Saudi billionaire Prince Alwaleed bin Talal has warned that the
kingdom's oil-dependent economy is increasingly vulnerable to rising
U.S. energy production, breaking ranks with oil officials in Riyadh who
have downplayed its impact.
In an open letter dated May 13 addressed to Saudi Oil Minister
Ali al-Naimi and several other ministers, which was published Sunday on
Prince Alwaleed's Twitter account, he warned that the boom in U.S.
shale oil and gas will reduce demand for crude from members of the
Organization of the Petroleum Exporting Countries.
Not long after the Prince issued his warning, a report from
OPEC published Monday showed the group's oil export revenue hit an
all-time high of $1.26 trillion in 2012. However, forecasts from the
group raise questions over whether that level of earnings can be
sustained amid the competition from shale oil.
Saudi Arabia, the world's biggest oil exporter, is now pumping
at less than its production capacity because consumers are limiting
their oil imports, Prince Alwaleed said in the letter. This means the
kingdom is "facing a threat with the continuation of its near-complete
reliance on oil, especially as 92% of the budget for this year depends
on oil," said the prince.
A Saudi official who didn't wish to be named confirmed that ministers received the letter in May.
Prince Alwaleed, a nephew of Saudi King Abdullah, is a major
international investor with stakes in Apple Inc., Citigroup Inc., Time
Warner Inc., Twitter and News Corp, which owns Dow Jones & Co.,
publisher of The Wall Street Journal.
In contrast to Prince Alwaleed, Mr. Naimi, the Saudi oil
minister, has so far played down the significance of rising shale oil
production, despite the fact that some OPEC members, such as Nigeria and
Algeria, have seen a sharp drop in their exports to the U.S. At an OPEC
meeting in late May, he shrugged off the threat, saying it wasn't the
first time OPEC has had to compete with a surge in output from countries
outside the group.
"We disagree with Your Excellency on what you said, and we see
that rising North American shale gas production is an inevitable
threat," Prince Alwaleed's letter said, in comments directed at Mr.
Naimi.
Despite posting record revenues from oil exports in 2012, OPEC
data showed some members' earnings were already under pressure.
Algeria's oil-export revenue fell last year by 6% and the
selling price of its flagship Saharan Blend crude was down by 1.3%,
compared with the previous year. Algeria's oil exports to the U.S. have
fallen sharply and earlier this year its finance minister, Karim Djoudi,
said lower oil export revenue tied to mounting shale production could
force the government to cut domestic spending.
Oil revenues in Iran, whose oil exports have been sharply
curtailed by Western sanctions, fell 8% to $133 billion, according to
OPEC data.
OPEC data suggest other members could soon face an earnings
squeeze. The group expects demand for its crude to fall to 29.6 million
barrels a day next year, 600,000 barrels a day lower than in 2012,
because of rising production outside the group. The average price of the
group's main crude export grades so far this year has been 4% lower
than last year, according to OPEC data.
The International Energy Agency expects demand for OPEC crude
to decline again in 2015 to 29.2 million barrels a day, before starting
to rise gradually in the following years.
Prince Alwaleed also warned in his letter that competition
from shale oil means Saudi Arabia won't be able to increase its crude
production capacity to 15 million barrels, adding to a rare public
disagreement over whether Saudi Arabia should expand its current
production capacity of 12.5 million barrels a day.
In April, Prince Turki al-Faisal, a former Saudi intelligence
chief and ambassador, said the kingdom needs to increase its crude
production capacity to 15 million barrels a day by 2020 in order to meet
rising domestic consumption and maintain its export capacity. Mr. Naimi
has ruled out increasing Saudi Arabia's capacity until at least 2030 or
2040.