5 ms·

Call me crazy, but I think there's something else going on here. What if Saudi Arabia is having a fire sale? There's a ton of science that says that we can onl

by diafygi 11y ago

Call me crazy, but I think there's something else going on here. What if Saudi Arabia is having a fire sale? There's a ton of science that says that we can only pull up half of our current oil reserves to cap climate change at 3 degrees (2 degrees isn't even feasible)[1][2]. That combined with the political and economic tides starting to shift in favor of renewables/nuclear and electric vehicles[3], peak carbon is starting to look like it will happen around 2020 (only 5 years away)[4]. So, if the world will only pull up half of what it already has in reserves, it's a great strategy for Saudi to drive down price and try to make sure most of that half is from their pool. I'm in renewables, and there's a common question we always ask: will oil die at a high price or a low price? It looks like it's going to be a low price. [1]: http://www.carbontracker.org/report/wasted-capital-and-stranded-assets/ http://www.carbontracker.org/report/wasted-capital-and-stran... [2]: https://en.wikipedia.org/wiki/Carbon_bubble https://en.wikipedia.org/wiki/Carbon_bubble [3]: http://www.npr.org/sections/thetwo-way/2015/12/12/459464621/final-draft-of-world-climate-agreement-goes-to-a-vote-in-paris-saturday http://www.npr.org/sections/thetwo-way/2015/12/12/459464621/... [4]: https://www.iea.org/newsroomandevents/pressreleases/2015/june/iea-sets-out-pillars-for-success-at-cop21.html https://www.iea.org/newsroomandevents/pressreleases/2015/jun...

tristanj 11y ago
This does not match any of the Saudi press statements on the oil situation. The Saudi position and their motivations have been consistent for months with thousands of articles documenting this. In summary, publicly, they are not reducing oil output because in the previous oil crisis, they cut production and suffered heavily vs those who did not. The private reason they are still pumping is that they intend to bankrupt/destroy the US Shale industry. They've done an excellent job at this. These articles with inside information never mention "climate change" or "renewables" as the reason for the situation. Unless you can show sources showing the price change is because of climate change, this just a delusional conspiracy theory.
- tomp 11y ago
  Why would you assume a market actor is being straightforward about their strategy, especially if others being aware of this strategy would put them at a disadvantage? Deception is a competitive strategy!
  - tristanj 11y ago
    I never made this assumption.
- diafygi 11y ago
  Hence the "call me crazy" :) However, I feel like all the chatter about Saudi behavior is short term (<5 years). Where are the articles discussing the 10-30 year outlook? It just seems like the oil industry is blissfully ignoring the whole "stranded assets" problem and focusing on short term strategy.
  - tristanj 11y ago
    There are few articles on the 10-30 year outlook because it's been discussed so many times (see peak oil). No one wants to read old news. Anyway, one of the biggest flaws in your theory is how humanity will ween off oil, given the growth of renewables/electric cars. Oil is a finite resource. If there is a non-zero need for it, people will consume it and dip into this finite pool. As the pool depletes, prices will increase. So currently, what is oil used for, and do we expect to use oil in the future? There are numerous critical uses for oil. Oil derivatives are used to fertilize most of the food on the planet. Oil derivatives used to make almost all clothes sold today. Oil derivatives are used to make tires, shampoo, paint, soap, toothpaste, rubber, glasses, and 10s of thousands of other products. Many industrial solvents, essential for 20th century goods, are oil derivatives https://en.wikipedia.org/wiki/Petrochemical https://en.wikipedia.org/wiki/Petrochemical . Here is a partial list of products made from petroleum http://www.ranken-energy.com/products%20from%20petroleum.htm http://www.ranken-energy.com/products%20from%20petroleum.htm . There are just so many uses for oil. Oil is critical for modern American life. Many experts expect oil based products to be used by humanity for the next thousand years. Unless there is a drastic change in how oil is produced, petroleum will be consumed until all cost-effective reserves are depleted. The assumption the world "will only pull up half of what it already has in reserves"(!!) is naive.
    - mrfusion 11y ago
      Aren't those other uses locking up the carbon though?
      - tristanj 11y ago
        In the end, these products end up thrown in a landfill or dumped in the environment. Over time, bacteria decompose them and convert some back to carbon dioxide. It's better to keep the oil in the ground rather than temporarily store it in some petroleum derivative.
danieltillett 11y ago
If Saudi Arabia keeps up their "fire sale" there is little chance we will reach peak carbon in 2020.
andys627 11y ago
I can't think of why else they would drive down price? (I mean this in the non-rhetorical sense... I'm genuinely curious and haven't read a convincing explanation)
- yxhuvud 11y ago
  They need the money. Why would it be more complicated than that?
  - andys627 11y ago
    Do they? Please provide source...
    - myNXTact 11y ago
      http://m.csmonitor.com/World/Global-News/2015/1023/Saudi-Arabia-could-run-out-of-financial-assets-within-five-years-IMF-warns http://m.csmonitor.com/World/Global-News/2015/1023/Saudi-Ara...
    - gchokov 11y ago
      What source would you want? Everybody needs money even if they have enough. Please stop this "provide source" movement for obvious things.
    - seren 11y ago
      Expensive war (or military operations whatever you want to call it) in Yemen, plus falling oil price means KSA have issued bonds for the first time in a long time : http://www.wsj.com/articles/saudi-arabia-issues-bonds-worth-5-billion-to-plug-budget-shortfall-1439305126 http://www.wsj.com/articles/saudi-arabia-issues-bonds-worth-... So yes, they somehow need some cash.
  - cmdkeen 11y ago
    But they get the money by having a much higher oil price. Saudi needs oil to be $106 a barrel to balance it's budget, up from in the $50s in 2010. You can't pump your way to profit, that's why OPEC operated as a cartel, though recently that seems to have gone out the window. Saudi pumping the amount it does drives down the price of oil. They have massive amounts of money so can last for a few years running the kind of deficits are now, though not forever. The question is why they are keeping the price artificially low.
fulafel 11y ago
> to cap climate change at 3 degrees (2 degrees isn't even feasible)[1][2] Your [1] just means that to get under 2C we'll leave much of the currently known reserves unburned, which is feasible.
rdl 11y ago
Mostly it is KSA vs Iran/Russia. To some extent, this also kills shale and other alternative oil from North America, but Iran is their main political/military/religious rival in the region, and cheap oil ruins them -- eliminating competition from the US and Canada is just a commercial thing.
- tw04 11y ago
  It's not really eliminating competition though. The wells are already tapped in the US. They'll just shut them down until it's profitable again, and then start them back up. They've already made the initial investment, now they just have to wait it out.
  - VLM 11y ago
    Missing the lead time aspect. There's no point in capping tight / shale oil, the production decline half life is only a couple months. The last wells drilled before the price drop are rapidly declining to zilch now. Its a treadmill and you must keep drilling. If you want production in say two years, you start planning the new wells now. We stopped awhile ago. In a very long term sense you're correct, but in a short term sense shale is dead-ish till maybe 2018 even if the Saudis hike the price today. If you're looking for scams and propaganda, in shale they all live in cornucopian fantasy projections of decline rates vs actual historical decline rates, and never the two shall meet. Sure if the decline half life of a shale well was 40 years instead of 4 months, America would be energy independent, yeah. Generally for reports and analysis of shale, the further from geological reports the more comedic and disconnected from reality. Oil sands aka Canada get killed off a different way. Its very expensive and the extensive financial structuring required to buy all the loot to produce is crazy. The Saudis basically make an example by saying as long as they're the swing producer, they decide when and how badly Canadian oil sands will go bankrupt. Who will run out of cash first, you as a sands producer, or the Saudi Royal Family? There's some talk oil sands have never made a profit and never will, when everythings accounted for, especially predictable Saudi price manipulation. And talk that the EROEI ratio is less than one. Most of it is just talk. But the facts based on that talk are correct that its very marginal, right on the border of being a real energy source like traditional oil or merely a jobs program / bubble scheme like ethanol was. Anyway the leadtime point is its hard to raise money to resurrect a bankrupt financial ecosystem. There are two strategies. One is wait for the Saudis to collapse and no longer be swing producers while hoping the world economy holds together till other sources come on line, the other other is some kind of nationalization of the sands / job program where you can "in your face" to the Saudis that Canada is going to produce half a million barrels a day no matter what the price is manipulated to. Both are kind of unappealing in their own way.

