Saudi Arabia Has Oil. Now It Wants U.S. Natural Gas

By Scott Bauer

At A Glance

Saudis plan to invest billions in U.S. natural gas, which is seeing a surge in international interest.

Saudi Arabia is an oil country. That is what it does. It is dependent on the resources beneath its sovereign soil. But why are the Saudis so interested in natural gas? Because even the Saudis understand that crude oil is a finite source of wealth and has a ticking stopwatch pointed directly at its place in the global economy.

Many have heard of The Future Investment Initiative that was announced in September 2017 by the Public Investment Fund, Saudi Arabia’s main sovereign wealth fund, in the context of the Saudi Vision 2030 program of economic and social reform.

Liquified natural gas (LNG) has become a major player on the global scene, and the United States has positioned itself to be the forerunner in this sector. Thanks to the shale revolution, U.S. gas production has surged 50 percent since 2008 to over 87 billion cubic feet per day (Bcf/d) with output up nearly 15 percent in 2018.

The Saudis are looking to spend billions of dollars in U.S. natural gas assets, Saudi Aramco’s (ARMCO) CEO told Reuters in January. They plan to invest $150 billion in gas over the next decade in the U.S., Russia and other areas. Two of the projects reportedly on the shortlist include Houston-based Tellurian, Inc.’s (NASDAQ:TELL) terminal in Louisiana and San Diego-based Sempra Energy’s (NYSE:SRE) project in Port Arthur, Texas.

Saudi Arabia has reason for optimism. The International Energy Agency sees global gas demand rising to 2022 as the United States drives market transformation. The global natural gas market is now driven by new supplies coming from the U.S. to meet growing demand in developing economies.

This phenomenon sparked a surge in natural gas trading from beyond U.S. borders. As LNG production capacity and exports from the U.S. have risen, so has international trading in U.S.-based Henry Hub Natural Gas futures, which is fast becoming the global pricing benchmark.

Saudi Arabia Has Oil. Now It Wants U.S. Natural Gas

The Saudis can and will accomplish their goals through Aramco, one of the largest companies in the world by revenue, and according to accounts seen by Bloomberg News, the most profitable company in the world. Saudi Aramco has both the world’s second-largest proven crude oil reserves, at more than 270 billion barrels, and second-largest daily oil production.

The Saudis have the resources, the foresight and the motivation to diversify their holdings. Getting into LNG is just one way they are attempting to achieve this directive.

Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.