The natural question is: what exactly should the market and analysts believe in, and how will the lack of this faith prevent OPEC from “achieving what (we) want to achieve”?
The most obvious answer is that the market must believe in the fulfillment by members of the organization of obligations to reduce production. But no one is going to believe in this, as can be seen from the numerous comments. And what does “faith” have to do with the balance of oil supply / demand on the market? What balance will be, such will be the price.
And yet, what did the prince mean? Assumptions of the author – later, but first a few numbers.
Until 1988, real recoverable oil reserves in Kingdom rated at 169.9 billion barrels. The volume of pumped oil is currently estimated at 142 billion barrels.
At the end of 1988, without any additional exploration work or any significant breakthroughs in oil production technologies, ARAMCO announced a sharp increase in available reserves up to 255 billion barrels, i.e. +85 billion. Further, Saudi Arabia annually declared the size of available volume unchanged. And the world market believed.
However, a nuisance happened. In preparation for the ARAMCO IPO in 2016, an external audit of the company's oil reserves was conducted with the involvement of international experts. The results were classified, and preparation for the IPO curtailed. Evil languages on the sidelines hinted at a revealed serious discrepancy between audit data and official data.
According to calculations Citigroup Analysts Riyadh has oil left for 7.5-10 years. Hence the “strange attack” to stop the Abkeik plant, where oil was cleaned of dirt and water. Maybe there was nothing to clean, but somehow it is necessary to explain the impossibility of fulfilling Arab Light contracts? Hence the “breast throw to the wells” of Prince bin Salman in Vienna to “voluntarily” reduce daily production by another 400,000 barrels.
Not only the Saudis lay breast on the wells. Great Oil Power Azerbaijan to its reduction quota of 20,000 bps promised to add a voluntary reduction of another 7,000 bps. Traders wept, but only oil production in the country and so steadily declining since 2010 in connection with the exhaustion of resources.
So, what kind of “faith” does Abdulaziz bin Salman require from the market? Our hypothesis is this: the prince wants the market and analysts to believe that Saudi Arabia and its affiliates did the reduction in production “voluntarily”.
The difference in the “voluntary” reduction and the forced one is fundamental. This difference is in investments in alternative energy sources. If OPEC + can at any time throw any amount of oil onto the market and bring prices down, the strategy is one, and completely different, if it cannot, and, consequently, price increases are guaranteed due to the exhaustion of world resources and an increase in the cost of production.
The governments of developed countries are prudently preparing for a possible rise in prices, especially since oil has an alternative – liquefied natural gas, which can be delivered to any port on any coast. The problem is whether it is necessary to invest, and how much, in the reorientation of thousands of enterprises from oil to gas? This is not a problem of the balance of supply / demand of oil and even its price in the next year or two – it is a problem for the next 3-5 years and beyond.
There is a lot of natural gas, and new large fields are discovered annually. The transfer from oil to gas has already begun. IN Germany More than 80% of households that have replaced the heating system since 2009 have chosen natural gas as the new type of fuel.
Today, approximately 70% of oil is spent on fuel for all types of vehicles, 10% – petrochemicals, 7% – fuel for heating and electricity generation (the Saudis spend 30% of their production on their energy). The transfer of transport to gas and electricity is already in full swing. New gas stations are being built, and six EU states have approved the allocation € 3.2 billion on subsidies for the creation of a pan-European center for the production of battery cells for electric vehicles.
Today, replacing oil with gas is profitable. A barrel of oil is equivalent in energy to 170 cubic meters of natural gas. With an oil price of $ 64 per barrel and a spot gas supply price of $ 120 per thousand cubic meters. m, the dollar in gas in energy intensity is 1.7 times higher than the dollar in oil. In addition, oil for fuel still needs to be refined, which increases the price of fuel from oil one and a half to two times, and gas can immediately be pumped into cylinders under the body. True, if the price of oil falls to $ 20-25, huge investments in the creation of gas infrastructure for transport and petrochemicals lose their economic foundation.
The question is whether to believe Prince bin Salman that the Saudis can fill the world with oil at any moment, and the current reduction is only a way to maintain prices, or not. The answer to this question determines how fast the world economies will move towards an oil-free future.