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Are The Saudis About To Reveal The Best Kept Secret In Oil?

by Nick Cunningham of Oilprice.com

One of the oil world’s longest and best kept secrets may finally be revealed. Saudi Arabia is preparing to unveil how much oil it holds, a closely guarded state secret that has been kept quiet for decades.

The decision to bring such important data to light comes as Saudi Aramco is preparing to partially privatize its assets, an IPO that could bring in some $100 billion. The IPO will be a monumental event, one that the Wall Street Journal says could offer Wall Street some of the largest fees in history.

Saudi Arabia often trades off with Russia—and more recently, with the US—as the world’s largest oil producer. But while it produces at similar levels as Russia and the US, it is long been a vastly more influential player in the oil world. That is because of two reasons—the size of its reserves, and the ability to use latent spare capacity to quickly adjust supply, affording it an outsized influence on crude oil prices.

But while everyone believes Saudi Arabia has some of the largest oil reserves in the world, perhaps rivaled only by Venezuela, there has been a lot of uncertainty and skepticism over exactly how much sits beneath the Saudi desert. The world’s largest oil field, Ghawar, has been producing since the 1950s, raising speculation about the longevity of the supergiant oilfield. It alone is thought to hold around 75 billion barrels, and it churns out more than 5 million barrels every single day. Surely, it cannot continue like this indefinitely, but the Kingdom has not revised its official reserves for years, which have stood at 260 billion barrels since the 1980s. It is hard to overstate how valuable this information is, and how fiercely Saudi leadership protected it.

However, the collapse of oil prices since 2014 has pushed the Saudi budget deep into the red. The Deputy Crown Prince Mohammed bin Salman is undergoing an historic transformation of the Saudi economy, a multi-decade plan to diversify the country’s economic base and create new sources of revenue. At the heart of the plan is spinning off roughly 5 percent of Saudi Aramco, the most valuable oil company in the world. Saudi officials believe that the company is worth between $2 and $3 trillion.

But in order to settled on a valuation and launch an IPO of some of Aramco’s assets, investors need to get a look beneath the hood. That is why Saudi Arabia is now prepared to unveil not just its financials, but also the long sought after data surrounding its oil reserves. “Everything that Saudi Aramco has, that will be shared, that will be verified by independent third parties,” Khalid al-Falih, Saudi Arabia’s energy minister, told the Financial Times in an interview. That would include, “reserves... costs [and] profitability indicators.” He went to lengths to emphasize Saudi Arabia’s seriousness about the IPO, in an effort to dampen skepticism. “This is going to be the most transparent national oil company listing of all time,” he said.

There is a great deal of suspicion regarding Saudi Arabia’s insistence that its reserves still stand at 260 billion barrels. After all, how could such a figure stay constant when it is producing 9 to 10 million barrels every day, which adds up to a few billion barrels each year? Aramco would have to add billions of barrels of newly discovered reserves on an annual basis in order to prevent its reserve base from declining. It is doubtful that it has done that consistently since the 1980s. But nobody knows except the Saudis.

As the FT notes, this figure will have massive ramifications for both Saudi Arabia and the global oil market. Right now, everyone is operating under the assumption that Saudi Arabia can continue to pump at its current pace for another seven decades. Long-term oil forecasts are predicated, in part, on Aramco’s ability to do that. More important for Saudi Arabia itself, its credit rating as well as the fortunes of its economy over the coming decades is also predicated on that assumption. A sharply lower reserve estimate could send oil futures up if fears over supply surface, and it might also affect Saudi Arabia’s credit rating.

Aramco is preparing to launch the IPO in 2018, which means that it will need to publish data on its oil reserves before then. The oil world’s biggest secret could soon be publicly released.

Link to original article: http://oilprice.com/Energy/Crude-Oil/Are-The-Saudis-About-To-Reveal-The-Best-Kept-Secret-In-Oil.html

Comments

Account Deleted

Oil will be too expensive a fuel when the self-driving vehicles take over. BEVs can be made to last a million miles that is necessary when used as self-driving taxis. Self-driving BEVs will both cost less to make per mile and to fuel per mile than gassers. If anybody are still in doubt that fully self-driving vehicles is coming to consumer by 2018 take a look at this video that demonstrate the latest fully self-driving beta build for Tesla Model S and X

https://electrek.co/2016/11/19/watch-tesla-self-driving-demo-video-real-time/

Tesla will not only make every Tesla self-driving but also self-fueling. Musk will have a Tesla car drive from downtown LA to NYC by December 2017 without any human interference. Tesla’s super charger stations will be upgraded with robotic plugging by then.

