Vision 2030: Towards a New Saudi Arabia or No Saudi Arabia?

Vision 2030: Towards a New Saudi Arabia or No Saudi Arabia?

By Andrew Korybko in Oriental Review on February 7th, 2019.

Saudi Arabia clinched 37 deals worth $53 billion after announcing that it intends to attract upwards of $426 billion in total over the next decade as it seeks to advance Crown Prince Mohammed Bin Salman’s (MbS) ambitious Vision 2030 agenda of socio-economic reform. The young leader knows that his majority-youthful country has no hope for the future if it doesn’t rapidly transition to a post-oil economy before its world-famous reserves run dry, which is why he’s doing everything in his power to court infrastructural, industrial, defense, and technological investments in order to prudently give his people a chance to survive when that happens.

This will naturally result in far-reaching lifestyle changes whereby the relatively well-off native population is compelled to leave their plush government jobs and segue into the competitive private sector out of economic necessity. Relatedly, the Kingdom is loosening its previously strict religious edicts that hitherto prohibited Western-style social freedoms such as playing music in restaurants, going to the cinema, and allowing women to drive. About the last-mentioned of these three latest reforms, it’s inevitable that more women will move out of the home and into the workforce as Vision 2030 progressively develops, though therein lays the potential for serious social unrest.

The Saudi state is upheld by the dual pillars of the monarchy and the Wahhabi clerics, the latter of which have been side lined as a result of Vision 2030 and MbS’ previous crackdown on both radical Islam and the corrupt elite. For all intents and purposes, the Crown Prince’s rapid rise to power was a factionalist coup within the monarchy itself but also a structural one of the monarchy imposing its envisioned will over the Wahhabi clerics, both in the sense of curtailing any militant activities that some of them might have been encouraging and/or funding and also when it comes to counteracting their previously dominant influence over society.

As the country makes progress on advancing Vision 2030 and its related economic reforms continue catalyzing social ones as well, it’s very possible that the structural fault lines between the monarchy & Wahhabis and the younger generation & the older one will lead to political destabilization if they’re not pre-emptively and properly dealt with. While it might sound overly dramatic, there’s a lot of objective truth in the forecast that MbS might either end up as the first King of a New Saudi Arabia or the last Crown Prince of a country that might ultimately cease to exist if these naturally occurring Hybrid War variables aren’t brought under control.

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Libya’s oil chief being bullish

Libya’s oil chief being bullish

Energy Reporters posting an article on Libya’s oil chief being bullish amid his country’s chaos that does seem to be wanting to end.

Libya aims to more than double its oil production to 2.1 million barrels per day (bpd) by 2021 provided security and stability are boosted, said Mustafa Sanalla, the chairman of the state oil company, the National Oil Corporation (NOC).

Libya oil chief bullish amid chaos

By Energy Reporters  | 07.01.2019  | Production

The war-torn state produces 953,000 bpd, compared to its pre-war capacity of 1.6 million bpd, according to Sanalla.
The oil boss demanded increased security at El Sharara oil field to ensure the 315,000 bpd site – which on December 8 was overrun by tribal activists, protesters and security guards demanding unpaid wages – could return to production.
El Sharara, around 750km southwest of the capital Tripoli, is the country’s largest oil field. Until recently it was producing about 270,000 barrels of oil per day, more than a quarter of Libya’s daily oil production.
The oil activists demanded the rebuilding of cities and towns affected by post-2011 armed conflict and providing liquidity for banks in the south to boost recovery efforts.
“What happened in El Sharara discourages foreign companies,” said Sanalla, who announced a visit to China in early 2018 to discuss oil investment opportunities.
“The legitimate and rightful concerns of the southern Libyan communities are being hijacked and abused by armed gangs, who instead of protecting the field to generate wealth for all Libyans, are actually enabling its exploitation and looting,” said Sanalla.
He also confirmed the improved security conditions in the Sirte basin in central Libya which would enable the launch of production at the Farigh gas field to 24 million cubic feet per day in three months, with an eventual output goal of 270 million cubic feet per day, Sanalla said.
Prime Minister Fayez al-Serraj (pictured) recently agreed to set up funds in excess of US$700 million for the development of southern Libya, which has suffered from decades of neglect after talks with the El Sharara militants. The talks followed a warning from Sanalla that the government should not encourage the militant groups at El Sharara with concessions as this would set a dangerous precedent for other direct action.
Despite security problems, the NOC said it expected full-year revenue to surge by 76 per cent to US$24.2 billion for 2018.

