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April 01, 2013 at 14:00 PM EDT
Saudi Arabia Oil Investing
Saudi officials are trying to diversify the country's energy mix, thereby allowing less domestic consumption. But they waited too long. Is Saudi Arabia about to import oil from the United States?

This Article Originally was Published here: http://www.energyandcapital.com/articles/saudi-arabia-oil-investing/3227

At a recent meeting of oil investors, a man by the name of Justin White painted a very grim picture.

He asked those in attendance to imagine the most economically unsustainable environment for oil production.

Think about that for a moment, then consider the following...

Taking into account the reliance of exports, domestic consumption, and resource availability, Justin described a desert kingdom that, for decades, has relied almost entirely on oil to grow its economy and feed its people — but in less than 20 years could become a net importer of oil, as its economy implodes and its citizens take to the streets.

I'm talking about Saudi Arabia, of course.

And based on the country's current energy consumption pattern and remaining reserves, the Saudi Kingdom is officially on the verge of a complete economic meltdown that could turn this thriving empire into a ghost town relic.

Delaying the Inevitable

You may remember when Saudi government officials announced last year their plans to install 40 gigawatts of solar energy.

You may also remember when the Saudis announced plans to construct up to 60 nuclear reactors, with the first one going online by 2020.

Both of these initiatives were put in place in an attempt to diversify the country's energy mix, thereby allowing for less domestic consumption and the continued export of its national treasure.

But there's a problem with this plan: They waited too long.

According to research analysts at Chatham House, simulations now show that adding renewable and nuclear power based on current estimates can only delay the onset of an intractable fiscal deficit by a couple of years.

Bad news for the Saudis. But good news for us...

Like Water for Oil and Gas

Despite the overwhelming evidence that Saudi Arabia is setting course for a major economic implosion, government officials deny, deny, deny. They claim the nation's energy economy is secure and diversifying rapidly.

But not rapidly enough. Heck, they're even singing the praises of fracking now!

Just a couple of weeks ago, Saudi Arabia's oil minister told reporters that Saudi Aramco is set to begin exploration of the country's shale resources (never mind the fact that they simply don't have the water resources that would allow them to fully exploit shale the way we have here in the United States).

Interestingly, the Saudi Press Agency just reported the country has approved $138 million of water and sanitation projects. This, by the way, is peanuts compared to the $1.1 billion they spent last year on 128 water and sanitation deals just in Riyadh.

Of course, $6.4 billion has been allocated for all of 2013 for water and sanitation projects. And that doesn't count what they still have to spend on desalination...

According to energy industry advisor Geoff Styles, producing Saudi Arabia's shale resources will pose a real challenge to a country that's so short on water:

As if the economics of shale gas development weren't challenging enough in such an environment, the key ingredient that has fueled the US shale revolution, water, is in short supply in Saudi Arabia.  The needs of cities and industry in this arid country exceed the water supply from aquifers to such an extent as to require 27 desalination facilities, delivering nearly 300 billion gallons annually.  At several million gallons of water per hydraulically fractured shale gas well, the logic of burning oil to desalinate water to produce gas looks questionable.

Bottom line: Unless the Saudis can quickly transition from oil to other sources for electricity needs, they're screwed.

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Crowning the New King

Now, nothing is set in stone. But even if the Saudis can effectively transition their energy economy to one that doesn't rely so heavily on oil for domestic utility-scale power generation, it's still going to take well over a decade to get there. And that's figuring optimistically.

In the meantime, however, the United States continues to produce new oil and gas supplies at a record pace.

In fact, by the time Saudi Arabia burns through its remaining reserves and their empire crumbles, there will be a handful of companies right here in America that'll effortlessly become the new kings of oil...

And that, my friends, is where we're staking our claim.

Right now, there are three U.S.-based developers that continue to line our pockets.

And next month we're going to share with you a few more domestic producers that we believe will further pressure the Saudi oil regime, while continuing to help us build our own personal oil fortunes.

To a new way of life and a new generation of wealth...

Jeff Siegel Signature

Jeff Siegel

follow basic@JeffSiegel on Twitter

Jeff is the managing editor of Energy and Capital and contributing analyst for the Energy Investor, an independent investment research service focusing primarily on stocks in the oil & gas, modern energy and infrastructure markets.  He has been a featured guest on Fox, CNBC, and Bloomberg Asia, and is the author of the best-selling book, Investing in Renewable Energy: Making Money on Green Chip Stocks. For more on Jeff, go to his editor's page.

This Article Originally was Published here: http://www.energyandcapital.com/articles/saudi-arabia-oil-investing/3227



Saudi Arabia Oil Investing originally appeared in Energy and Capital. Energy and Capital, a free daily newsletter, offers practical investment analysis in the new energy economy.
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