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Saudi Arabia Capitulates

October 7, 2016

In August 2015, Saudi Arabia declared war on shale oil development in the United States.

In October 2016, Saudi Arabia capitulated.

As in any conflict, there have been casualties. Perhaps 60 U.S. drilling companies have declared bankruptcy. Stock prices of oil companies collapsed. Thousands have been put out of work.

But the aggressor also suffered damage, with Saudi Arabia’s financial reserves falling by around 15%.

Meanwhile, those fighting for survival in the U.S. oil patch, found ways to improve drilling techniques, improve output from wells and lower costs.

The aggressor found its enemies getting stronger, while beginning to suffer economic strains at home.

Saudi Arabia has been producing oil at close to its maximum sustainable output of around 10.5 million barrels per day. It could increase output by about another 1.5 mmb/d, but only for relatively short periods without risking damage to its wells.

Saudi Arabia has inherent problems that will devour the country unless it can effectively change from a society based on handouts to its citizens, to a society that can produce economic value, for and by its citizens.

This is the goal, as stated by Deputy Crown Prince, Mohammed bin Salman bin Abdulaziz Al-Saud.

His goal is to create jobs for Saudi citizens, and transform the country from merely being a producer of oil.

To accomplish his goal, he needs money. While he initially thought the U.S. frackers could be put out of business, which would have allowed Saudi Arabia to effectively control the price of oil, he has found the frackers to be resilient … and in fact, becoming stronger.

There is no question shale oil producers can, not only survive, but also increase production, with the amount of increase dependent on the price of oil.

At $50 per barrel, the frackers can focus on the Permian and Stack to maintain output while making money.

At $65 per barrel, frackers can begin to increase output from less profitable plays, such as the Bakken. At $80 per barrel, shale oil production can be widespread.

Saudi Arabia’s new challenge is to allow the price of oil to rise enough to provide the money for implementing Muhammad bin Salman’s strategy for economic development, but not so much as to allow excessive production by the frackers.

Meanwhile, the collapse in CAPEX for ocean exploration and development around the world, will contribute to the demand for oil, overtaking supply.

In an odd twist, the frackers have become the swing producers.

Diagram of fracking operation. Diagram source not known.

Diagram of fracking operation. Diagram source not known.

The primary danger for frackers today comes not from Saudi Arabia, but from the U.S. government and the EPA, which are bent on eliminating fracking so as to cut the use of fossil fuels.

The frackers have won their war against Saudi Arabia, but can they survive attacks from the U.S. government?

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Nothing to Fear, Chapter 15, An Alternative Hypothesis, describes why the sun is the far more likely cause of global warming..

Nothing to Fear is available from Amazon and some independent book sellers.

Link to Amazon:

Book Cover, Nothing to Fear

Book Cover, Nothing to Fear

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5 Comments leave one →
  1. October 8, 2016 7:31 am

    Interesting analysis Donn. I thought the fight against US fracking came primarily from lobbyists (and politicians) being paid by Saudi money. If that money is taken off the table, who else gains by anti-fracking activism?

    • October 8, 2016 10:46 am

      It’d been extreme environmentalists who have been campaigning against fracking. The Sierra Club declared war agains natural gas three years ago, because methane, i.e., natural gas, is a green house gas. The EPA has been trying to prove fracking damages wells and aquifers, in its effort to prevent fracking.
      The Paris COP 21 agreement to cut CO2 emissions 80%, which is what the EPA has been demanding for the past several years, can only be achieved by eliminating the use of natural gas and coal. An earlier analysis I did, demonstrated we already have more NGCC power plants than will be allowed, and that building any more, after eliminating all coal-fired power plants, will be prohibited by rules cutting CO2 emissions 80%.
      I don’t know whether Saudi money is fostering anti-fracking campaigns, but its possible. The main push to stop fracking comes from groups like the Sierra Club, that are intent on cutting GHG emissions.
      Here is the link to my October 2014 article explaining why we will have a shortfall of electricity if we try to cut CO2 emissions 80% by 2050.

  2. Lucas Sandoval permalink
    October 10, 2016 5:39 pm

    Fracking saved the greatest nation called America. There is NO WAY to beat this thing in the long run. Saudi Arabia is burning huge amounts of money…this is not sustainable. Also, nuclear is the ONLY tech that can replace Fossil Fuels in the long long long term. Wind and Solar and other are nothing but scam. We need real energy that the green fringe can not and will not provide.

    • October 10, 2016 5:51 pm

      Thanks for your comment. Fossil fuels are essential to the growth and prosperity of the United States.


  1. Weekly Climate and Energy News Roundup #244 | Watts Up With That?

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