by diafygi 11y ago

tristanj 11y ago

This does not match any of the Saudi press statements on the oil situation. The Saudi position and their motivations have been consistent for months with thousands of articles documenting this. In summary, publicly, they are not reducing oil output because in the previous oil crisis, they cut production and suffered heavily vs those who did not. The private reason they are still pumping is that they intend to bankrupt/destroy the US Shale industry. They've done an excellent job at this. These articles with inside information never mention "climate change" or "renewables" as the reason for the situation. Unless you can show sources showing the price change is because of climate change, this just a delusional conspiracy theory.

tomp 11y ago
Why would you assume a market actor is being straightforward about their strategy, especially if others being aware of this strategy would put them at a disadvantage? Deception is a competitive strategy!
- tristanj 11y ago
  I never made this assumption.
diafygi 11y ago
Hence the "call me crazy" :) However, I feel like all the chatter about Saudi behavior is short term (<5 years). Where are the articles discussing the 10-30 year outlook? It just seems like the oil industry is blissfully ignoring the whole "stranded assets" problem and focusing on short term strategy.
- tristanj 11y ago
  There are few articles on the 10-30 year outlook because it's been discussed so many times (see peak oil). No one wants to read old news. Anyway, one of the biggest flaws in your theory is how humanity will ween off oil, given the growth of renewables/electric cars. Oil is a finite resource. If there is a non-zero need for it, people will consume it and dip into this finite pool. As the pool depletes, prices will increase. So currently, what is oil used for, and do we expect to use oil in the future? There are numerous critical uses for oil. Oil derivatives are used to fertilize most of the food on the planet. Oil derivatives used to make almost all clothes sold today. Oil derivatives are used to make tires, shampoo, paint, soap, toothpaste, rubber, glasses, and 10s of thousands of other products. Many industrial solvents, essential for 20th century goods, are oil derivatives https://en.wikipedia.org/wiki/Petrochemical https://en.wikipedia.org/wiki/Petrochemical . Here is a partial list of products made from petroleum http://www.ranken-energy.com/products%20from%20petroleum.htm http://www.ranken-energy.com/products%20from%20petroleum.htm . There are just so many uses for oil. Oil is critical for modern American life. Many experts expect oil based products to be used by humanity for the next thousand years. Unless there is a drastic change in how oil is produced, petroleum will be consumed until all cost-effective reserves are depleted. The assumption the world "will only pull up half of what it already has in reserves"(!!) is naive.
  - mrfusion 11y ago
    Aren't those other uses locking up the carbon though?
    - tristanj 11y ago
      In the end, these products end up thrown in a landfill or dumped in the environment. Over time, bacteria decompose them and convert some back to carbon dioxide. It's better to keep the oil in the ground rather than temporarily store it in some petroleum derivative.

