid scale energy solutions- nuclear and gas, and of course oil… none are perfect, but our comfy lives would come to a screeching halt without same. in a perverse joke, in Cuomo’s govt via propaganda, cloudy frigid NY will soon be the solar capital of the world.
I have told my kids that the much-decried “fracking” technology will be the technological-breakthrough of their generation, and they look askance at me, having heard too much of the ‘anti-‘ propaganda to think and observe rationally. Time will tell.