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US and Saudi to expand energy exports

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Saudi Arabia plans to export more oil and continue competing with other producers for market share by keeping prices low, but there’s still room for U.S. companies to export natural gas.

The CEO of Aramco, Saudi Arabia’s state-owned oil company, said his firm plans to meet growing global demand by expanding production. The OPEC leader is already pumping at near record levels, and the move is a disappointment to U.S. oil companies which are relying on growing demand to drive prices higher.

 The kingdom is following through on its pledge to stop manipulating oil prices and to allow the free market to work. That means low-cost producers, like Saudi Arabia, get to sell all the oil they want before higher-cost source of oil can enter the market.

Shale oil is about five-times as expensive to extract as OPEC oil, so that puts Texas producers at a disadvantage. Deepwater oil is six-times as expensive and tar sands are eight-times more costly,

OPEC can only meet about a third of the world’s demand, though, so there are customers still out there for North American crude. They just won’t pay as much for it.

Geography, though, is Texas geology’s best friend. Mexico has liberalized it’s entire energy sector, creating a huge potential market for cheap natural gas.

“Pipeline capacity across the U.S. – Mexico border is expected to double in the next three years, reaching 14.7 billion cubic feet per day by the end of 2019,” said Anne Swedberg, Platts Analytics manager, Platts Mexico Energy Monthly.

That’s in addition to exports of liquefied natural gas and light crude to Europe and Latin America.

Aramco appears determined to flood the world with cheap crude, and I’ve written extensively about their motivations. But U.S. companies need to assume that Saudi Arabia has no intention of allowing oil prices to rise so high again that they lose their market share.

That forces U.S. companies to reassess their strategies. Focusing on natural gas and North America’s unique types of crude are the safe bet heading forward.


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