Shale Threatens Saudi Economy, Warns Prince Alwaleed – by Summer Said and Benoit Faucon (Wall Street Journal – July 30, 2013)

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Investor Says Kingdom’s Economy Increasingly Vulnerable

Saudi billionaire Prince Alwaleed bin Talal has warned that the kingdom’s oil-dependent economy is increasingly vulnerable to rising U.S. energy production, breaking ranks with oil officials in Riyadh who have played down its impact.

In an open letter dated May 13 addressed to Saudi Oil Minister Ali al-Naimi and several other ministers, a link to which was published Sunday on Prince Alwaleed’s Twitter account, he warned that the boom in U.S. shale oil and gas will reduce demand for crude from members of the Organization of the Petroleum Exporting Countries. A Saudi official confirmed that ministers received the letter in May.

Not long after the prince issued his warning, a report from OPEC published Monday showed the group’s oil export revenue hit a record high of $1.26 trillion in 2012. However, forecasts from the group raise questions over whether that level of earnings can be sustained amid the competition from shale oil.

Saudi Arabia, the world’s biggest oil exporter, is now pumping at less than its production capacity because consumers are limiting their oil imports, Prince Alwaleed said in the letter. This means the kingdom is “facing a threat with the continuation of its near-complete reliance on oil, especially as 92% of the budget for this year depends on oil,” said the prince.

Prince Alwaleed, a nephew of Saudi King Abdullah, is a major international investor, with stakes in Apple Inc., AAPL -0.39% Citigroup Inc., C +0.82% Time Warner Inc., TWX +0.63% Twitter and News Corp, NWSA +1.19% which owns Dow Jones & Co., publisher of The Wall Street Journal.

In contrast to Prince Alwaleed, Mr. Naimi, the Saudi oil minister, has so far played down the significance of rising shale-oil production, despite the fact that some OPEC members, such as Nigeria and Algeria, have seen a sharp drop in their exports to the U.S. At an OPEC meeting in late May, he said it wasn’t the first time OPEC has had to compete with a surge in output from countries outside the group.

“We disagree with your Excellency on what you said, and we see that rising North American shale gas production is an inevitable threat,” Prince Alwaleed’s letter said, in comments directed at Mr. Naimi.

Neither Mr. Naimi nor a spokesman for the ministry could be reached to comment.

Despite posting record revenues from oil exports in 2012, OPEC data showed some members’ earnings were already under pressure.

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