Saudi Arabia Has Oil. Now It Wants U.S. Natural Gas

At a Glance

  • Saudis plan to invest billions in U.S. natural gas, which is seeing a surge in international interest

Saudi Arabia is an oil country. That is what they do.  They are dependent on the resources beneath their sovereign soil.  But why are the Saudi’s so interested in natural gas? Because even the Saudis understand that crude oil is a finite source of wealth and has a ticking stopwatch pointed directly at their place in the global economy.

Many have heard of The Future Investment Initiative that was announced in September 2017 by the Public Investment Fund, Saudi Arabia’s main sovereign wealth fund, in the context of the Saudi Vision 2030 program of economic and social reform.

Liquified natural gas (LNG) has become a major player on the global scene and the United States has positioned itself to be the forerunner in this sector.  Thanks to the shale revolution, U.S. gas production has surged 50 percent since 2008 to over 87 billion cubic feet per day (Bcf/d) with output up nearly 15 percent in 2018.

The Saudis are looking to spend billions of dollars in U.S. natural gas assets, Saudi Aramco’s CEO told Reuters in January. They plan to invest $150 billion in gas over the next decade in the U.S., Russia and other areas. Two of the projects reportedly on the shortlist include Houston-based Tellurian Inc.’s terminal in Louisiana and San Diego-based Sempra Energy’s project in Port Arthur, Texas.

Saudi Arabia has reason for optimism. The International Energy Agency sees global gas demand rising to 2022 as the United States drives market transformation.  The global natural gas market is now driven by new supplies coming from the U.S. to meet growing demand in developing economies.

This phenomenon sparked a surge in natural gas trading from beyond U.S. borders. As LNG production capacity and exports from the U.S. have risen, so has international trading in U.S.-based Henry Hub Natural Gas futures, which is fast becoming the global pricing benchmark.

 

The Saudis can and will accomplish their goals through Aramco, one of the largest companies in the world by revenue, and according to accounts seen by Bloomberg News, the most profitable company in the world.  Saudi Aramco has both the world’s second-largest proven crude oil reserves, at more than 270 billion barrels, and second-largest daily oil production.

The Saudis have the resources, the foresight and the motivation to diversify their holdings. Getting into LNG is just one way they are attempting to achieve this directive.

Scott Bauer graduated with honors from the University of Illinois Business School, Urbana Champaign, in 1988 with a B.S. in Finance. Bauer began floor trading in 1991 and formed BOTTA Capital Management in 1995. Scott traded equity options, S&P options at CME and was employed by Goldman, Sachs & Co. as Vice-President, Equities Division. He is currently CEO of Prosper Trading Academy and appears regularly on CNBC, Bloomberg Financial and Fox Business as a guest commentator.

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