Minister of Petroleum and Mineral Resources Ali
Al-Naimi address to the 2nd World Islamic
Economic Forum, Islamabad, Pakistan, November 6,
2006
Your Excellency, Mr. Shaukat Aziz, Prime
Minister of Pakistan, Excellencies,
distinguished delegates to this second World
Islamic Economic Conference. I would like to
begin by expressing my sincere thanks to the
government of Pakistan for sponsoring this
important conference and to H.E. Mr. Shaukat
Aziz, Prime Minister of Pakistan, for inviting
me to address you. I am honored to speak to you
today about energy, its role in the economies of
developing countries and Saudi Arabia’s oil
policy.
It is clear that the world around us is
rapidly changing and that these changes will
have profound implications for the future. The
information technology revolution, the lowering
of trade barriers and the widespread adoption of
market principles are shrinking the world and
creating a global market place. Traditional
national barriers to the free movement of
capital, trade and knowledge have already
fallen. Capital now flows to the best
opportunities, and new ideas and approaches are
not limited by geographical boundaries.
Some feel threatened by these changes. I am
not one of them. I see the future as one of
great promise – where the potential for
economic prosperity is greater and more
widespread than at any time in history.
I believe this conference is very timely. We
are at an important crossroad in our histories.
Global change is creating significant new
opportunities and challenges for Islamic
countries. We must not miss our chance to
benefit from this change. Forums like this are
important vehicles for exploring new ideas and
approaches to cooperation and partnership. We
must work together to unleash the economic
potential of Islamic nations.
The subject of this session is Managing
Energy Demand. I would like to make four points
which I believe can be useful for setting the
stage for the discussions which will follow this
presentation. They are:
First, we should not be intimidated by the
prospect of growing energy demand. Rising energy
demand goes hand-in-hand with growing prosperity
and is a positive indication of our successes,
not of failure.
Second, conventional energy resources –
oil, gas and coal – are plentiful and
sufficient to meet the world’s energy needs
for the foreseeable future.
Third, there are huge quantities of
non-conventional hydrocarbon resources of very
heavy and viscous oils all around the world
which can be called upon to meet projected
energy demand for the remainder of this century.
Fourth, technology and price will be crucial
factors in expanding the available resource
base. Technological advances will provide us
with increasing innovative and sophisticated
means to find and develop the earth’s energy
resources. However, to ensure this happens,
prices must provide sufficient returns to
encourage adequate investment.
Robust economic activity will have profound
implications for future energy demand. Without
energy, economies cannot grow to their potential
and the aspirations of the world’s people for
a better way of life cannot be fulfilled.
During the last century, the OECD countries
effectively harnessed hydrocarbon resources to
become major economic powers and to achieve the
prosperity they enjoy today. I believe that in
this, the 21st century, developing countries
will flex their economic muscles, and once again
hydrocarbons will play a key role.
Meeting the aspirations of the world’s
people for increased prosperity can only be
achieved through the cooperative efforts of both
consumers and producers. The world must find,
develop and produce large new quantities of
energy on a scale unprecedented in the history
of mankind. I believe it can and will be done,
but it will not be easy. Our growing world
economy will need many different and new sources
of energy in the coming decades.
The world’s rapidly growing appetite for
energy will require greater contributions from a
growing number of fuels and technologies such as
biofuels, gas-to-liquids, hybrid vehicles and
fuel cells. I see great opportunities for
entrepreneurial individuals and companies to
research, develop and commercialize new sources
of energy which can help supplement conventional
energy resources.
While I have no doubt that the world is up to
the challenge of producing large additional
quantities of energy, the key to a successful
energy future lies not only in the production of
more energy, but also in conservation and
efficiency gains.
Conservation and efficiency will contribute
to meeting future demand because a BTU saved is
equivalent to a BTU produced. Saving energy
extends the life of the earth’s resource base,
thereby helping to ensure that there will be
fuel for continued economic expansion many
decades into the future.
We all must use energy wisely and as
efficiently as possible, in order to achieve the
economic benefits derived from our precious
natural resources.
Under the right circumstances, alternatives
to traditional hydrocarbon fuels, along with
conservation and improved efficiency can make an
important contribution to the energy supply mix
of developing countries. These alternatives will
also provide new economic opportunities for
Islamic countries in particular and developing
countries in general. They can be a catalyst for
the creation of new companies and industries,
attracting foreign investment, increasing
employment and contributing to a more
diversified economy.
While non-hydrocarbon fuels will play a
growing role in meeting future energy demand,
their importance in meeting the world’s energy
needs should not be oversold. They will be at
best complementary and will not significantly
diminish the share of traditional hydrocarbon
fuels - petroleum, natural gas and coal – for
the foreseeable future.
