December 30, 2012

CHANGE: Saudis Sweating Bullets As Energy Revolution Changes The Rules.

The US shale gas boom, drastically cutting the cost of gas, is shaking the foundations of the Saudi Arabian economic model—and more is coming. The highly profitable $100bn Gulf petrochemical industry is taking a hit as its biggest customer—the U.S.—is importing less and relying instead on domestic production.

US petrochemical companies, propelled by cheaper access to raw materials, are competing effectively against companies like the Saudi Basic Industries Corp (Sabic), the world’s largest chemical maker. Sabic also has some home-grown problems. The rapidly growing Saudi population wants to consume (subsidized) petrochemicals at home, air conditioning Saudi houses and running Saudi cars instead of exporting product abroad. Falling production, demand, and prices are beginning to hurt the once stalwart $89bn company. . . .

US gas prices have plummeted due to new techniques, known as fracking and horizontal drilling, developed to extract the vast deposits of shale gas in the North American bedrock. Production has jumped by nearly a quarter since 2000, reducing demand for Saudi gas. If China figures out how to exploit its own shale gas reserves the Saudis will have every reason to be nervous. The two pillars of the Saudi economy—oil and petrochemical exports—will both be on shaky ground.

But the changing energy landscape threatens more than economic consequences for the Gulf state. The US could surpass Saudi Arabia as the world’s leading oil producer by 2020, and this could mean big changes for US foreign policy and the domestic economy.

Terroristic Islam worldwide is basically a Saudi export, fueled by Saudi money. The less Saudi money, the better.