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.
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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
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, firstname.lastname@example.org
--Edited by Maurice Geller, email@example.com