67% of the global oil production is consumed by gassers and dirty diesels so it is game over for high oil prices as soon as we see volume production of driverless BEVs. That will happen after 2020 where millions will flood the market every year driving 100k miles per year as taxis.

Brent Jatko

@Henrik: I am optinistic, but I don't think the transition will be as fast as you argued.

Still, things accelerate after a tipping point; we just don't know whwn that will happen.

Account Deleted

Driverless tech is just software and tiny sensors and processors. You can outfit all cars that you make with this stuff as fast as you want. Tesla does it on all their cars. Old automakers will start doing it on all their luxury vehicles in a few years and then all it takes is a software upload. There will be millions of self-driving cars in production annually by 2020. Not all will be BEVs at that time because it takes longer to make 1000 pound battery packs and 300 pounds electric engines for millions of cars. However, by 2025 we could see 15 million BEVs with driverless tech produced every year and the demand for gassers and dirty diesels will be nearly gone. Production will be mostly about producing spare parts for repairing old gassers. All new production will be BEVs.

Remember a self-driving taxi BEV can drive 100k miles per year making 100k USD in fees and only costing 20k USD to operate. It is hugely profitable. Tesla will not need the stock market after 2018.

SJC

The story is about Saudi Aramco preparing to partially privatize its assets, not autonomous cars.

gorr

Build and commercialize another ice than the actual otto cycle inneficient ice. I want to buy a high mpg car that do over 200 mpg for 12 000$ brand new or a demo. Stop immediately to buy any car ice or bev and ask immediately to buy something better than the actual crap of costly cars and forget the valuation of aramco, exxon, wall street, etc. Forget autonomous cars, it's a scam from silicon valley.

dursun

The end of oil is in sight

mahonj

I still see a lot of oil/gas being used for the next 20-30 years.

I can see oil being substituted in short range traffic and predictable routes, i.e. local cars, taxis and buses, but after that it gets fuzzy.
Long range trucking will probably remain diesel, although they may increase the efficiency using platooning, aerodynamics and hybridisation.
Ditto long range shipping - a few ferries and town boats may go electric, but that is about it. They have a lot to do cleaning up their filthy bunker fuel, anyway.
Aircraft will remain fossil powered for the foreseeable future: we might see hybrids, but there is no way batteries have the energy density for long range flight (> 500 miles) with any decent cargo.
+ as India and China (and lots of developing countries) get richer, their demand for oil will increase, even if they use electric cars.
+ gas will be needed to balance intermittent renewable energy sources.
So That's it, plenty of demand for oil/gas for the foreseeable future.

Engineer-Poet

The "Satellite o'er the desert" blog which launched in 2008 and led to The Oil Drum tracked the progression of active wells in the Ghawar oil field as they closed in towards the center of the anticline.

That oval of production wells has been getting narrower and narrower all the time.  There are water injection wells outside it.  There's still oil left in the rocks after the water/oil front passes, but it's not recoverable; the water prevents it from moving.

The original Aramco was nationalized (stolen) with minimal compensation.  Any profits from stock sales should go to jilted shareholders of the former American owners.

Not that I think there's going to be much.  This is obviously a desperation move on the part of the rabidly nationalistic Saudis.  They know that the value of their only asset is dropping rapidly, and they're looking to sell and get out.

The Saudi royal family will spend all its time in Europe and in various tax havens, not just most of it like they do now.

The masses of the Arabian peninsula will be cut loose and, given that the population explosion there has grossly exceeded anything the local food supply can support, starve or be killed trying to invade countries which can actually grow things.

HarveyD

Soon after OIL runs out, they will quickly return to their usual practice and start killing each other for what is left and for any other reasons. Syria, Irak, Yemen, Afghanistan, Lybia etc are but a few examples.

We could send XM old machine guns and a few preachers to accelerate the carnage?

President DJT would have to close the USA borders. EU and Canada would be flooded.

Sotaro

Harvey,
Your comments demonstrate great ignorance. Write about what you know. Don't advocate for mass slaughter.

HarveyD

Historically, Middle East Oil temporarily increased local wealth and wars but modern weapons and alliances made them more deadly.

Post Oil era (2050+) will see a return to more inter religion tribal-territorial wars with a certain ressemblance to the Pre Oil periods. Ongoing major clashes between Shiites-Sunnites-Kurds and non Muslins are unavoidable.

Facts, history and greed will determine their rather dark future. I worked in the region for many years and I'm not too optimistic.

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