Prime Minister Fayez al-Serraj. Libya’s oil producers struggle with security challenges, making the war-torn state an unreliable member of Opec. Picture credit: Wikimedia

Is OPEC still relevant today ?

Is OPEC still relevant today ?

Illies Sahar and Paul Hickin dwelt on how certain producers of oil agreed to withhold part of their production for the purpose of a desperately sought after increase in the oil price. And they intend to do more of the same in case of not meeting that objective. OPEC will cut output further if oil prices fail to recover: Algerian energy minister. But is OPEC still relevant today ?

A question posed by Ali Ahmad‘s on December 9th, 2018 in This text that is the English translation of a piece he wrote for BBC Arabic.

How relevant is OPEC today?

Although Qatar’s exit from OPEC does not affect much OPEC’s oil production power since the Emirate contributes only 2 percent to the cartel’s production capacity, it does pose serious questions on the future of the organization and the role it is expected to play in global oil markets.

Qatar’s decision to pull out of OPEC may well be driven by political considerations; however, it also reflects the growing signs of discontent among OPEC’s members with how the organization is governed and how its production policies do not necessarily align with those of some member states.

Structural shifts of oil markets and the existence of major imbalances of the needs and policies of OPEC’s members pose a serious challenge to the organization’s unity and its ability to continue to abide by its mandate to “coordinate and unify the petroleum policies of its member countries”. OPEC, as an organization, is likely to continue to exist, but its role has already been weakened and will continue to dissipate as differences among its members become more pronounced and other producers like Russia and the United States increase their market share.

What is OPEC and how it is governed?

OPEC, which stands for Organization of the Petroleum Exporting Countries, can be understood as a club of some of the oil producing countries that is primarily mandated with protecting the interests of its member states and ensuring “a steady income to producers”. At the time of its inception in 1960, OPEC was seen as a “revolt” against private oil companies that seemed to ignore the interests of the producing states.

With Qatar’s exit, the organization currently lists 14 members including Saudi Arabia, Iran, Iraq and Venezuela, who are also founding members of OPEC. In 2017, OPEC members produced around 42 percent of the total global oil supply — more than 39 million barrel per day — with Saudi Arabia, alone, contributing about a third of OPEC’s production. In terms reserves numbers, OPEC members host 70 percent of global proven oil reserves.

On paper, OPEC’s governance and decision making requires the agreement of all member states; however, Saudi Arabia is the de facto leader of OPEC due to its market share and spare capacity that could be utilized to implement OPEC’s policies. Effectively, Saudi’s ability to substantially vary its production and thus directly impacting oil markets made it a price setter.

OPEC’s destabilizing factors

Infighting and cheating: Despite being oil producing countries, OPEC members have different political, social and economic realities. These differences translate into different needs at different times and consequently, and naturally, creates tension and discontent within the group. These different needs are manifested by the “budget break-even” price of oil that each member states requires to fully cover its budgetary expenses (see chart below).

Source: Bloomberg

The numbers shown in the chart above are largely dependent on the production in each country. For example, Venezuela’s very high break-even price is due to its diminished production share of just 4 percent of OPEC’s basket — 500,000 barrel per day below its OPEC output target. Libya is also in similar situation where it is looking to increase production to meet its budgetary needs.

Because of these imbalances, OPEC members continue to cheat to maximize their gains. Cheating is particularly rewarding when production cuts are made and prices are elevated as countries with low compliance eat into the market share of other oil producers. Iran, Iraq, Libya and Nigeria have all attempted to cheat their way to produce more than they are supposed to do.

Cheating has been reported in the academic literature as the one of the main reasons that lead to cartels’ eventual collapse.

