The Kingdom’s Petroleum Policy – Al-Naimi

Published: April 11, 2015

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Editor’s Note:

Saudi Minister of Petroleum and Mineral Resources Ali Al-Naimi recently described the current oil market situation as the result of “the slowdown of global economic growth significantly and increased oil supplies from several areas, particularly from high-cost areas from non-OPEC countries, at a time of slowing global demand growth for oil more than expected.” He added,

“I am optimistic about the future, what we are facing now, and facing the world is a temporary and transient state. The global economy, particularly the economies of emerging countries, will resume growth steadily, and then demand for oil will also grow.”

On April 7th the Oil Minister discussed the Kingdom’s broader petroleum policy as well as the recent oil price fall at the Saudi Economic Association. Here for your consideration is a transcript of his remarks, translated from Arabic, on this critical topic.

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The Kingdom’s Petroleum Policy

H.E. Eng. Ali ibn Ibrahim Al-Naimi
Minister of Petroleum and Mineral Resources
Saudi Economic Association, Riyadh
7 April 2015

Ali bin Ibrahim Al-NaimiGood evening.

Today I will address two interconnected subjects: Saudi Arabia’s global, and local, petroleum policy. Before I tackle each of these, let me set out the background.

The Kingdom of Saudi Arabia has huge oil and gas resources. With today’s technology, our proven recoverable reserves stand at 267 billion barrels. Our proven natural gas reserves are 300 trillion cubic feet. Annual production is compensated with new discoveries. Upstream technology is advancing, and Saudi Aramco is a leader in this area.

We are also one of the most active countries in terms of exploring for shale oil and gas and detecting their reservoirs and volumes. We know that we have huge volumes in several places. In terms of oil refining capacity, both in-Kingdom and out-of-Kingdom, we are now at a level of five million barrels per day. Each year, our refining capacity increases, and improves in quality. We are building advanced refineries which can treat heavy crude oil. Increasingly, they can produce petroleum and petrochemical products that rank highest in terms of price, demand and added-value realization.

So it is against this backdrop that I will now turn to the first part of my address: the Kingdom’s international oil policy.

Saudi Arabia’s huge oil and gas reserves make it an important international power. We are committed to stability and creating prosperity for our people. Saudi Arabia’s petroleum policy seeks to strike a balance between the present and the future. It aims to boost national income and preserve our share of the oil market. And it seeks to continue in its role as a major supplier of energy to the world.

The Kingdom has close relationships and ongoing cooperation with all major oil producing and consuming nations. Our first and most important cooperative relationship is with OPEC, of which the Kingdom is a founding state. Since its establishment in 1960, OPEC has played an effective and positive role serving member countries, producing countries, the oil industry and the global economy. The talk by some of OPEC’s weakening or division is unfounded, politicized and untrue. Producing nations need OPEC in order to maintain market stability. So do consuming nations. And so does the global economy. If OPEC did not exist, it would have been created, even if under a different name.

Just like any major international organization, OPEC faces challenges. There may be differences of opinion between member states, but this is quite natural. This has always been OPEC’s reality since it assumed its leadership position in the market in the early 1970s. Saudi Arabia passionately supports OPEC’s role as the world’s most important and most active international petroleum organization. In addition, the Kingdom is an active and effective member of various international oil and energy organizations, such as the Organization of Arab Oil Producing Countries, and the International Energy Forum. The latter’s membership includes most oil producing and consuming nations and has its secretariat in Riyadh.

The Kingdom also plays an important and effective role in international talks on environmental and climate change-related issues. The Saudi oil industry cares about, and gives priority to, the environment and climate change. For example, we are pioneers when it comes to climate change technology, such as re-injecting carbon dioxide in old oil fields. That said, we will stand up, firmly and resolutely, in solidarity with a number of countries, against any attempt to marginalize the use of oil. We prefer to focus on sustainable development with its economic, social and environmental elements.

Ladies and gentlemen. Let me now turn to the recent oil price fall and Saudi Arabia’s policy.

