THE global energy scene is changing fast. Headlines over the past week too are pointing to the changing picture. In an era of glut, Saudi Arabia, the global gas station, the OPEC kingpin, is endeavoring to be powered entirely by renewable energy, so as to add value to its fossil fuel resources by converting it into plastics and polymers. And the world's top crude user, consuming almost 25 percent of the total global demand, the US is moving toward becoming the top crude producer of the world soon, overtaking Saudi Arabia in the process, a report in the international press kept screaming last week. Driven by high prices and new drilling techniques, US production of crude and other liquid hydrocarbons is on track to rise 7 percent this year to an average of 10.9 million barrels per day. This will be the fourth straight year of crude output increases in the US and the biggest single-year gain since 1951. The US Energy Department forecasts that US production of crude and other liquid hydrocarbons, which includes biofuels, will average 11.4 million barrels per day next year. That would be a record for the US and just below Saudi Arabia's output of 11.6 million barrels. Citibank now forecasts US production to reach 13 million to 15 million barrels per day by 2020, helping to make North America “the new Middle East,” as the Canadian production is projected to increase by 8.3 percent to 3.9 million in 2012 and 4.9 percent next year to 4.09 million. Saudi Arabia is keen to maintain its dominance of the energy world – despite the newly emerging scenario. So it is taking steps to insure its top position in the sector remains intact in the coming decades too. The Kingdom is moving ahead with investment in renewable energy, nuclear power and other alternatives to fossil fuels and that it could use its vast oil reserves for other goods, such as plastics and polymers. “Oil is more precious for us underground than as a fuel source,” Prince Turki Al Faisal Al Saud says. “If we can get to the point where we can replace fossil fuels and use oil to produce other products that are useful, that would be very good for (us and) the world.” Indeed only by keeping its crude resources for meeting the global energy needs, instead of satisfying the galloping domestic requirements, the Kingdom's top position in the crude world could be ensured. This also would help keep stability in the global crude markets. A number of major steps are in pipeline to meet this strategic objective. Despite the glut like scenario in the global crude markets and the emerging new frontiers on the global energy map, with ample supplies streaming from all around, Saudi Aramco is moving ahead with its plans to invest $35 billion over the next five years in oil related projects. “Preserving our spare oil production capacity is crucial to maintaining oil market stability because it plays a pivotal role in protecting the world's economic health,” Aramco CEO Khalid Al-Falih told an Oxford University seminar on Sept. 20. And this is what it is endeavoring to achieve. “So we are continuing to strengthen our oil business to meet the rising call on our oil production; in fact, we plan to invest $35 billion over the next five years in crude oil exploration and development alone to keep our oil production portfolio robust.” According to Arab Petroleum Investment Corporation, the Middle East will require $600 billion investment in oil and gas sector in the next few years. Saudi Arabia, UAE and Qatar are investing the bulk of this. And while there seems no lack of skeptics painting doomsday scenario, as the Saudi domestic energy requirements continue to spike, serious steps are on to conserve fossil fuel here too, earmarking it for external, global requirements. Saudi is aggressively looking to tap its gas resources for meeting its galloping energy needs. The Karan offshore gas field, designed to produce 1.8 billion cubic feet per day, is now set increase the Kingdom's gas output by 18 percent, marking a significant milestone in the country's gas expansion program. Discovered in April 2006, Karan is the first non-associated gas field in Saudi territorial waters in the Arabian Gulf. Another gas project, Wasit is to be launched by mid-2014 with a capacity of 2.5 billion cubic feet daily, increasing the Kingdom's capacity by 21 percent. Both Karan and Wasit would contribute 40 percent of total gas supply. The Kingdom is reportedly adding drilling rigs to increase production at its Arabiyah and Hesbah offshore fields.In the meantime, Manifa oilfield is also expected to start producing 500,000 bpd by mid-2013. The capacity at Manifa is projected to be increased to 900,000 bpd by the end of 2014. Why all this investment, while the global energy market outlook doesn't appear firm and rosy, remains a very valid question. The rise in crude production in the US has led analysts to predict that oil prices will decline over the next six to nine months. Most projections are pointing to a soft market. Aramco seems to have strategic reasons for all the investments in the sector. Assigned the task of keeping the Saudi dominance of the global energy sector intact, it is making moves in the right direction. The policy seems based on a simple calculation – Oil in this part of the world is comparatively cheap to tap, while the methods needed to tap US oil are considerably more expensive. If the price of oil falls below $75 per barrel, drillers in the US will almost certainly begin to cut back. The region has a competitive advantage and Saudi Aramco is banking on it – exploiting it to the core. A shrewd strategy indeed!