Shale oil: It was in 2014 when, driven by Saudi Arabia’s interest in putting pressure on US shale companies, oil supply exceeded demand, despite resistance of other OPEC members with lower tolerance thresholds. The resulting glut sank oil prices below $30 per barrel. Although many US shale companied filed for bankruptcy, the industry emerged much stronger after the crisis due to better adaptation to lower prices, cost cutting measures, and technological efficiencies.

What makes shale oil a destabilizing factor for OPEC is its relatively quick response to oil prices, limiting OPEC’s ability to manipulate prices. The many independent shale companies in the US can gradually increase their supply in response to higher prices, which would eventually exert a downward pressure on prices.

Additionally, advancement in shale technologies and reduced costs of offshore exploration and production allowed new counties to become oil and gas producers, reducing their reliance on imported fuels.

Is OPEC still relevant?

Yes, but its power is diminishing. OPEC remains a dominant player in the global oil markets with production flexibility to smoothen price volatility. Additionally, OPEC members still have a major cost of production advantage compared to non-OPEC and shale rigs in the United States. However, market shifts such as increased share of unconventional oil and gas, especially in big oil consuming countries, and the increasing use of natural gas in power production are increasingly limiting OPEC’s ability to manipulate oil prices as it used to do. Now, shale producers are carefully watching prices and stand ready to react accordingly.

Entrepreneurship space in the Arab  world

Entrepreneurship space in the Arab world

Zawya #sme posted this article dated 13 December 2018 after conducting a series of interviews with many stakeholders in the Arab entrepreneurship space to gauge their views on the opportunities and the challenges that they face.

The image above is of a technology start-up firm used for illustrative purpose. Getty Images/Caiaimage/Agnieszka Olek

Special Report: Entrepreneurship in the Arab world: the opportunities, challenges, the stakeholders and the funding environment

By Yasmine Saleh, ZAWYA

Governments across the Arab world have been spending money on consultants to set up incubators and other tools to help those with business ideas create new firms and scale them, as more private sector jobs will be needed to provide employment for a young and fast-growing population.

But how successful are these, and what are conditions like for those brave souls who take a plunge and quit their jobs to start their own businesses? Are there enough opportunities, how hard is the journey and which track should the Arab entrepreneurs take to achieve their goals? And what happens if they fail?

Over the past three months, Zawya has conducted a series of interviews with many stakeholders in the Arab entrepreneurship space to gauge their views on the opportunities and the challenges that they face.

The Data

There are two major annual reports into the funding for start-ups in the Arab region carried out by Dubai-based research and funding platforms. One, carried out by Arabnet in collaboration with Dubai’s Mohammed Bin  Rashid Establishment for SME Development (Dubai SME), looks at the investments in the digital space across 11 countries in the Arab world.

The second, by Magnitt, a Dubai-based start-up platform that provides entrepreneurship research and data, looks at funding from angel to growth capital stages in 16 Arab countries.

  • According to the Arabnet/Dubai SME report, the number of active investors in the market increased by a compound annual rate of 31 percent between 2012 and 2017, from 51 in 2012 to 195 last year. It said around 40 new funds were created between 2015 and 2016 and around 30 new funds between last year and May 2018. Of these 30 new funding institutions, around one third are based in the UAE, while one quarter are based in Lebanon.
  • A majority of the investors are based in four Arab countries: The UAE hosts 32 percent, Saudi Arabia 17 percent, Lebanon 13 percent and Egypt 10 percent.
  • The investor community is almost equally spread between early stage funders such as angel investors, seed funders and incubator programmes, and later-stage venture capital, growth capital and corporate investors.
  • According to Magnitt’s report, 318 start-up funding deals were made in 2017, up from 199 in 2016. However, deal volumes for the first nine months of this year declined 38 percent to $238 million, from $383 million achieved in the same period last year.

The Opportunity

The start-up success stories in the region are growing, with the best-known so far being Dubai-based Careem and Souq.com.

