Naimi expects oil prices to hold firm for rest of decade

Naimi expects oil prices to hold firm for rest of decade

Dubai (Platts)--9May2006

Saudi Arabian oil minister Ali Naimi said Tuesday he expected oil prices
to hold firm for the rest of the decade due to continued strong demand growth
and that the kingdom, currently holding spare capacity of 1.8 million b/d, was
prepared to increase production if needed.
"It is not in my nature to forecast oil prices or the kingdom's future
production volume because there is a combination of factors that affect this
vital commodity and which are impossible to predict," Naimi said in an opening
address to the Euromoney conference in Riyadh.
"Nevertheless, I believe that oil prices will stay firm for the rest of
the decade," Naimi said.
"As for the kingdom's production, we stand ready to increase if needed,"
he said, putting current production at 9.5 million b/d, which he said had
risen from 7.7 million b/d at the end of 1999 to meet strong demand growth.
Naimi reiterated the oil giant's plans to raise production capacity to
12.5 million b/d by 2009, with much of the increment to be light crude.
The global economy is expected to grow at current levels, as a result of
which oil demand would continue to grow though at a slightly slower pace than
in the first half of the decade because of high oil prices, high taxes and
attempts by some consuming countries to wean themselves off oil, he said.

DEMAND TO RISE
"However, it is possible that the increase in demand for crude oil will
rise to around 6 million b/d by the start of the next decade," Naimi said.
"I have no doubt that the oil producing countries, led by Saudi Arabia,
will be able to meet this demand easily. The kingdom currently holds
1.8 million b/d of spare capacity, which it will add to in the next three
years."
This meant that the kingdom alone would "easily be able to meet 50% of
the anticipated future growth in demand by 2010," Naimi said, adding that
other producing countries were also bringing on new capacity.
These capacity expansion plans will ensure that Saudi Arabia and other
OPEC producers would be able to maintain spare capacity for the rest of this
decade and the next, Naimi said.
While there was no problem on the supply side, tight global refining
capacity is a cause for concern and likely to remain so for the next four
years, Naimi said. Lack of sufficient spare capacity was a result of a decline
in downstream investment in the last two decades because of low refining
margins and strict government policies limiting refining activity in consuming
nations, he said.

REFINING CAPACITY EXPANDING
Saudi Arabia is responding to this problem by expanding its refining
capacity by 2 million b/d at home and abroad in the next five years as are
other Arab producing states, Naimi said. Many existing refineries are too
old or require expensive conversion to process heavier crude but these
projects will take years to realize, he said.
"It is imperative for both consuming and producing nations to work
together to remove these obstacles facing the refining industry and also to
tackle also the types of refined products used in order to help stabilize the
market," Naimi said.
Saudi Arabia "aims at contributing in an effective way towards the
stability of the oil market in such a way as to balance supply and demand and
stabilize prices at a level appropriate to producers and consumers, as well as
to encourage the growth of petroleum investments," he said.
"This policy also aims at maintaining the status of oil as a preferred
commodity in the global energy mix in order to contribute to global economic
expansion in general and the economies of developing countries in particular,"
Naimi added.
Among the steps being taken by Riyadh are an increase not only in crude
production but also in natural gas and liquids output, in addition to the
expansion of its petrochemicals businesses and the privatization of some
state-owned businesses, including metals, as part of an economic reform
program.

NEW APPRAISALS PROMISING
Saudi Arabia has expanded its exploration program with new oil and gas
finds in recent years more than making up for the amounts produced, Naimi said
without giving any figures, but said that recent appraisal work in various
parts of the desert kingdom had produced "promising preliminary results."
He referred to the start of gas exploration work by foreign consortia
working in joint ventures with Saudi Aramco, saying that while he was
optimistic of results, these would take time to achieve.
Crude oil production capacity is set to increase to 12.5 million b/d by
the end of the decade while methane gas production capacity is set to increase
to 7.2 Bcf/d by 2009, up 90% from 2000. Ethane gas production is also set to
rise to nearly 1 Bcf/d by 2009, an increase of 162% over 2000.
--Kate Dourian, kate_dourian@platts.com

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