Saudis warm to U.S. shale in alignment with Trump
Energy minister warns kingdom won’t ‘bear the burden of free rides’ for cuts
Saudi Arabia’s energy minister warned non-OPEC producers Tuesday that the kingdom is not going to offer free rides to competitors when it comes to production cuts, while at the same time striking a conciliatory message toward the U.S. political establishment.
Khalid al-Falih told energy executives at the annual CERAWeek energy conference in Houston that the relationship between the U.S. and Saudi Arabia “is both bright and intertwined.”
The minister touted new investments made by Saudi Aramco, the kingdom’s state-owned oil giant, in various downstream assets in the U.S. Gulf Coast as it attempts to position itself in lucrative shale basins. Aramco recently ended its partnership with Royal Dutch Shell Plc to take complete control of Motiva Enterprises LLC, which owns the largest refinery in the U.S. and 24 distribution terminals along the Gulf Coast.
“Certain expansion is indicative of the alignment between the United States of America, under the Trump administration, and the kingdom’s energy strategies and policies,” the minister said.
The comments mark an aboutface from statements by the kingdom a year ago, when the Saudis had dismissed even the notion of a supply cut. Oil prices at the time were nearing the low US$30s per barrel.
In November, OPEC and nonOPEC countries, including Russia, agreed to a broad-based cut intended to take a combined 1.8 million barrels per day of supply off the market for six months starting in January, with Saudi Arabia shouldering the biggest share of the cut. Since then oil prices have stabilized around the US$50 range.
However, Falih warned that the kingdom would be careful not to be left alone with the task of implementing cuts, in turn subsidizing producers in other jurisdictions and its non-OPEC allies.
“This time around, we made it clear that we will not bear the burden of free rides, and both groups are reinforcing one another through voluntary management of their production.
“Saudi Arabia will not allow itself to be used by others,” he added.
Falih’s comments also appeared to mark a shift toward a grudging acceptance of the sustained U.S. light tight oil revolution, partly due to the strength of the upstart U.S. industry and also the changing political winds in Washington where the new U.S. administration is keen to unleash domestic crude oil and natural gas production to attract investment, create jobs and reduce dependence on OPEC exports.
“Saudi government and private sector investments in the U.S. are vast, and we will continue to strengthen our presence here, including multiple research centres, a number of petrochemical opportunities for SABIC, and Saudi Aramco’s flagship investment in Motiva and America’s largest refinery, just east along I-10 in Port Arthur,” Falih said.
However, the minister downplayed the resiliency of nonOPEC producers, saying increasing supplies in the U.S., Brazil and Canada would be “more than offset” by natural declines in other non- OPEC regions, like China, the North Sea and Mexico.
Falih was optimistic about the health of the market more generally, saying there were “green shoots” of new investment following the deepest oil rout in recent memory.