Natural Gas Economics Tasnee’s CEO makes a Plea for Maintaining Status Quo in Natural Gas Subsidization
Tasnee CEO cautions against reducing natural gas subsidies in response to depressed oil prices. This year’s projected over 100 billion USD budget deficit in Saudi Arabia is behind the oil-dependent kingdom’s moves to cut domestic energy subsidies.
Riyadh, Saudi Arabia – At the Reuters Middle East Investment Summit, Mutlaq al-Morished, CEO of the National Industrialization Company (Tasnee), a multi-product firm with interests in petrochemicals, metals and chemicals, has likened a big rise in Saudi natural gas prices to potentially “killing the golden goose”. His comment comes in response to recent remarks from the Saudi government. Recently, the oil minister, Ali al-Naimi, said that the government was considering cutting domestic energy subsidies.
The continued depression of oil prices has forced the Saudi government to take steps to curb an expected USD 100 billion deficit this year. According to the International Monetary Fund, the subsidy for natural gas cost the kingdom USD 11.73 billion in 2014. The Saudi ethane feedstock prices have been capped at 75 cents per million BTU since 1999. This is just under 40 percent of the Henry Hub price on November 3 of $1.90.
Morished said while the gas price was higher in the United States, once factors such as the cost of shipping products to other markets and importing equipment were included, the prices would be about the same level because of the impact of the shale gas industry.
“We should be careful not to kill the golden goose as it took us 30 years to build the golden goose and we can kill it easily,” Morished said in an interview. “Today, an increase beyond a logical 10–15 percent is going to be detrimental to the chemical industry. Like most Saudi firms linked to the oil and gas sector, Tasnee has struggled this year. On October 19, it posted its third straight quarterly loss on lower sales and prices. Morished also said that it would be at least 12 months before the company began seeing the benefits of a significant restructuring effort designed to arrest slumping profits. (Source: Reuters)