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FT Energy Source: Saudi Reform

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By Ed Crooks: April 29, 2016

When Saudi Arabia’s oil minister raises an eyebrow, the world pays attention. So when the kingdom launched a hugely ambitious economic reform programme this week, it naturally attracted enormous interest.

The FT in an editorial praised what it described as “a bold bid to transform Saudi Arabia’s economy”, but highlighted the challenges Deputy Crown Prince Mohammed bin Salman would face in making his vision a reality. Simeon Kerr and Anjli Raval described the plans as “highly ambitious – some would say unrealistic”.

The Lex column discussed the importance of Saudi Arabia’s other great natural resource: its people. David Gardner argued that the biggest obstacle to technocratic reform was the historic compact between the House of Saud and the Wahhabi clerical establishment.

John Kemp at Reuters also raised doubts about the plans, saying Saudi Arabia would “struggle to kick its oil addiction.” He unearthed a report from the McKinsey Global Institute last December called “Moving Saudi Arabia’s economy beyond oil”, which looks like the blueprint for this week’s announcements.

The risks facing oil-dominated economies were still evident this week, despite the rise in crude to its highest level since November. Saudi Arabia is better off than many other oil-producing countries, and the “break even” oil price it needs to balance its budget has fallen sharply because of spending cuts. Venezuela’s economy, however, is plunging deeper into crisis. Government workers have been put on a two-day week to save energy.

The US government’s Energy Information Administration looked at one of the sources of surging oil production that has driven prices down since the summer of 2014: Iraq.

There was conflicting evidence on the health of the US shale oil industry. ConocoPhillips has cut the number of rigs it has running in the “lower 48” states of the US from 13 at the end of last year to just three, and has no plans to add more. But Pioneer Natural Resources raised its expected production growth for this year from 10 to 12 per cent, and Whiting Petroleum announced an investment from an unnamed partner, enabling it to project higher output in late 2016 and 2017 than it had previously expected.

Standard & Poor’s, the rating agency, stripped ExxonMobil of the coveted AAA grade that it and its predecessor companies had held since 1930. That decision was based in part on concerns about how Exxon was balancing shareholder returns against the strength of its balance sheet. The company swiftly demonstrated how seriously it was taking those concerns, announcing an increased dividend even though its earnings have plunged.

There was an excellent overview of the causes of the oil price crash and its implications for the US in testimony from Jason Bordoff, head of Columbia University’s Center on Global Energy Policy, given to the US Senate committee on energy and natural resources.

Climate scientists have started grading climate journalism.

An FT editorial criticised US state attorney-generals’ legal actions against ExxonMobil and other organisations over their statements on climate change, and received a critical response.

Much of Houston, the “energy capital of the world” was flooded last week. The Houston Chronicle had some superb photography from the disaster.

The use of “fracking” as a synonym for hydraulic fracturing, and hence oil and gas production in general, is still highly controversial. An industry executive once described it to me as “hate speech”. Vox had a fun explainer of its etymology.

Congratulations to FT winners of the Overseas Press Club awards: Erika Solomon and the rest of the team that worked on ‘Inside Isis Inc‘. And Tom Burgis for his book, ‘The Looting Machine‘ .

“We have an addiction to oil … this is dangerous… It has delayed development of other sectors.” – Mohammed bin Salman, deputy crown prince of Saudi Arabia

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