Saudi Arabian Oil CEO warns that oil supply will decline with no investment.
Saudi Arabia’s 4 million barrels a day of spare capacity can easily be absorbed into the market when global energy demand recovers after the recession, the head of the kingdom’s state owned oil company said today.
In a speech at a Cambridge Energy Research Associates confernce in Houson, Khalid al Falih, chief executive officer, Saudi Arabian Oil Co, said: “Oil supply will decline if there is no investment, so that 4 million could be absorbed by demand alone."
The kingdom, the world’s largest producer, raised output by 100,000 barrels a day to 8.25 million in February, the highest level since December 2008, a Bloomberg survey of oil companies, producers and analysts showed last month.
Saudi Arabia can produce as much as 12.5 million barrels a day, he said. It plans to maintain a spare capacity level “in excess of 1.5 million barrels a day” when demand returns and it restores its production levels, he said.
Aramco has spent more than $62 billion on capital projects in the past five years to boost production capacity, he said.
Al Falih said: “Over the next five years, we expect to invest another $90 billion with an increasing proportion of that directed to gas, as we roughly double our gas capacity over a 10-year period.”
He added: “That is in addition to the recent and upcoming capital investments by our downstream joint ventures, which will add another $80 billion to the total over that time period.”
Saudi Arabia needs to discover a minimum of 5 trillion cubic feet (142 billion cubic meters) of natural gas reserves a year to meet its industrial demand, according to Oil Minister Ali al Naimi.
The kingdom consumed about 20 percent of the oil it produced in 2008, according to OPEC’s Statistical Bulletin.
Saudi Arabia will promote private-sector development as the biggest Arab economy emerges relatively unscathed from the global financial crisis, King Abdullah said this week.
The world’s largest oil exporter, seeking to diversify its economy away from energy, has invested $26 billion on industrial projects in Jubail and Yanbu, the king said.
Jubail and Yanbu are the kingdom’s main industrial cities. Jubail is in eastern Saudi Arabia on the Persian Gulf Coast, about 190 miles (300 kilometers) from Riyadh. Yanbu is a Red Sea port city in western Saudi Arabia, about 550 miles from Riyadh.
In his annual speech to the consultative Shoura Council, the King said: “Regardless of the economic tremors that the world witnessed, Saudi Arabia was able to continue its economic development with firm feet."
Saudi Arabia can cut its energy demand in half from a growth rate of 5 percent to 7 percent by improving its energy efficiency, al Falih said today.
The kingdom is also investing in alternate energy research and technology, he said, though he forecast that fossil fuels will account for 80 percent of energy use in 20 years, and “none of us will live to see” a time when less than 70 percent of energy demand is met by fossil fuels.
Al Falih said the energy industry shouldn’t neglect traditional fossil fuels when investing in alternative energy sources.
While promising, they “require trillions of dollars investment,” he said. “The belief in an almost instantaneous transformation to alternative energy is worrisome to me.”
US Energy Secretary Steven Chu, in remarks following al Falih, said oil is an ideal transportation fuel that will be used for decades.
He said: “The cost of oil and other forms of energy will rise over the coming decades and the risks of climate change are becoming increasing apparent,” he said.
Chu added: “We’re trying to decrease our dependency on imported oil. That too will take time. We still have this climate issue and eventually we’re going to have to use oil in a cleaner way.”
The US, the world’s largest energy consumer, is Saudi Arabia’s “largest and most important market,” al Falih said.
The kingdom is the largest producer in the Organization of Petroleum Exporting Countries. The group, responsible for 40 percent of global oil supplies, boosted oil production to a 14 month high in February, led by a gain in Saudi output, the Bloomberg survey showed.
OPEC output rose 125,000 barrels a day, or 0.4 percent, to an average 29.17 million barrels a day in February, the highest level since December 2008, according to the Bloomberg survey.
OPEC cut quotas by 4.2 million barrels to 24.845 million barrels a day beginning in January 2009 as fuel demand tumbled during the worst global recession since World War II. OPEC ministers are next scheduled to meet March 17 in Vienna.For all the latest energy and oil news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.