danieltillett 11y ago

If Saudi Arabia keeps up their "fire sale" there is little chance we will reach peak carbon in 2020.

andys627 11y ago

I can't think of why else they would drive down price? (I mean this in the non-rhetorical sense... I'm genuinely curious and haven't read a convincing explanation)

yxhuvud 11y ago
They need the money. Why would it be more complicated than that?
- andys627 11y ago
  Do they? Please provide source...
  - myNXTact 11y ago
    http://m.csmonitor.com/World/Global-News/2015/1023/Saudi-Arabia-could-run-out-of-financial-assets-within-five-years-IMF-warns http://m.csmonitor.com/World/Global-News/2015/1023/Saudi-Ara...
  - gchokov 11y ago
    What source would you want? Everybody needs money even if they have enough. Please stop this "provide source" movement for obvious things.
  - seren 11y ago
    Expensive war (or military operations whatever you want to call it) in Yemen, plus falling oil price means KSA have issued bonds for the first time in a long time : http://www.wsj.com/articles/saudi-arabia-issues-bonds-worth-5-billion-to-plug-budget-shortfall-1439305126 http://www.wsj.com/articles/saudi-arabia-issues-bonds-worth-... So yes, they somehow need some cash.
- cmdkeen 11y ago
  But they get the money by having a much higher oil price. Saudi needs oil to be $106 a barrel to balance it's budget, up from in the $50s in 2010. You can't pump your way to profit, that's why OPEC operated as a cartel, though recently that seems to have gone out the window. Saudi pumping the amount it does drives down the price of oil. They have massive amounts of money so can last for a few years running the kind of deficits are now, though not forever. The question is why they are keeping the price artificially low.

fulafel 11y ago

> to cap climate change at 3 degrees (2 degrees isn't even feasible)[1][2] Your [1] just means that to get under 2C we'll leave much of the currently known reserves unburned, which is feasible.

rdl 11y ago

Mostly it is KSA vs Iran/Russia. To some extent, this also kills shale and other alternative oil from North America, but Iran is their main political/military/religious rival in the region, and cheap oil ruins them -- eliminating competition from the US and Canada is just a commercial thing.

tw04 11y ago
It's not really eliminating competition though. The wells are already tapped in the US. They'll just shut them down until it's profitable again, and then start them back up. They've already made the initial investment, now they just have to wait it out.
- VLM 11y ago
  Missing the lead time aspect. There's no point in capping tight / shale oil, the production decline half life is only a couple months. The last wells drilled before the price drop are rapidly declining to zilch now. Its a treadmill and you must keep drilling. If you want production in say two years, you start planning the new wells now. We stopped awhile ago. In a very long term sense you're correct, but in a short term sense shale is dead-ish till maybe 2018 even if the Saudis hike the price today. If you're looking for scams and propaganda, in shale they all live in cornucopian fantasy projections of decline rates vs actual historical decline rates, and never the two shall meet. Sure if the decline half life of a shale well was 40 years instead of 4 months, America would be energy independent, yeah. Generally for reports and analysis of shale, the further from geological reports the more comedic and disconnected from reality. Oil sands aka Canada get killed off a different way. Its very expensive and the extensive financial structuring required to buy all the loot to produce is crazy. The Saudis basically make an example by saying as long as they're the swing producer, they decide when and how badly Canadian oil sands will go bankrupt. Who will run out of cash first, you as a sands producer, or the Saudi Royal Family? There's some talk oil sands have never made a profit and never will, when everythings accounted for, especially predictable Saudi price manipulation. And talk that the EROEI ratio is less than one. Most of it is just talk. But the facts based on that talk are correct that its very marginal, right on the border of being a real energy source like traditional oil or merely a jobs program / bubble scheme like ethanol was. Anyway the leadtime point is its hard to raise money to resurrect a bankrupt financial ecosystem. There are two strategies. One is wait for the Saudis to collapse and no longer be swing producers while hoping the world economy holds together till other sources come on line, the other other is some kind of nationalization of the sands / job program where you can "in your face" to the Saudis that Canada is going to produce half a million barrels a day no matter what the price is manipulated to. Both are kind of unappealing in their own way.