Even as the world consumed nearly 30 billion barrels of oil last year, not only was the industry able to replace this production but global petroleum reserves actually increased by nearly seven billion barrels.
State-owned oil giant Saudi Aramco is resigned to the fact that its influence will wane because of the massive unconventional fossil-fuel development underway in North America. As such, Saudi Arabia has no plans to raise its production output to 15 million barrels per day from 12 million, said Khalid Al-Falih, the powerful chief executive of Aramco.
Clearly, the Kingdom is preparing for new market realities as the discussion on energy has changed from scarcity to abundance, particularly due to the new finds that can be produced feasibly and economically.
In the past, Saudi Arabia, along with its OPEC allies, could drive prices down by opening the taps to ensure unconventional fossil fuels remained firmly buried in the ground. But most analysts now expect oil prices to remain high, at least over the medium term, thanks to tight supplies and continued demand from emerging markets. That's great news for Canadian oil sands developers, which need prices around US$60 to US$70 per barrel to make their business models economically feasible.
Saudi Arabia's own break-even oil price has also risen sharply in the past few years, making it less likely to pursue a strategy of lower prices. The Institute of International Finance estimates that Saudi Arabia's break-even price has shot up US$20 over the past year to US$88, in part due to a generous spending package of US$130-billion announced this year to keep domestic unrest at bay.
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