No risk of oil price collapse despite demand slowdown: Aramco CEO
Dubai (Platts)--15Oct2012/531 am EDT/931 GMT
The global energy industry faces downward pressure on demand while
supply of fossil fuels has risen sharply but there is no risk of a price
collapse, Saudi Aramco CEO Khalid al-Falih was quoted as saying Monday.
"Our industry now faces downward pressure on demand; supply abundance; a
slowdown in the deployment of renewables; and reduced momentum on
climate change legislation," Falih said in a speech made to the Oxford
Energy Institute on September 20 and just released by Saudi Aramco.
"It doesn't mean that our industry is in bad shape or that prices are
going to collapse, but that's a profoundly altered energy landscape from
the one we faced a decade, or even just a few years ago," he added.
Saudi Aramco, the world's largest oil company in terms of reserves,
is adapting to this changed environment or "paradigm shift" in the
energy world, Falih said, outlining the business plan and investment
strategy adopted by Aramco's board at a meeting in Tokyo earlier this
year.
"Let me begin with our existing businesses. We know that oil and gas
will remain central players on the world energy scene for the
foreseeable future," Falih said. "We also know that preserving our spare
production capacity is crucial to maintaining oil market stability
because it plays a pivotal role in protecting the world's economic
health. It's a responsibility we have faithfully and reliably discharged
over several decades, despite its high cost to us; and will continue to
do so."
Saudi Arabia has total production capacity of 12.5 million b/d and has
said that it plans to maintain spare production capacity of 1.5-2
million b/d at all times. The kingdom's production in September was
estimated by Platts at 9.85 million b/d in its latest survey of OPEC's
output.
Falih said Saudi Aramco would continue to strengthen its oil business to
meet the rising call on its oil production.
"In fact, we plan to invest $35 billion over the next five years in
crude exploration and development alone to keep our oil production
portfolio robust," he said. "We are also planning to increase our
conventional and unconventional gas supplies by almost 250% over the
coming couple of decades."
Perceptions of future energy demand have changed since the 2008
financial crisis, when there had been an expectation of "rapid and
sustained growth in energy and oil demand," Falih said, noting that new
fuel efficiency measures in the US transportation market as one of the
factors that have exerted downward pressure on demand.
"Then there's the impact of the global economic turmoil, as a
consequence of which global economic growth may not return to pre-crisis
levels at least for several years," Falish said.
Demand this year is expected to increase "by only a modest 850,000 b/d
or less than 1%, whereas growth averaged more than 2.3% between 1965 and
2010," he added.
More than 20% of this incremental demand was the result of Japan's
nuclear power outages while last year's demand forecasts to 2030 by both
the US Energy Information Agency and the International Energy Agency
were 8-9% lower than the same forecasts in 2007. "All this is clear
evidence of a slowdown."
At the same time, supply is rising and in the past five years, despite
consuming close to 90 million b/d or a total of 165 billion barrels
during that time, "global proven oil reserves have increased by more
than 200 billion barrels," Falih said, adding that this was the
equivalent of discovering another Kuwait and the UAE combined due to the
application of improved technologies to unconventional and heavy oils
while new oil provinces were appearing on the map.
"The story of natural gas is even more spectacular. Current proven
reserves of gas are more than 7,300 trillion cubic feet, enough for 64
years globally. But total conventional and unconventional resources are
believed to be in the range of more than 28,000 Tcf -- split broadly
down the middle -- which is enough for 250 years at current consumption
rates," Falih said.
"In short, misconceptions about the worldwide scarcity of global oil and
liquids supplies have given way to a sense of abundance, and our
industry should be proud."
--Kate Dourian,
kate_dourian@platts.com
--Edited by Maurice Geller,
maurice_geller@platts.com
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