Page 1 of
2 Saudi Arabia pivots toward
Asia By
Peter Lee
Saudi Arabia's future lies in
Asia. That was the subtext of Chinese Premier Wen
Jiabao's recent visit to Riyadh. That future might
arrive a lot quicker than people think, if BP is
to be believed.
BP's most recent energy
outlook report predicts that the United States
will become almost self-sufficient in energy by
2030, thanks to exploitation of its shale oil and
gas resources.
Per The Guardian, this is a
''development with enormous geopolitical
implications". [1]
Specifically, the
geopolitical implication is that, if the United
States does not need the Middle East for energy
security, it will lose much of its motivation to
meddle in the region, at least in the
immense nation-destroying,
budget-busting tradition of the Iraq wars.
Maybe, just maybe, the United
States will wash its hands of the intractable
Middle East and sail on to Asia in a search for
the 21st century heart of wealth and power.
That's bad news for Israel
and for Saudi Arabia, both of whom rely on United
States backing to buttress their shaky fortunes in
the region ... fortunes that have become more
perilous with the advent of the Arab Spring, and
the evaporation of local authoritarian and/or
pro-US regimes that were quite happy to coexist
with Israeli high-handedness and narrow Saudi
autocracy.
It's also bad news for the
European Union and Britain, both of whom rely on
Middle East energy imports and - as the Libyan
adventure demonstrated, 56 years after the
humiliation of Suez - still lack the resources and
capabilities to bully their way through their
petrochallenges without significant US backup.
Maybe, the theory seems to
be, a magic combination of US commitment to
democracy promotion, human rights, nuclear
non-proliferation, and loyalty to its allies will
keep the Barack Obama administration's attention
riveted on Iran and forestall the Middle East's
slow slide into irrelevance, insofar as Washington
is concerned.
So, as the United States
extricates itself from Iraq - seemingly
indifferent to the fact that the bloody ten-year
occupation has birthed a pro-Iranian Shi'ite-based
regime instead of the promised
pro-American/pro-Israel/pro-Saudi proxy -
considerable effort has been expended to keep the
Iranian pot boiling.
Israel issues veiled warnings
of its intent to attack Iran unilaterally; the EU
and Britain wring its hands over Iran's alleged
nuclear weaponization activities; the Gulf regimes
raise the regional stakes by supporting Sunni
militancy against Iranian allies in Iraq and
Syria; and somebody murders an Iranian nuclear
scientist.
To forestall one of Iran's
local enemies from jumpstarting a conflict that
drags in the United States, the Obama
administration engages in theatrical displays of
anti-Iranian rhetoric, sanctions resolve, and
warship deployments meant to demonstrate that the
US is driving the Iran agenda, instead of being
driven by it ... while stubbornly forging ahead
with America's Asian pivot and quietly reassuring
skittish allies in Tokyo and South Korea that it
really isn't going to crater the world economy for
the sake of Iran's nuclear program.
Israel, with its powerful
political, economic, military and diplomatic
backing from the United States, a population
apparently reconciled to its perceived role as a
disliked occupying power, and the reassurance of
an undeclared nuclear arsenal, can still be
sanguine about its political fortunes.
Saudi Arabia, an autocracy
that serves as the defender of a religion
politically toxic in the United States - and, as
the BP report indicates, facing displacement from
the center of US economic and energy concerns -
has to think about Plan B.
Plan
B is Asia: India, China, South Korea and Japan.
China is perhaps already
Saudi Arabia's largest customer, taking 1 million
barrels per day (bpd - one-fifth of its
requirement) and currently making up for the
demand shortfall from economically straitened
Europe. How China's surging demand and Saudi
Arabia's maturing oil and gas industry will
complement each other is a fraught and interesting
question.
The details of Premier Wen's
visit highlights Saudi Arabia's awkward 21st
century transition from the world's indispensable
guarantor of hydrocarbon supply to anxious oil and
gas partner to Asia's surging economies.
The
centerpiece of Wen's visit was the signature of an
agreement for the China Petroleum & Chemical
Corporation (Sinopec) to invest in an 400,000 bpd
export refinery, known as YASREF (for" Yanbu
Aramco Sinopec Refining Company"), in Saudi Arabia
at Yanbu.
The Yanbu refinery is already
under construction, and is slated for completion
in 2014. The original foreign partner was
ConocoPhillips, which pulled out in 2010.
ConocoPhillips pulled out
because it was a) choked by debt from an
acquisition binge and b) getting out of the
refining business globally because it couldn't
match the return from investing in production.
The
reason the refinery - with an $8.5 billion price
tag - has to be built is because crude from Saudi
Arabia's current big play, the Manifa offshore
field in the Persian Gulf, is too heavy and
sulfur-laden to feed foreign refineries designed
for sweet Saudi and Iranian crude.
The
reason the refinery has to be built at Yanbu is
because Yanbu is on the Red Sea, at the eastern
terminus of the East-West Pipeline. The East-West
pipeline, which has the capacity to move 4.8
million bpd or half of Saudi Arabia's current
output, is a piece of security infrastructure
meant to reduce Saudi Arabia's reliance on the
Persian Gulf and Strait of Hormuz.
Another reason the refinery
has to be built is that Saudi clout in regional
and world affairs depends on it making up any
shortfall in world output if, for instance,
Iranian crude left the market. Indeed, in the wake
of Hurricane Katrina and during the Libyan fracas,
the Saudis apparently stepped up.
But
increased supply of high-quality sweet crude to
European refineries set up for Libyan crude was
accompanied by accelerated production plans for
Manifa, exacerbating long-held suspicions about
the actual reserves - especially reserves of sweet
crude - available to Saudi Arabia. As one analyst
put it:
With Saudi producing 8.3 million
barrels a day pre-Libyan disruptions, why would
Saudi accelerate a heavy-oil development if they
really had 4.2 million barrels per day of spare
capacity? [2]
If an unpleasant scenario (World War
III in the Gulf) crippled Iranian exports for an
extended period of time, it looks like the Saudis
could no longer assure an increased supply of
sweet crude.
Perhaps
refinery products (including diesel and gasoline
from YASREF) would serve as an acceptable
palliative. But it would also be an indication
that Saudi Arabia's halcyon days as the
indispensable marginal supplier are numbered.
Riyadh's efforts to provide rationally for its
future have unintended consequences.
The
Yanbu refinery is a security play that further
diminishes the importance of the Strait of Hormuz
- and diminishes the need for Western vigilance to
keep the waterway open. Bypassing the strait is a
trend that has been going on for some time.
In
addition to the East-West pipeline, Abu Dhabi is
rushing completion of a $3.29 billion underwater
pipeline from Abu Dhabi that will bypass the
Strait of Hormuz and deliver 1.5 million bpd of
crude to Fujairah (equivalent to about 10% of the
supertanker traffic currently passing through
Hormuz), on the other side of the strait on the
Gulf of Oman. [3]
The Iranians have also been
trying to avoid the Hormuz bottleneck by building
the "Friendship" or "IPI" gas pipeline to Pakistan
and India, thereby assisting Pakistan in solving
its crippling energy shortages. The United States,
with an unfortunate callousness, has labored
mightily to block the pipeline and sustain Iranian
reliance on crude tanker shipments by the easily
blocked (by a US blockade as well as Iranian
missiles) strait for its revenues.
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