Despite our important position in the oil market and the clarity of our objectives, market fluctuations are inevitable. The challenge is to restore the supply-demand balance and reach price stability. This requires the cooperation of non-OPEC major producers, just as it did in the 1998-99 crisis. Last summer, oil prices declined for various reasons, mainly weak demand growth and excessive non-OPEC supply. We made it clear to our colleagues inside OPEC that the Kingdom was willing to participate in production cuts in accordance with a fair and credible mechanism. Market conditions, however, required joint action by major oil producing and exporting nations. Extensive communications and visits were made and joint meetings were held. However, some non-OPEC major producing countries said they were unable, or unwilling, to participate in production cuts. For this reason, OPEC decided, at its meeting of 27 November, to maintain production levels and not to give up its market share in favor of others.

The experience of the first half of the 1980s was still in our minds. At the time, we cut our production several times. Some OPEC countries followed our lead, and the aim was to reach a specific price that we thought was achievable. It didn’t work. In the end, we lost our customers and the price. The Kingdom’s production dwindled from over 10 MMBD in 1980 to less than 3 MMBD in 1985. The price fell from over $40 per barrel to less than $10. We are not willing to make the same mistake again. That said, I would like to be absolutely clear. The Kingdom remains willing to participate in restoring market stability and improving prices in a reasonable and acceptable manner. But this can only be with participation from major oil producing and exporting countries. And it must be transparent. The burden can not be borne by Saudi Arabia, the GCC countries, or OPEC countries, alone.

I would also like to clarify, conclusively, that the Kingdom of Saudi Arabia does not use oil for political purposes against any country, and it is not in a competition with shale or other high-cost oils. On the contrary, we welcome all new energy sources which add depth and stability to the market and that will help meet growing oil demand in the years to come.

Ladies and gentlemen.

That covers international policy. Now I would like to turn to Saudi Arabia’s domestic petroleum policy.

Of course, we seek to generate the highest revenues for the Kingdom, in the short and long term, and we aim to preserve oil’s status as a major source of energy. But we also aim to build a solid Saudi oil industry that can compete in all areas. Our key objective, therefore, is to ensure oil and gas can help boost the national economy and expand Saudi Arabia’s industrial base.

The Saudi oil industry is expanding and growing more important year-on-year. I’m not referring just to Saudi Aramco, the world’s largest oil company and one of the best in terms of management and production. Rather, I’m talking about oil and energy-related businesses, industries and services. These range from geological and seismic surveying companies, to sectors such as drilling, building platforms, crude and products haulage companies, engineering firms, the construction sector, even through to simple services. Our future plans and ambitions far exceed even this. We aspire for the Kingdom not only to be an oil producing nation, but also a global center for the production of the materials and services needed by the oil, energy, petrochemical and other industries. The oil and petrochemical industries focus on scientific research and studies and obtaining patents. We believe that, for any industry, scientific research and new inventions are the best way to progress and compete.

In this area, Saudi Aramco has research labs and centers in Dhahran and a number of locations around the world, with research activities including prospecting operations, drilling, reservoir management, enhanced oil recovery and building environment-friendly, low-emission engines that run on oil. Saudi Aramco managed during the past few years to obtain and register scores of patents, with more in the pipeline.

We are thrilled to see numerous Saudi companies, such as SABIC, Tasnee and Ma’aden, have scientific research centers of their own. Also, some Saudi universities have research centers specialized in such arenas: the King Abdullah University for Science and Technology has a special division for energy research that includes solar power, bio-mass and more.

The Ministry of Petroleum and Mineral Resources focuses on the Saudi oil industry’s integration and ability to compete globally. It also tries to keep abreast of international developments in the oil arena and generate added-value for the industry and the Kingdom as a whole. This is why Saudi Aramco and some of its affiliated companies are engaging in operations further downstream. In addition to being in line with international developments in the refining area, this generates added value to the Kingdom, expands its industrial base and creates numerous major opportunities for the private sector and small and medium enterprises.

Ladies and gentlemen.

In addition to all this, we are also striving to develop industrial clusters. In this regard, I would like to mention two important examples. The first is the Red Sea area. Here, there is an industrial-commercial extension starting from the Industrial City of Yanbu in the north, to Rabigh which hosts PetroRabigh, the company owned by Saudi Aramco and Sumitomo of Japan. This includes an advanced refinery, a large petrochemical industries complex and another complex which is still under construction. After Rabigh comes Thuwal, hosting KAUST, which has a research and development complex for Saudi and international companies wishing to turn their inventions into new industrial products.

