US could replace Saudi Arabia with Russia as an oil supplier

Here is a chart of where Saudi Arabia sends its exported oil and refined products(Source: Saudi Aramco, 2008 Annual Review):
The US is a relatively small customer for Saudi Arabia.  At the same time, data from the US Department of Energy show that presently only about 10% of oil imports to the US come from Saudi Arabia.

Russia recently surpassed Saudi Arabia as the world’s largest crude oil producer.  An analysis by Euromonitor comparing Russia and Saudi Arabia highlights several key points:

-Saudi Arabia has traditionally been the world’s largest producer of crude oil, a position which it occupied since 1991. However, Russia overtook it in 2009, producing an average 10.0 million b/d compared to 9.7 million b/d in Saudi Arabia.

-Saudi Arabia completed a major capacity expansion programme in 2010, which brought the kingdom’s total annual crude output capacity to 12.5 million b/d including a zone between Saudi Arabia and Kuwait. This means that Saudi has a very large surplus production capacity which is currently idle, and could effectively become the world’s top producer again if it chose to pump at full capacity.

-Russia is not a member of OPEC and instead increased its production to take advantage of stabilising prices and to gain market share. This has highlighted the difficulty for OPEC to maintain control of oil prices in times of peaks and troughs, especially as other producers such as Indonesia and Brazil are not members.

-Both countries are attempting to export more oil to China where oil demand is rapidly increasing to keep up with rapid economic growth. Over 2004-2009, China’s crude oil consumption had risen by an annual average of 4.9% whereas in the USA it fell by an annual average of 1.9%.

If the US and Russia were to cooperate, the US could likely eliminate imports from Saudi Arabia completely and replace them with supply from Russia. This would yield strategic benefits for both the US and Russia. The US would be reducing its ties to one of the world’s most repressive regimes which would give greater flexibility in handling Middle East issues generally. The dependence on vulnerable transport routes through the Straits of Hormuz would be greatly reduced.

The US and Russia could cooperate on building additional pipelines to the Russian Far East to allow transport of oil to the US. This would provide incentive for greater development of oil fields in eastern Russia, and this transport corridor would be more secure than the Persian Gulf.  Increased ties between the US and Russia should reduce the potential for future conflicts.

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2 Comments »

  1. […] Here is a chart of US domestic oil production versus imports for the period 1920-2005.  The decrease in domestic production of about 1 million barrels per day between 1970 and 1980 is far smaller than the increase in imports of roughly 5 million barrels per day over the same period.  This is a time period which includes the embargo by OPEC of oil exports to the US.  Perhaps the drop in domestic production could have been due to the availability of large quantities of low marginal production cost Saudi Arabian oil. […]

  2. […] policy different now?  I believe it is because the Saudi government recognizes that China will pay practically any price per barrel, because maintaining China’s economic growth is critical to China’s domestic […]

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