Careem, which started in 2012, is a local ride-hailing app which has been through many rounds of venture funding, with the most recent $200 million fundraising completed in October bringing its valuation to over $2 billion, according to a Reuters story, citing an unnamed source.

Souq.com was founded in 2005 by Syrian entrepreneur Ronaldo Mouchawar and was sold to online retailer giant Amazon for $580million, according to documents filed by Amazon in April 2017.

Egypt was home to one of the region’s first incubators, Flat6Labs. It was founded in Cairo in 2011. It was deemed a success and later opened branches in Tunisia, Bahrain, Saudi Arabia, the UAE and Lebanon.

Mirek Dusek, the World Economic Forum’s deputy head for geopolitical and regional agendas, told Zawya in a telephone interview in September that the increasing interest by investors in the start-up scene is driven partly by governments, but also by local, private sector interests.

“We have a different picture than from five to ten years ago and that picture has changed dramatically because of the involvement of the family businesses, the traditional long-standing family firms that we have seen in the Arab world are now setting up venture capital arms and also sovereign entities, PIF (the Pubic Investment Fund) in Saudi Arabia or elsewhere are increasingly active in this space.”

 “Sovereign entities, particularly through sovereign wealth funds are setting up arms that are specifically targeting SMEs or start-ups in their home economy… This is quite healthy as long as it does not crowd out other competitors,” he added.

 The Pubic Investment Fund (Saudi Arabia’s sovereign wealth fund) is an investor-partner in ecommerce platform Noon, which was founded by UAE-based businessman Mohamed Alabbar.  The portal was launched late last year with an initial investment of $1 billion.  

Abu Dhabi’s Mubadala, a state-owned investment company, has pledged $15 billion to the $100 billion Softbank Vision Fund, a tech fund run by Japanese technology company Softbank in May last year, while Saudi Arabia’s PIF was the fund’s biggest investor, with a $45 billion commitment.

According to the Arab Competitiveness Report 2018 released in August, “research has shown that countries and regions characterized by higher entrepreneurial activity tend to have higher growth rates and greater job creation, the main pathways through which to grow the global middle class”.

The report, which was compiled by the International Finance Corporation (IFC), the World Economic Forum and the World Bank, added: “Global experience shows that entrepreneurship stimulates job creation in the economy, as most new jobs are created by young firms, typically those three to five years old.”

Saudi Arabia, the Arab region’s biggest economy, needs to create 1.2 million jobs by 2020 to reach its unemployment targets, Reuters reported in April, quoting an official in the Ministry of Labor.

The unemployment rate for Saudi nationals stood at 12.9 percent of the population in the second quarter of 2018 – the latest for which figures are available.

Anass Boumediene, one of the founders of Dubai-based eyewa.com, an online portal that sells spectacles and contact lenses that expanded to Saudi Arabia last year, said the region still lags behind others with regards to the size and type of support provided by governments to start-ups.

“What needs to be improved in the region is governments’ involvement in fostering entrepreneurship. In Europe, Asia, or the U.S., governments are a lot more active in supporting entrepreneurs, providing access to simple and cheap legal frameworks for startups and VCs (and) government funding in the form of grants, loans or equity to both startups and VCs, and other ecosystem-building infrastructure facilitating access to talent and technologies,” he told Zawya in an interview in September.

Aysha Al-Mudahka, the CEO of Qatar Business Incubation Center (QBIC), told Zawya in a phone interview in September that it is important both for start-ups and investors to feel they have “the consent of the government”. This will make “the private sector feel comfortable to invest in start-ups, especially in the Arab world, as that will lead to better regulations and support for start-ups.” 

QBIC is a government-backed incubator, co-founded and solely owned by Qatar Development Bank.

Read more on the original Zawya publication

OPEC convening on Friday June 22, 2018 to set output

OPEC convening on Friday June 22, 2018 to set output


OPEC convening on Friday June 22, 2018 to set output policy in a would-be regular meeting like all those that have been taking place since last year, to try and control the oil market is said this time to mean relaxation of production cuts. Other members like Iran, Iraq, Venezuela and Algeria have already voiced their opposition to such a move.

