Are the Saudi’s trying to disrupt the disruption of the Carbon Economy?

This article is a little more on the conspiracy theory side of things than the thoughts that I usually try to put out but I think it has some merit.

Let’s face it, outside of Sand, Heat & Oil, Saudi Arabia has little going for it in the way of economic activity other than the annual Pilgrimage to Mecca. It has been said that the major reason for their current oil production is to gain control over market share, primarily in the face of the USA energy independence, or near independence, at the expense of very costly to produce tight oil.

But could there be a longer-term goal at play here. We are at the edge of the convergence of several technologies that could see the end of the carbon economy, primarily oil. Elon Musk is building the Tesla Electric Car, and Wind and even Solar energy are coming down in cost to be on par with traditional fossil fuels. My argument is simply, nothing kills the electric car quicker than cheap gasoline. And the same goes for other forms of renewable energy, or, at least, slowing it down for a while yet. If many technological leaders in the fields of alternative energy and car manufacturers can be convinced to pull back on research and design of electric or hybrid vehicles simply due to poor sales, the Saudi’s are in fact protecting their market share.

The Saudi’s win on two levels, First expensive North American Oil stays in the ground, E&P companies go broke and there is a real potential for industrial knowledge loss if enough of these companies go broke, including the companies that have devised ways to release tight oil from formation’s. Once these employees are released to the four winds, and the knowledge is scattered it could be hard to bring back.

At the other end of the spectrum is the consumer, if oil remains cheap, the opportunity cost of driving a hybrid or electric car becomes too high, and why not just pump some cheap gasoline?   And for the car manufacturers, why invest in more efficient vehicles, we have been through this cycle in the past, now government regulations play some role in this but they are not the ends of the game.

In short if the Saudi’s can keep the price low enough, long enough, they will gain market share, through shut-in expensive to produce resources and the loss of consumer choice in transportation fuels.

Time will tell if our mindset in North American has moved on to the environment at the expense of cheap gasoline.  And if we have it is going to be a long hard road for domestic oil production companies and their workers.

Update February 25, 2016

The Saudi Oil Minister was just in Houston, Tx and advised that the Saudi strategy was to force all expensive to produce oil, all shale, fracked, tight, directional, offshore, pretty much everything we produce in Canada, off the market.

Welcome to a massive cost restructuring of the industry, that will primarily be wage focused from rig crews to administration, I would guess that we are looking at a 50% cut in salaries and wages across the board if we want our patch back.  Likewise for all service contractor equipment day rates.  If we can’t produce it profitably for $40 – $50/bbl, we are pretty much shut down according to Saudi Arabia.


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