Crown prince appointment seen as boost for Saudi energy policy

Bringing in Russia to the deal was hard without Prince Mohammed’s role behind the scenes,” he said.

“He will also make sure that the country in the long-term will move away from oil. But in the short-term Saudi Arabia will still remain focused on using oil revenue to support its diversification plans.”

The Hill

Jim Krane wrote an article in The Hill on June 22 that the listing of Saudi Aramco is the linchpin of Crown Prince Mohammed bin Salman’s plan “to reposition the Saudi system for long-term sustainability.”

“Years of stagnant domestic policy coupled with a high birthrate brought about a youth bulge in a country with few jobs for young Saudi men and even fewer for young women,” Krane wrote.

The crown prince, through the Aramco IPO plan, “seeks the cash to put these underutilized subjects to work in new economic sectors based on plastics and light manufacturing, tourism, mining and financial services.”

“The Saudi leadership has tried and failed to diversify beyond oil in the past. This time, the boldness of the plan appears to offer better odds. Selling a piece of Aramco is a smart move in another sense because fossil fuels like oil face the impending arrival of peak demand and a future that is less accepting of the carbon dioxide emissions that are piling up in the atmosphere and warming the earth.”

Facts Global Energy

Facts Global Energy, in a note to clients sent on June 21, said that the appointment was unlikely to result in a change in energy policy, but that it expects a strong resolve by Saudi Arabia to ensure the oil price rises.

“The current policy of market management, as well as market share, is managed under (Crown Prince Mohammed bin Salman’s) watch so we should be prepared for Saudi Arabia to do whatever it takes to keep the prices above $50 (a barrel). That may require cutting production back to the November 2014 level of 9.4 million (barrels per day, bpd) unilaterally,” Facts Global Energy said.

The challenge “is to keep the system going beyond the end of next year when more cuts are needed and might even require a cut below 9 (million bpd) to stop the prices from falling.”

Crown Prince Mohammed bin Salman “then has to make the difficult call of fighting the battle with tight oil by letting prices go down or cutting production to boost prices and hoping that US production plateaus. It is hard to predict which direction he will go in,” Facts Global Energy said.