The signing of a 20-year deal for the U.S.’s NextDecade Corporation to sell liquefied natural gas (LNG) to Saudi Arabia’s flagship company, Aramco, could have a significance way beyond the confines of the energy market. Following Russia’s invasion of Ukraine on 24 February 2022, LNG is now the key strategic energy source in an increasingly dangerous world, as analysed in full in my new book on the new global oil market order. Unlike oil or gas that is transported through pipelines, LNG does not require years and vast expense to build a complex infrastructure before it is ready to transport anywhere. LNG can be shipped and moved anywhere within a matter of days and bought reliably either through short- or long-term contracts or immediately in the spot market. Consequently, it now has a massive geopolitical importance as well, which is only set to increase as global demand for it is estimated to rise by more than 50 percent by 2040, according to energy industry forecasts. That the U.S. is willing to engage with Saudi Arabia on a long-term contract in this vital energy sector may signal that the dramatic deterioration between the two countries seen from the 2014-2016 Oil Price War might be set to reverse.
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Prior to the onset of the 2014-2016 Oil Price War, Saudi Arabia had been the most powerful oil nation in the world, not only by dint of its own sizeable oil reserves and average production of just over 8 million barrels per day (bpd) but also because of its de facto leadership of OPEC. At that point, OPEC members account for around 40 percent of the world’s crude oil output, about 60 percent of the total petroleum traded internationally from their oil exports and just over 80 percent of the world’s proven oil reserves. The power of Saudi Arabia and OPEC had been evidenced in the 1973/74 Oil Crisis (which can be seen as the First Oil Price War), as also fully analysed in my new book, which saw a widescale oil embargo push oil prices from around US$3 per barrel (pb) to nearly US$11 pb and then trending higher again. This, in turn, stoked the fire of a global economic slowdown, especially felt in the West. The then-Saudi Minister of Oil and Mineral Reserves, Sheikh Ahmed Zaki Yamani, who was widely credited with formulating OPEC’s strategy, highlighted that the extremely negative effects on the global economy of the oil embargo marked a fundamental shift in the world balance of power between the developing nations that produced oil and the developed industrial nations that consumed it. This had also been noted in the U.S., particularly by Henry Kissinger, who served as National Security Advisor from January 1969 to November 1975 and as Secretary of State from September 1973 to January 1977. At that point in the 1970s, the U.S. lacked the crude oil production capability that made its economy immune from the damaging effects of such future oil embargoes by Saudi Arabia, OPEC and the other big oil-producing countries. However, Washington determined that it would make every effort to find such resources, and it struck the jackpot with the full-throttle development of the country’s shale gas and oil resources from 2010/11.
In the interim period from 1974 to 2011, relations between the U.S. and Saudi Arabia and OPEC had been cordial enough, based as they were on the foundation stone agreement struck on 14 February 1945 between the then-U.S. President, Franklin D Roosevelt, and the then-Saudi Arabian King, Abdulaziz bin Abdul Rahman Al Saud, as also detailed in the book. This deal was simply that the U.S. would receive all the oil supplies it needed for as long as Saudi Arabia had oil in place and, in return for this, the U.S. would guarantee the security both of Saudi Arabia and its ruling House of Saud. However, as the U.S. began to scale up its shale oil production in the early 2010s, it became obvious to Saudi Arabia that this would pose a huge threat not just to its economic prospects in the years ahead as its global oil market share was reduced by U.S. shale, but also to its political standing in the world, as this was primarily based on its oil power. Consequently, it saw no choice by 2014 but to launch an all-out price war designed to severely damage the threat from the U.S. shale sector. Due to the unexpected ability of these shale producers to dramatically decrease their shale production costs, as fully examined in my new book, the massive fall in oil price caused by concerted overproduction from Saudi Arabia and OPEC only made the U.S. shale sector leaner, meaner, and even more of a threat. The only real damage was done to those who launched the Oil Price War, with both Saudi Arabia and OPEC seeing their…
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