themselves, meet their price, and offer better quality; and that will still leave them cash-poor. Because I do think those Saudis WILL drop the price if they have to, in a heartbeat--it's way easier than trying to put their own boots on the ground in Iraq. They were hectoring OPEC about 'excess capacity' a while back and suggesting that other nations had too much product stored up and that they should all start unloading it. Wonder how much of their OWN they'll unload?
Even if you're buying heavy oil, if it's cheap enough to be worth the hassle, and you end up still saving money on the other end, after the refining costs, it's a good deal. The Venezuelans have sour stuff, and they do OK.
I also think the Saudis may have seen this coming, as they've been out and about for the past several years, quietly making deals to build and expand/streamline refinery capacity here and there:
http://www.worldfuels.com/sample.php?WFT#A1The Philippines and Saudi Aramco have made an agreement for a new oil refinery to be constructed in the Philippines' Bataan province, the country's President Gloria Macapagal-Arroyo said this week, Philippines News Agency reported.
The agreement was finalized when Macapagal-Arroyo visited Saudi Arabia last month.
Last year, the president of Saudi Aramco originally requested a feasibility study for a refinery in Northern Mindanao in the Philippines (see WRFT 12/09/05).
In addition to the Philippines, the refinery could supply oil to China and other Far East countries as well as the U.S. West Coast.
.... {more at link) And here from Feb 05:
http://www.mcilvainecompany.com/industryforecast/refineries/Updates/2005%20updates/feb%2005%20update.htm#Saudi%20Company Saudi Company to Build $2b Oil Refinery in Bangladesh
And this Saudi multipurpose refinery will be online by 08:
http://www.engineeringtalk.com/news/frw/frw193.htmlAnd our friends in Bahrain, with their low sulfer plant:
http://www.mcilvainecompany.com/industryforecast/refineries/Updates/2005%20updates/feb%2005%20update.htm#Bahrain%20Petroleum
Japanese oil engineering company JGC Corporation has been awarded the construction contract of a new hydrocracker unit with a capacity of 40,000 barrels a day to produce low sulfur diesel.
Construction is expected to start next month. The low sulfur diesel project is the main element of Bapco's strategic investment program. Its main objective is to reduce the current high sulfur content of Bapco's diesel from an average of 0.7 percent to 0.001 percent to give the company a competitive position in the international oil market. The project is expected to be completed in early 2007.
JGC's contract also involves upgrading an existing hydrocracker to produce low sulfur diesel. A new Refinery Gas Desulphurization unit with a capacity of 45,000 b/d will be also built as part of the modernization program.Even Iran is getting into the sour crude game:
http://www.ameinfo.com/87531.htmlI do think the Saudis have seen this coming, and they've quietly planned for it. They are also increasing their capacity to produce LNG, which can effectively substitute for oil particularly in production of electricity. But as for their oil, they aren't just building new refineries at home or via joint ventures abroad (Turkey China, Indonesia, PI, India, Carribbean, and so forth) they are also tweaking and streamlining older refineries. Here's one of their guys, talking to the Japanese on this very subject recently:
'Clearly, energy security as it applies to petroleum is a function of both supply and demand, and the interrelationship between the two is vital,' Mishari said. 'In fact, the interface between supply and demand is where our industry is facing some of its most pressing challenges, including not only stretched global refining and transportation capacities, but also the mismatch between existing refining configurations and the heavier, sour crude grades that account for much of the world's spare crude production capacity.'
Mishari noted that Saudi Aramco is involved in about a quarter of all refinery projects to increase capacity around the world. He said the company is committed to getting the highest quality products to consumers through a series of petroleum increment expansion projects that will bring millions of additional barrels per day to the global energy stream in the coming years.I dunno--those Saudis have been in this oil game for a long time. It's all they do. We're pikers at the job compared to them. They also are very patient, and they think way, way downstream. After all, chess is their favorite game, they've a long history of thinking ten moves ahead. And no matter how much oil they have to pay George for American blood, they'd likely rather pay than try to muster up an Army of soft-handed, indolent rich boys--it's just easier to outsource that sort of dirty work, in their minds.