Sunday, December 30, 2012

Fracking Already Takes Bite Out of Saudi Profits

Via Meadia notes that Saudi Arabia's largest petrochemical producer, Sabic, has reported lower profits every quarter this past year, primarily due to increased costs and reduced demand from its largest consumer, the United States. The reduced demand is due, in part, to increased reliance on domestic sources for petrochemicals. Obviously, Saudi Arabia and the other OPEC nations will face further declining profits as other nations--Canada, China, Brazil, Israel, for instance--continue to develop natural gas and oil deposits.

In the past, OPEC has responded to increased production abroad by lowering prices. However, this is problematic for two reasons. First, Iran (the second largest OPEC producer) cannot afford lower oil prices because it relies on oil revenue to subsidize social welfare programs. (See here). Reduced oil prices would create social and political instability.

Second, Iran and other OPEC nations face declining reserves. Lowering prices will drive up demand (and kill foreign competitors), but bring these nations to the fateful day when they will no longer be able to pump any oil. There will come a day of reckoning when many Middle-East countries will have nothing left to offer the world in trade. Peak oil will not be an issue for the industrialized nations for a couple centuries or more, but for many OPEC members, it will be an issue in the next few decades. They will either need to diversify their economies, or conquer other nations in order to absorb their resources.

No comments:

Post a Comment

VIDEO: "Tucker: You're being instructed not to notice this"

  VIDEO: " Tucker: You're being instructed not to notice this "--Fox News (17 min.) Tucker Carlson discusses the Left's at...