Iran said on Tuesday that reaching a deal on oil output is unlikely. “I don’t believe at this meeting we can reach agreement. OPEC is not the organisation to receive instruction from President Trump … OPEC is not part of the Department of Energy of the United States,”  Reuters quoted Iran’s oil minister Bijan Zanganeh telling reporters after arriving in OPEC’s headquarters in Vienna.

Algeria’s expert Dr. A. Mebtoul in Prospects for OPEC’s June 22nd, 2018 meeting identified nine interdependent determinants of the price of oil for the period between 2018, 2020 and 2030.  Could OPEC’s conventional oil vs.US shale oil  be less confusing than that?

Don Bredin, University College Dublin and Simon James Jeune Spencer, University College Dublin in this article do help us see a clearer picture of the current situation.   


OPEC meetings: why it’s so hard to predict how the oil market will react

File 20180619 126566 1uifkd7.jpg?ixlib=rb 1.1
vladm / shutterstock

Don Bredin, University College Dublin and Simon James Jeune Spencer, University College Dublin

The Organisation of the Petroleum Exporting Countries, better known as OPEC, meets in Vienna on June 22. OPEC is a group (many call it a cartel) of 14 of the biggest oil nations, representing most of the world’s reserves and just under half of current oil production. For the first time in many years, the cartel will assemble against a background of tightening supply and significantly rising oil prices.

Though the emergence of Russia and the US as major oil producers means OPEC no longer wields quite as much power as it did in the 1970s, its announcements are still big news. So will OPEC choose to raise production? Will its members even be able to agree at all?

These are questions we have looked at in our recent research on OPEC’s decision making. We found that whether or not all cartel members agreed on what to do significantly affected how the market reacted to an OPEC announcement.

This latest meeting comes as the price of oil is fast increasing, several years after it crashed from around $100 a barrel (bbl) to $50/bbl. OPEC members, who generally produce their oil relatively cheaply, will also be aware that long-run prices above $50/bbl will motivate shale production in rivals, including Canada and the US.

Focus on ‘forward prices’

Commentary on OPEC decisions usually focuses on “spot prices” – that is, how much a barrel of oil would cost if you actually wanted it right away. But trading is also possible where we assume delivery at some specified future date, that is “forward prices”. The other way to assess OPEC decisions is to look at these forward prices – and especially at the relationship between forward and spot prices. This relationship is known as the oil market’s “term structure”.

The graph below provides a simple demonstration of the importance of term structure in the oil markets. The blue line shows the familiar story of spot prices, including the 2014 crash and the recent rally. However, the red line, showing the price of three-year forward oil, tells a very different story. There was no distinct fall in forward prices around the OPEC policy change of 2014 and no recent recovery. Rather, there was a continuous and gradual decline followed by an ongoing period of stability.

The authors have looked at the difference between the two lines.
Bloomberg, Author provided

Given OPEC decisions have long-term ramifications, an analysis that looked only at spot prices would certainly not tell the whole story. This is why our recent study also examined the impact of OPEC decisions on how forward prices relate to spot prices – the term structure.

We found that decisions to raise production tend to be followed by forward price increases, while decisions to cut tend to be followed by forward price decreases. These findings are seemingly counter-intuitive – after all, basic economics tells us that more supply leads to lower prices and vice versa. So why would additional OPEC production actually make oil more expensive in the future?

Things are best explained by viewing OPEC decisions as something of a too-little-too-late response to market fundamentals. If you look back at the graph above, you’ll see that the OPEC decision to allow (spot) prices to fall in 2014 appears to have been anticipated by the forward market over several years.

Optimism vs caution

Most OPEC meetings aren’t as dramatic as 2014, of course. The most frequent outcome is “no change” in production quotas and previous research has found that prices rise following such decisions.

We however have divided the “no change” decisions into those which follow a unanimous decision by members to maintain production unchanged, and those which follow a failure by OPEC members to make a unanimous decision (leading to no change by default). For example during the two OPEC meetings in 2015, both decisions were no change in production. However, the June meeting was based on “agreement to maintain”, while the December meeting was based on “failure to agree”.

