|
Goldman Sachs
Group Inc. has, in a recent report, said that oil
supplies would become "critically tight" this year.
Analysts of the bank predict that oil prices could
go even higher as spare production capacity and
inventories are "effectively exhausted." So, why not
increase production, from say, Saudi Arabia? Well,
Goldman has also shared apprehension on the ability
of Saudi Arabia to raise oil production in the face
of eventual scarcity as it believes that Saudi
Arabia won't be able to pump as much extra oil as
many people believe. On a scary note, the scarcity
could occur early in the year. First to the case of
Saudi Arabia: It's no secret that Saudi Arabia, in a
desperate attempt to hold on to power, is trying
hard to win back its people. After all, the wave of
massive protest for democracy did shake the Middle
East. So what does it do? Take this: King Abdullah's
has announced generous subsidies to construct
500,000 houses for the poor, a friendly mortgage law
for the common man to buy property, finances for
infrastructure, religious organizations, and for
improving the education and health system, a pay
rise for workers in the public sector, unemployment
benefits, and more education allowance for students.
To be sure, it also helps that the country has
massive reserves for all the spending, thanks to
oil. In two packages, the first announced last
February for $36 billion, and the second last March
for $94 billion, the ruler is fighting to win back
his people. Together, the $130 billion is equal to
30 percent of the kingdom's GDP, or revenues from
oil export for eight months. All this, the IMF
predicted, would help Saudi Arabia's GDP growth by
7.5% (Since revised to 6.5 per cent ). With 24.9
percent of the 1,000 billion barrels proven oil
reserves of OPEC, the country has the largest oil
reserves in the world and is also one of the largest
producers of oil, next only to Russia. IEA holds
that Saudi Arabia is capable of producing up to 12
million barrels of oil a day, compared to nine
million barrels a day in May. Early last year with
tensions ranging in Libya, the IEA's executive
director, Nobuo Tanaka had said that Saudi Arabia
could easily offset any shortfall in production from
Libya. With such huge reserves, Saudi Arabia, along
with Kuwait, and the UAE pressed for increase in
production quotas. But, countries like Libya,
Algeria, Venezuela, Ecuador, Iraq, Iran, were
against the move. Consequently, no decision was
reached and the production quotas remained
unchanged. Of course, the last thing the Saudi
government needs at this point is high inflation due
to import of expensive food grain, offset by high
transportation charges due to high oil prices.
Some indicators to gauge the extent of price
fluctuation in recent times: The oil price hit
$101.08 (Brent crude) a barrel last February, the
highest since October 2008 (In June 2008, they were
jogging around $147 a barrel). In June, 2011 they
fell to $90 a barrel amid fears of supply disruption
due to the closure of Suez canal and Egypt unrest.
Hence, Saudi Arabia has, quite unilaterally, pledged
to increase production, notwithstanding the OPEC
decision. According to a Platt's survey, oil
production from OPEC shot up by 530,000 barrels per
day last June, at a total of 29.57 million barrels
per day, compared to the 29.04 million b/d last May.
And guess what? Saudi Arabia's production was up by
450,000 barrels per day to reach a total of 9.5
million b/d. Kuwait, UAE too have increased
production, according to the survey. And don't
forget most of this increase is just enough to meet
the growing demand at home. Saudi Arabia,
essentially, is putting more oil on the market to
pay for generous welfare programs, basically "buying
out" its population from joining in on the unrest
that spread through other oil producing nations.
This is unsustainable and will accelerate well
depletion. At this point, no one knows the actual
reserves of the country, which is dangerous in
itself. |
