Sunday, April 5, 2020

Oil prices war in the middle of the coronavirus crisis

The large peninsula of Arabia, the homeland of Muhammad, the origin of Islam, is a country of immense geographical dimensions. It has an area of ​​2,250,000 km2. 
The 1,800 kilometers of distance between its northwestern and southeastern points are composed of huge extensions of arid rocky and sandy terrain, without rivers or forests.
The territory is a succession of desolate and dry desert landscapes. In summer the air temperature can exceed 50 degrees and the ground becomes so hot at noon that the water could boil in the surface of the rocks exposed to the sun.
There are places in Arabia such as the Rub’al Khali, with 600,000 km2, where the rain gauges installed more than 50 years ago have never registered a rain and the humidity of the air drops to less than 10%. But the Rub'al Khali is not the only sand desert, to the north is the Great Nafud, in the center of the peninsula, the Dahna, and to the east the Jafurah dune fields.
The rest of the country is also arid but its soils are stony or salty.
There is a mountainous area to the west that reaches more than 2,000 meters and is slightly more humid (300 to 400 mm per year). It is a gently sloping relief to the east and overwhelmingly steep to the west. From there come the great wadis that infiltrate or evaporate on the way to the east, and short and steep water courses to the west. Beneath the great scarp is the tihama, a very hot and arid coastal plain. There are several important cities such as the port of Jeda and the religious city of Mecca. The region is called Hejaz.
In the undulating reliefs that descend towards the east (Najd) the climate becomes more arid, desert areas interrupted by various oases. In one of them is the city of Riyadh, capital of the kingdom.
Paradoxes of geography
However, in spite of these apparent environmental scarcity and aridity in Saudi Arabia the largest hydrocarbon deposits in the world are located in its territory. Among them it possesses the giant Ghawar oil field, which is the largest of the world. 
Ghawar was discovered in 1937 and is located about 100 kilometers from the city of Dhahran, in the Eastern Province of the country. It occupies an area of ​​8,400 square kilometers (280 kilometers long by 30 wide).
Currently, this field is capable of producing between 3.5 and 4 million barrels of oil per day, which represents about 6% of world production and 45% of Saudi production. It also produces about 2,000 million cubic feet of natural gas per day.
Since its production began in 1951 about 60,000 million barrels have been extracted. According to Saudi oil company Aramco, owner of Ghawar, it is still the largest oil field in the world. Although its production level is reduced by 2% and 8% each year, there are still some recoverable reserves of just over 70,000 million barrels.
In addition of the Ghawar oil fields Saudi Arabia possesses several other oil and gas hydrocarbon fields producing O.5 millions of barrils per day or more. They are Safaniyah (1.2 M bbd), Al Shaheen (0.5 bbd) and Khurais (1.2 M bbd) increasing its production to more than 10 million barrels per day. 
This huge volume of oil production gives Saudi's authorities the capacity of heavily influencing the hydrocarbon market and consequently the world geopolitics. 
This situation can be seen presently when the Saudi government has decided to flood the oil market (competing with Russia) forcing the prices down and indirectly reducing the competitivity of the shale oil producing sector in the United States. 
These actions were taken in the middle of the coronavirus pandemia which has substantially reduced oil demand.
Nobody knows who is going to change its policies first, Saudi Arabia (under U.S. pressure) or Russia (because of lack of cash), or both producers at the same time, perhaps reaching an accord on cutting production.
We will know it in the next few weeks. We will see.

(D.A.; Montevideo, April 5th, 2020)



No comments:

Post a Comment