Saudi Arabia (1) -- Analyses -- 2010

China imports more oil than USA

19.03.2010

“2009 was painful for us as it was for everybody else,” said Khalid A. al-Falih, the president and chief executive of Saudi Aramco, the kingdom’s state-owned oil giant, and a company veteran who was promoted to the top post at the beginning of last year. “We experienced the same cash flow constraints that everybody did. But we adjusted quickly and, certainly, everything that was strategic to us was not touched.”
The recession also precipitated a milestone for Saudi Arabia and the global energy market. While China’s successful economic policies paved the way for a quick rebound there, the recession caused a deeper slowdown in the United States, slashing oil consumption by 10 percent from its 2005-7 peak. As a result, Saudi Arabia exported more oil to China than to the United States last year.
While exports to the United States might rebound this year, in the long run the decline in American demand and the growing importance of China represent a fundamental shift in the geopolitics of oil. “We believe this is a long-term transition,” Mr. Falih said in a recent interview. “Demographic and economic trends are making it clear — the writing is on the wall. China is the growth market for petroleum.” Saudi officials have said they favor prices of around $80 a barrel. Despite soft demand and high levels of inventories, oil futures in New York have averaged $75 a barrel over the last six months. On Friday, they closed at $80.68. In the United States, some experts believe that energy-efficiency measures, as well as the government’s push for biofuels and its plans to limit carbon emissions, are putting the nation on a long-term path to lower oil consumption. The American talk about energy independence rankles Saudi officials, who maintain that the goal is unrealistic and could end up damaging energy markets by undermining investment now, thus leading to higher prices in the long run. Mr. Falih said he welcomed energy-efficiency measures but insisted that fossil fuels would dominate energy demand for decades.
“I was here in the 1980s after the 1970s price shocks, and I remember all the debates,” Mr. Falih said. “But ultimately the policies were reasonable. And the United States continues to search for that reasonable ground.”
Saudi officials have recognized that structural changes are taking place in the United States. A few months ago, Aramco sold its storage facilities in the Caribbean, a signal that it was abandoning the East Coast market, according to analysts. (The Saudis stopped striving to be the top foreign supplier to the United States years ago. The kingdom now trails Canada, Mexico and Venezuela for exports to the United States.)
That is not to say the Saudis are cutting ties with the United States. Aramco is expanding its Motiva refinery, in Port Arthur, Tex., which it owns with Royal Dutch Shell, to increase its capacity to 600,000 barrels a day. That will make it the largest refinery in the United States, overtaking Exxon Mobil’s Baytown refinery. Edward L. Morse, an energy expert who heads global commodity research at Credit Suisse in New York, said the transformation was a healthy development in relations between Saudi Arabia and the United States. It also means the end of the “U.S. discount,” where Aramco sold oil to American refiners for about $1 a barrel less than to Asia. “The Saudis don’t see the need to subsidize their oil exports to the United States anymore,” Mr. Morse said.
Last year, Saudi exports to the United States fell to 989,000 barrels a day, the lowest level in 22 years, from 1.5 million barrels a day the previous year, according to the Energy Information Administration. Meanwhile, Saudi sales to China surged above a million barrels a day last year, nearly doubling from the previous year. The kingdom now accounts for a quarter of Chinese oil imports.

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