All’s well that ends in oil wells. The Saudis are bullish on the future of oil.

Cap and trade talk, green energy expansion, new, unconventional oil and gas reserve exploration, and economic recession notwithstanding, Saudi Aramco is confident that the future will entail a growing demand for the Kingdom’s massive oil reserves.

President and CEO Khalid Al-Falih made it clear in a recent statement that the rapidly growing economies of Asia (led by China and India) formed the basis for the International Energy Agency’s forecast that world energy demand will increase by 40%  by 2030, or about 1.5%  per year. And the Kingdom’s crude oil reserves will remain the largest single fuel in that energy mix.

It is not that an effort won’t be made to develop greener fuels (solar, wind, hydroelectric, biomass, ethanol) in order to reduce carbon gas emissions. In addition, growing energy demand will see governments and companies tapping into unconventional sources of hydrocarbons, such as natural gas liquids, oil sands, and oils located in difficult environments (such as in tight shales or in ultra-deepwater sites).

But the Saudis know an open secret or two. Green fuels are in their infancy and will only account for a few percent of the available fuels in the next 20 years, and unconventional oil sources are expensive and require a lot of time to develop. The recent Copenhagen Summit has reinforced how difficult it is to get countries to agree to carbon emission restrictions (the driver of green fuel development). As oil prices fluctuate the enthusiasm to invest in difficult-to-access oil tends to wane.

The Saudis sit on the oil that is available now, and in the near future, and at a relatively low cost. Suadi Arabia is by far the largest exporter of oil; it holds a quarter of the world’s proven oil reserves, and maintains the largest excess production capacity.

The Kingdom’s policy has been consistent for more than three decades. Following the Arab Oil Embargo in the early 1970s it has set a goal of securing  the stability of  oil prices by maintaining  oil supply. It has spent $100 billion to build a sustained capacity 12.5 million barrels per day, and to create 4.5 million barrels per day of spare capacity (or more than 90% of world’s total excess capacity). By contrast, US oil production has declined since 1970, while the country’s energy needs have skyrocketed. The massive industrial, transportation, and military economy of the US is dependent on imported oil for the forseeable future.

Saudi Arabia has a solution, all be it a crude one. There is no technology or alternative fuel on the near- to mid-horizon that will replace oil as the primary fuel for the US economy. The US is and will continue to be energy dependent on Saudi Arabia. The Saudis suggest we deal with it — and them.

Happy New Year!

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Photo by Jon Rawlinson, used under a Creative Commons license