Then comes the King Abdullah Economic City with its various industrial and commercial projects. This is a commercial-industrial strip that expands and grows more important each and every year, helping give the Kingdom a prominent global industrial position in the areas of manufacturing and applied sciences.

In the eastern part of the Kingdom, on the Arabian Gulf coast, there is another industrial-economic cluster developing. This starts with Jubail, a city with various industrial projects that has become one of the world’s most important industrial cities. Then the strip extends north to the City of Ras Al-Khair, now hosting several mining and other industries and expanding day after the other to include other industries and activities.

In addition to those two industrial-economic clusters, there are industrial cities currently under construction. One of them is Jazan Industrial Economic City, where work will commence in 2017; and Wa’d Al-Shamal, in which work is expected to start in 2016. There are more industrial cities in the final planning or initial construction phases.

Ladies and gentlemen.

Before I conclude my address, I would like to highlight three aspects that are of special importance to the Ministry of Petroleum and Mineral Resources.

First, its contribution to the building of educated, professional men and women who honor work ethics. It is the human element that builds and gives success and continuity to nations, as well as companies, industries and trade, not only at the leadership level, but at all work levels as well. If well-educated, trained and organized, human energy can lead to unlimited development in terms of strength, competition and progress. In fact, human energy is the source of all other energies.

The Kingdom has given this aspect a great deal of attention since the days of the founding king, King Abdulaziz. His instructions and conditions to Aramco, when it started its operations in the Kingdom more than 80 years ago, were to focus on recruiting, training, educating and qualifying citizens in all area. The company gave this area considerable attention. Saudi Aramco now has an advanced sponsorship program, another pre-university program for vocational training on technical jobs needed by the company and on-the-job training programs. All the company’s employees, at all levels, join continuing educational and professional programs up to a short time before their retirement.

Saudi Aramco and other companies reporting to the Ministry of Petroleum and Mineral Resources are leaders in the area of recruiting, qualifying and training Saudis. In conjunction with other government agencies, particularly the Technical and Vocational Training Corporation as well as some companies, the Ministry of Petroleum and Mineral Resources has helped build and supervise several professional specialized and highly-efficient institutes. It is a source of pleasure for me to mention that trainees at such institutes obtain good jobs even before graduating.

The second area of importance to the Ministry is the preservation of energy and rationalization of consumption in all area, from air conditioning equipment to household appliances, cars, through to factories and public and commercial buildings. Although the Saudi Energy Efficiency Program only started three years ago, it has achieved distinguished results. It will achieve more in the future, saving for the Kingdom approximately 20% of the expected energy consumption by 2030. This is the equivalent of 1.5 MMBD. Here, I must praise the marvelous role of HRH Prince Abdulaziz ibn Salman in the success of this program.

The third area of importance to the Ministry is the focus on local content and the establishment and success of small and medium enterprises. We seek to have the materials, services and products needed by the energy and petrochemical companies locally sourced; i.e., manufactured in Kingdom, by Saudi or mainly-Saudi manpower.

Ladies and gentlemen.

I am extremely optimistic about the future of the Saudi economy and the continuation of its growth and diversification, as well as the further prosperity of its citizens. Such optimism is based on the creative leadership of the Custodian of the Two Holy Mosques, King Salman ibn Abdulaziz, Crown Prince, Prince Muqrin ibn Abdulaziz, and his Deputy Crown Prince, Prince Muhammad ibn Nayif. Within a short period of time, distinguished efforts were launched to re-organize various government activities, creating a flexible, effective and highly-productive governmental management. When it comes to political, economic and other issues, the Custodian of the Two Holy Mosques’ government shows decisiveness and resolution and will bring about the Saudi people’s ambitions.

In economic terms, I expect our GNP to reach $1 trillion before the end of the current decade. In terms of petroleum, I expect that prices will improve in the near future, that the Kingdom’s production will continue at approximately 10 MMBD. I also expect our discoveries of the various types of oil and gas will continue in all areas of the Kingdom, and that our economic base will continue to expand, turning us into a truly industrialized country not just a country dependent on oil production and exports.

Thank you.

Source: G2K Forum

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