Petroleum Ministry, Tehran. OPEC’s meeting in December 2015 collapsed after Iran couldn’t agree with other members on production quotas.
Shutterstock

We found that the market reacts significantly differently to the two types of no-change decision. Failure to agree decisions lead to higher spot prices and expectations of higher prices, over a prolonged period. This is not the case for agreement to maintain decisions. The implication is that there is more market optimism following an agreement to maintain production and more caution following a failure to agree.

So OPEC members should not be fooled by the current short-run price increases. Though reports suggest an increase in production is likely, they may yet (and, from a purely self-interested point of view, should) decide not to increase their production quotas, at least so long as forward prices remain low.

But there will no doubt be some voices at the table looking to boost production because prices in the short term suggest that more oil could be absorbed by the market.

The ConversationIf there is no quota change, it will be interesting to watch whether members agree to maintain production unchanged, or whether they maintain production unchanged as a result of a failure to agree. Our study shows that when it comes to OPEC decisions, agreement matters.

Don Bredin, Professor of Finance, University College Dublin and Simon James Jeune Spencer, PhD Researcher, Commodity Finance, University College Dublin

This article was originally published on The Conversation. Read the original article.

U.S. shale oil drillers boosted by efficiency and drilling intensity

U.S. shale oil drillers boosted by efficiency and drilling intensity

The Global Warming Policy Forum citing The Wall Street Journal on how The New Shale Tech That Terrifies OPEC has become reality where the U.S. shale oil drillers boosted by efficiency and drilling intensity, are lowering prices to a point that could soon hurt exporters like Saudi Arabia.
What doesn’t kill you makes you stronger.

Two years ago, it looked like Saudi Arabia was winning its fight against the U.S. shale oil industry by furiously pumping crude to drive down prices. Some drillers went bust and many more flirted with bankruptcy while oil drilling in places like West Texas and North Dakota collapsed.

The Saudi effort backfired. Instead of killing shale it spurred a wave of innovation that transformed drilling in the U.S. into a highly efficient industrial process, dramatically lowering costs and boosting output. During the next oil bust, it will be the Saudis who have to worry.

“High prices tend to create sloppiness in this industry because people focus only on growth,” says Doug Suttles, chief executive of shale driller Encana. “Downturns make you focus on cost because it’s the only thing you can control—the oil price is out of your hands.”

Meanwhile, something remarkable is happening. The U.S., where production was once thought to have peaked nearly 50 years ago, will become the largest oil producer on the planet by next year.

One region alone, the prolific Permian Basin, recently passed 3.1 million barrels a day of output. Stretching from West Texas to New Mexico, it would now rank No. 4 of the 14 members of the Organization of the Petroleum Exporting Countries and may soon produce more than No. 3, Iran.


The amount of oil being pulled from the ground there is already driving global markets. But what should really frighten energy ministers in Riyadh, Tehran and Moscow is how that oil is produced. The number of drilling rigs now active in the Permian is the same as back in October 2011, yet the region is producing three times as much crude.

Just a few years ago, a well would be drilled and then the rig would be disassembled and moved to a new location—a time- and labor-intensive process. Today it is more common for rigs to sit on giant pads, which host multiple wells and the necessary infrastructure, and for them to move on their own power to a new well yards away. These rigs drill over a wider area and increasingly are being guided by instruments developed for offshore drilling that see hundreds of feet into the rock. They inject more sand underground to break open the rocks, boosting output.

Those small gains add up. Between 2010 and 2016, the average number of drilling days per rig including transport time fell at a pace of about 8% a year in the Midland section of the Permian, while initial well production grew by 33% in just two years, according to McKinsey Energy Insights.

The efficiency and drilling intensity is clear from just one site owned by Encana. The pad in the Permian started out with 14 wells, recently had 19 more added to it and may reach 60 wells—a once unimaginable concentration.

That also may make America’s reserves last longer. Encana’s approach, which it calls “the cube,” targets different layers simultaneously, which can boost the amount that can be recovered economically by about 50%, Mr. Suttles said.

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