Connecting the Dots: Japan, Saudia Arabia, Oil, Nuclear

Updates

February 12, 2013: NBC reported on the Citigroup (Citi) study cited in the original post. Again, a most important segment:

The shift could sharply reduce the price of oil, and therefore limit the revenues of the producing nations of OPEC, as well as Russia and West Africa. Those nations face new challenges: Not only are the U.S. and Canada increasing output, but Iraq increasingly is realizing its potential as an oil producer, adding 600,000 barrels a day of production annually for the next several years.

"OPEC will find it challenging to survive another 60 years, let alone another decade," the report by Morse and other Citi analysts said. "But not all of the consequences are positive, for when it comes to the geopolitics of energy, the likely outcomes are asymmetric, with clear cut winner and losers."

Original Post

Don sent me this article. Reuters is reporting that Japan is offering the Kingdom of Saudi Arabia assistance in building nuclear power stations in Saudi.

Trade Minister Toshimitsu Motegi's visit at the weekend was aimed at securing extra oil from the world's biggest exporter in case of instability in world supply, Japanese officials had said.

Japan's reliance on oil imports has risen after its own shift from nuclear power after the Fukushima disaster in 2011, but any deal to give Japan priority access to Saudi crude in the event of supply shortages would worry other oil importers.

This was a strategic discussion, not anything in the near term. 

But there are at least three story lines in that article.

First, the obvious story: Japan looking for secure sources of oil in a world of future (and current) instability, now that the Japanese have soured on nuclear power.

Second, also stated in the story: Saudi's increasing demand for electricity (think air conditioning). 

Third, also at the link, there are those who think...

Saudi Arabia's plan to build up to 17 gigawatts of nuclear power capacity over the next two decades has offered a possible lifeline to plant builders hit by a lack of demand since the Fukushima disaster.

But this is the back story, as they say: Citigroup (Citi) opines that Saudi will cease to be an oil exporter by 2030. By 2030, the Bakken will be maxed out with 50,000 wells, and will start its century-long decline in production (at least primary production).

But it's not likely that Saudi's exports will drop off a cliff in 2030; rather, one would expect they would manage their assets and the decline would come gradually, even as America's shale oil is increasing.

Now, back to the Citigroup story linked above:

The basic point – common to other Gulf oil producers – is that Saudi local consumption is rocketing. Residential use makes up 50 percent of demand, and over two thirds of that is air-conditioning.

The Saudis also consume 250 litres per head per day of water – the world's third highest (which blows the mind), growing at 9 percent a year – and most of this is provided from energy-guzzling desalination plants.

All this is made far worse across the Gulf by fuel subsidies to placate restive populations.
The Saudis already consume a quarter of their 11.1m barrels a day of crude output. They are using more per capita than the US even though their industrial base as a share of GDP is much smaller. [KSA was a signatory to the Kyoto Protocol.]

The country already consumes all its gas. (Neighboring Kuwait is now importing LNG gas from Russia.

We are living in very, very interesting times.

My hunch is that nuclear will be back, but it's going to be a rough ten years for the industry.

And between then, and now, as the linked article says: Peak Cheap Oil.