Tulane University energy industry expert Eric Smith is available to speak about how the recent drone attack on oil facilities in Saudi Arabia could impact world oil and gas supplies and the U.S. market.
Smith, who is associate director of the Tulane Energy Institute at Tulane’s A. B. Freeman School of Business, said the following:
IMPACT ON UNITED STATES:
“Anytime there is a measurable loss of capacity, in this case, crude capacity, there is a market reaction. However, given that the U.S. has ample supplies, particularly of light crude, the loss of Saudi light crude is not much of an issue. Also, the president has already authorized withdrawals from the Strategic Petroleum Reserve (SPR). My bet is that, except for an isolated emergency spot shipment in the export market, the SPR won’t be required, even with a short-term loss of 5 million barrels per day. The initial price spike was less than $10 per barrel on the spot price for crude oil. That translates into $.24/gallon in the price of gasoline at the pump. That should decline rapidly to something like $5.00 per barrel or $.12/gallon over the next two weeks.”
“In terms of countries that will be hurt, Asia, and particularly China, come to mind. Presently they are large importers of Middle East crude. The United States, not so much, due to a conscious effort by OPEC and Russia to divert supplies of heavy sour crude to China. Heavy crudes dominate our current imports.
As for gas, the first thing to point out is that the Saudis are not exporters of LNG or pipeline gas, but do use gas for SABIC, their petrochemical operation, and for power generation. The petrochemical industry could see some tightening of prices, as the Saudis rebalance available gas supplies after the attack. Our guess is that they will preferentially supply SABIC while switching gas for power generation over to more oil-fed generation. Their economy should be negatively affected, while other international LNG, LPG and petrochemical suppliers would make up any temporary shortage and benefit accordingly.”
IMPACT ON LOUISIANA:
“The Louisiana economy should see minimal effects. Higher oil and product prices will be welcomed by our refineries while our new olefins and methanol plants will benefit on the petrochemical front. It is conceivable that we could also benefit from the diversion of remaining Saudi heavy oil supplies from China to the U.S. Gulf Coast as part of a rapprochement between China and the United States. Due to the size of the two affected facilities, our engineering and construction firms could also see some short-term benefit.”