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Saudis' Secret Oil Crisis

Crisis Strikes Riyadh

Written by Keith Kohl
Posted July 19, 2012

When things go wrong for OPEC, they go really wrong.

We've seen this week how some members have it worse than others...

Take Nigeria, for example, with its aging infrastructure. That's on top of a report revealing the country has lost more than $24 billion to oil theft during the last two years, averaging out to about $1 billion in losses per month.

Last year a million and a half barrels of light Libyan production were shut in per day. We quickly learned of the poor quality of Saudi Arabia's spare capacity when they graciously told us that they would increase production to make up for Libya's shortfall.

We are also well aware of how volatile Iran's nuclear ambitions have turned over the last few years...

How many more times will they threaten to close the Strait of Hormuz before they make good on their promise? Some producers already have plans in place to bypass the strait altogether and ship their oil via pipeline.

But of all the issues plaguing OPEC members, there's one whose problems truly scare us.

And that's Saudi Arabia.

The Saudis' Greatest Fear Isn't Peak Oil

Oddly enough, it's not Peak Oil that keeps Saudi princes up at night.

Saudi Arabia is one of the few countries around the world that can increase output...

Even if we take them at their word (not that we have much of a choice, considering how tight-lipped they are with oil field data), let's assume Saudi Arabia can pump out another two or three million barrels per day (about 12 million barrels per day total).

The news leak in 2011 accusing the Saudis of overstating their oil reserves by almost 40% wasn't shocking...

The best-kept secret among OPEC was that they cook their books.

It's hard not to laugh when these figures show seven members doubling their oil reserves within seven years of each other. Many of those numbers have been remained at those levels since.

So what else could they be so worried about?

Something else has been creeping up on OPEC members...

saudi demand 7-18

Saudi Arabia's population grew less than 10% over the last decade while domestic oil consumption skyrocketed to nearly three million barrels per day.

That amount will keep growing, which means only one thing: less oil available for export.

The implications of this fact don't bode well for China or the United States.

Despite all the political rhetoric from campaign platforms regarding an energy independent U.S., we are still very much beholden to Saudi oil.

According to EIA data, we imported an average of 1.5 million barrels per day from the Saudi kingdom in April, the highest level since 2008. When those imports dry up, the only thing left to do is hope our own oil boom continues.

Meanwhile, Saudi Arabia will have to deal with their energy crisis sooner rather than later...

Profiting from Saudi Desperation

As this situation continues to develop, the Saudis are looking elsewhere for energy.

OPEC members are raking in $1 trillion a year in oil profits these days. The more they can curb their own oil consumption habits, the more crude there is to ship to buyers who will pay top dollar.

Remember the $109 billion solar gamble they're prepared to make?

After witnessing the kind of revolution taking place in solar technology right now, it makes perfect sense to go that route.

What's the Kingdom's next move?

With all the recent hoopla over Iran, Saudi Arabia is now trying their hand at the nuclear game.

The country expects to have its first nuclear power plant up and running within eight years. By 2030, they're hoping to have as many as 60 reactors.

Imagine the uproar that will take place as more of these Middle Eastern nations turn to nuclear...

Thankfully, there's a much safer way to run those nuclear plants, the technology for which will change the industry — and early investors' portfolios — forever.

Until next time,

Keith Kohl Signature

Keith Kohl

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A true insider in the energy markets, Keith is one of few financial reporters to have visited the Alberta oil sands. His research has helped thousands of investors capitalize from the rapidly changing face of energy. Keith connects with hundreds of thousands of readers as the Managing Editor of Energy & Capital as well as Investment Director of Angel Publishing's Energy Investor. For years, Keith has been providing in-depth coverage of the Bakken, the Haynesville Shale, and the Marcellus natural gas formations — all ahead of the mainstream media. For more on Keith, go to his editor's page.

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