The Fate Of Vision 2030 Rests On Saudi Aramco IPO

Quite a scam Mohammed Bin Salman is selling to his people. Dream of non-oil revenue sources conjured out of thin air. High tech education and knowledge magically implanted in his peoples brains so they can get a good job. An IPO that will solve everything, even though it will only bring in enough money for 1 year of funding the pleasures of the royals and all their friends and family that live above the rest of the country.

Excerpt from the 2012 book, "On Saudi Arabia" follows, and the scenario described below, to-wit, that "only one branch of this family of some seven thousand princes will have power," is currently taking place.

http://www.amazon.com/On-Saudi-Arabia-Religion-Lines/dp/0307473287

What scares many royals and most ordinary Saudis is that the succession, which historically has passed from brother to brother, soon will have to jump to a new generation of princes. That could mean that only one branch of this family of some seven thousand princes will have power, a prescription for potential conflict as thirty-four of the thirty-five surviving lines of the founder’s family could find themselves disenfranchised. Saudis know from history that the second Saudi state was destroyed by fighting among princes. Older Saudis vividly recall how this third and latest Saudi state was shaken by a prolonged power struggle between the founder’s two eldest sons after his death in 1953.

I'm not sure I believe Saudi is willing to diversify away from oil, as Aramco continues to make announcements on huge investments in new refineries and other oil related projects.

Re: Saudi Net Oil Exports

Saudi Arabia showed a very high rate of increase in their net oil exports from 2002 to 2005 (total petroleum liquids), but their net exports have been below their 2005 level for 11 straight years, through 2016.

It's interesting to consider Saudi net exports in light of case histories of other net export declines, especially in regard to rates of depletion in the remaining volume of net exports.

The Six Country Case History consists of the major net oil exporters, excluding China, that hit or approach zero net oil exports from 1980 to 2010. The Six Countries, from 1995 to 1999, and Saudi Arabia, from 2005 to 2016, were both characterized by rising production and rising consumption, with a declining ECI Ratio (ratio of production to consumption) and declining net exports of oil, relative to 1995 and 2005 respectively.

The following chart shows normalized post-1995 values for the Six Countries:

http://i1095.photobucket.com/albums/i475/westexas/Slide1_zpsklujn2kn.jpg

Based on the observed initial rates of declines in the respective ECI Ratios (1995 to 1999 for the Six Countries and 2005 to 2016 for Saudi Arabia), Six Country estimated post-1995 CNE (Cumulative Net Exports) were 18 Gb and Saudi estimated post-2005 CNE were 60 Gb. In both cases, these extrapolations basically assume a perpetual rate of increase in production.

Of course, Six Country production subsequently fell, and post-1995 CNE were only 7.3 Gb, about 40% of what the initial (1995 to 1999) projection showed. This has obvious implications for remaining Saudi CNE, when the inevitable Saudi production decline kicks in.

There is another interesting similarity between the Six Countries and Saudi Arabia, in regard to the referenced time periods.

Six Country net exports in 1996 were the same as 1999 (2.7 million bpd or about one GB/year). Saudi net exports in 2006 were the same as 2016 (8.4 million bpd or 3.1 Gb/year). The crucial difference between 1995 and 2005 and 1999 and 2016 is the rate of depletion in regard to remaining CNE, even though the respective annual volumes were the same.

For example, the Six Countries shipped 14% of actual post-1995 CNE in 1996, and they shipped 24% of remaining actual post-1995 CNE in 1999, even though the respective annual volumes were the same. This is of course an accelerating rate of depletion. In this four year time period (1996 to 1999 inclusive), the Six Counties shipped 54% of actual post-1995 CNE.

Saudi Arabia shipped 5% of estimated post-2005 CNE in 2006, and they shipped 10% of remaining estimated post-2005 CNE in 2016, even though the respective annual volumes were the same, which of course is also an accelerating rate of depletion. In this 11 year time period (2006 to 2016 inclusive), Saudi Arabia shipped about half of estimated post-2005 CNE.

Note that given a finite remaining volume of Saudi CNE, it’s not whether, but to what degree, that we are seeing an accelerating rate of depletion in remaining Saudi CNE.

In any event, it’s important to remember that the actual post-1995 CNE for the Six Countries were only 40% of what the initial estimate showed, using the same methodology that I’m using for Saudi Arabia.

Note that their population increased from 25 million in 2005 to 32 million in 2016, as their total liquids consumption increased from 2.2 million bpd in 2005 to 3.9 million bpd in 2016.  Their net exports fell relative to 2005, even as production increased, because the increase in their consumption outpaced the increase in production.  Note that the ECI Ratio extrapolation for Saudi Arabia in effect assumes a perpetual rate of increase in production.  Given an inevitable production decline, their net export decline rate will really kick into high gear once they see a sustained production decline.  

In any case, if we divide estimated post-2005 CNE at the end of 2005 by 2005 population and estimated remaining post-2005 CNE at the end of 2016 by 2016 population, estimated post-2005 Saudi CNE at the end of 2005 were 2,400 BO per capita and remaining estimated post-2005 CNE at the end of 2016 were 900 BO per capita.   For the sake of argument, if we assume that the Saudis sell their remaining CNE for about $75 per barrel, they would generate about $70,000 per capita from selling their remaining estimated total volume of CNE.