Saudi Arabia | Conversations with T. Boone Pickens

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Saudi Paradox of 1986: oil production cutbacks collapsed prices.

Brian Bradshaw:

Hi. I'm Brian Bradshaw. I'm here with T. Boone Pickens, part of an ongoing series talking about current energy issues facing the world. Boone, thank you for being with us.

1986: U.S. Finding Costs vs. Saudi Oil Cutback

Today we're going to talk a little bit about what we've coined the Saudi Paradox. And by that I mean: this is looking like 1986.

T. Boone Pickens:

I remember that period very, very well. I mean back it up even before '86. It was so expensive to find oil and gas in '82 that everybody started cutting back. Drilling rigs started shutting down. I remember a bumper sticker at Odessa, Texas was "Stay alive until '85" and then '86 was worse than '85. 

What happened was everybody was bringing in more oil. In the United States finding costs were high. But around the world you had oil coming on and the Saudis made room for it. 

And they kept cutting, cutting, cutting, coming down from 10 million barrels a day to three and a half. And they said, "Enough is enough." They were not gonna keep giving market share. 

They brought their production back up and when they did, collapsed prices. And in '86, I believe '86 we had $10 a barrel. And from there it's gone up. You'll never see $10 a barrel for oil again.

Brian Bradshaw:

So Boone, there are some similarities between now and 1986 and we're growing our oil production again pretty rapidly. There are some projections where the Saudis will have to trim back a little bit off this very high production level that they're at now producing 10 million barrels a day. Ah, but I guess there's some pretty critical differences between now and '86.

T. Boone Pickens:

Oh, yeah. Back then supply was growing faster than demand. Now, demand is growing faster than supply, not outstripping it too much.

Two Wildcards Under-Producing

Brian Bradshaw:

So a couple, I guess wild cards that people have been talking about. First Iraq. And so, is there a potential for Iraq to come on with really big production volumes that would change this equation, that would then force us back into kind of '86-like situation?

T. Boone Pickens:

The potential of it, yes. 

But is it gonna happen? If you look at what's taken place in Iraq, they have not fulfilled anything like they predicted that they would do. They were gonna produce as much as the Saudis were. They never hit 5 million. And so here we are, what are they producing? Ah, 2 1/2 million barrels a day. 

Brian Bradshaw:

And the other wild card out there would be Iran: obviously getting a lot of press these days. They just got a deal done with the western powers on their nuclear program.

T. Boone Pickens:

I was talking to John Bolton the other day and he had told me months ago: bad idea if they do any deal with Iranians on the nuclear deal. I think this administration is desperate to do something. When you want to make a deal very badly then I promise you the odds are you'll make a bad deal. I know I've been there before.

Brian Bradshaw:

Does it potentially open up a path for them to grow their oil production again?

T. Boone Pickens:

Well, Iran ... their fields are old and have not had much work done on them because they haven't had the money to work on them. And usually if you have oil shut in, you're not working on it any way you work on fields that are producing. They reached a peak at one time about 6 million barrels. They're now down to a million barrels.

You know, they talked about, "Just turning it back on. Now we're gonna be flooded with oil." Not so. Ah, I don't think they can do much more than they're doing right now.

Global Production Struggles vs. U.S. Energy Renaissance 

Brian Bradshaw:

So Boone, energy prices are not about to collapse. We have not solved all our energy problems with one silver bullet. There's still room for some kind of a comprehensive plan that's still needed.

T. Boone Pickens:

Ah, you're taking about the United States?

Brian Bradshaw:

Yes.

T. Boone Pickens:

No, we haven't solved it. What we need to do is understand our resources. See how they're going to be used and to the best advantage. Of course we would always want to do what's best for us.  But if you blend it in with what you have around the world:
Libya is in the tank. 
Egypt is struggling. 
Iran we question. 
Iraq we question. 

The Saudis still have 10 million barrels a day, maybe even they produce less than that. You look at the Russians, they're 10 million barrels a day.  And the United States is moving towards 10 million barrels a day. For the United States, where we are, it's an energy renaissance. It will play out over the next decade, 20, 30 years. I mean this is going to go on for years and the rest of the world is struggling with their production.

Brian Bradshaw:

Boone, thank you very much for your time. We appreciate it.

 

Thank you very much. As always, post your questions or comments below and we'll see you next time. Thank you.