This is particularly true for petroleum,
which will remain the fuel of choice for
transportation. This fact has important
implications for developing countries where
demand for transportation fuels is expected to
account for a major portion of the growth energy
demand. Viewed in the context of the world’s
current technology base, petroleum is, and will
continue to be, the superior energy choice in
terms of ease-of-use and cost effectiveness. The
simple reality is petroleum’s share of the
overall energy mix is unlikely to diminish
significantly from today’s levels for at least
the next 30 to 50 years.
The world’s continuing reliance on
hydrocarbons will create significant economic
opportunities for resource-endowed developing
countries. Almost 80 percent of the world’s
petroleum reserves and 65 percent of its natural
gas reserves are found in developing countries,
especially within the Islamic countries
represented here today.
These reserves numbers are only half of the
story, however. Just as significant are the
resources that remain undiscovered. The extent
and intensity of hydrocarbon exploration in
developing countries as a whole is relatively
low. We know from past experience that as
technology advances, and we gain better
knowledge of the subsurface, we will find,
develop and produce even more energy in
developing countries.
The world’s expanding need for energy will
be an engine of growth for developing countries
with energy resources. However, experience shows
us that reliance on resource exports can be a
double-edged sword, leaving the economies of
exporters vulnerable to the inherent volatility
of commodity prices.
Recently, we have seen energy exporting
countries step out of the old model of
over-reliance on resource exports. Instead,
developing countries are creating their own
models that leverage energy resources, add
value, diversify and maximize the benefits to
their economies.
There are many possible approaches. Local
conditions dictate which is best for any
individual country. Where appropriate some
countries are choosing to add value by
processing petroleum into usable finished
products through the construction of refineries
and petrochemical plants.
Some are also attempting to leverage their
resources by starting companies and developing
industries that provide support services to the
resource industry. By leveraging their valuable
energy resources in this manner, resource rich
developing countries can maximize the value of
those resources. In doing so, they can create a
more robust and diversified economy that
produces skilled, high-paying opportunities for
their citizens.
Saudi Arabia is a developing country just
like the countries represented in this
gathering. The peoples of our respective
countries have much in common and share many of
the same aspirations. Meeting these aspirations
requires that we create vibrant economies which
offer our young people the opportunity for
meaningful employment and financial security.
In the Kingdom, we have taken important steps
to reform our economy and we have undertaken
initiatives designed to leverage our natural
endowment of petroleum resources to create a
stronger and more vibrant economy.
We have entered into partnerships with
international companies to build new refineries
inside the Kingdom while increasing capacity at
other plants at home and in joint ventures
abroad. We are also expanding our petrochemical
industry by building new capacity. Our aim in
undertaking these projects is to capture the
value added when our oil and natural gas
resources are turned into finished products.
We are also creating new opportunities for
growth and diversity through the development of
industries to provide the support services that
are vital to our energy resource industry across
the entire spectrum from exploration, to
production, to refining and finally marketing
for exports. We are currently focused on
energy-intensive industries such as iron and
aluminum smelters. But we are also expanding the
exploitation of our mineral wealth to increase
the diversification of our national economy.
Now, I would like to discuss the issues of
oil supply, price and the policies of Saudi
Arabia. We in Saudi Arabia are well-aware that
the availability of sufficient quantities of
reasonably-priced energy is a crucial issue for
all countries, but particularly for developing
countries. We also know that reliable supply and
stable prices are imperatives for sustained
economic growth.
Promoting reliable supply and stable prices
are the cornerstones of Saudi Arabia’s oil
policy. Our interests and the interests of all
countries are best served when these two
conditions are met.
We cannot talk about the adequacy or the
reliability of future oil supplies without a
discussion of oil prices, because therein lies
the biggest potential threat to our efforts to
ensure reliable energy supplies in the future.
Some say that the preeminent goal of energy
policy should be to keep oil prices as cheap as
possible in the mistaken belief that low oil
prices are a precondition for stability and
sustainable economic growth. Experience taught
us that in fact, the opposite is true. Allow me
to explain.
We have seen that there is a strong negative
correlation between low oil prices and the
ability of producers to continue supplying
energy to growing economies. The low oil prices
of the 1980s and 1990s offered little incentive
to invest in the energy industry and, as a
result, capital was drawn to other industries
that offered higher returns. With capital flows
into the industry choked off, its capacity to
supply energy to consumers stagnated and even
declined in some instances. What made matters
worse was that low prices were encouraging
greater consumption of energy. In retrospect, it
was clear that these trends were not
sustainable. The higher prices we have seen
recently are a direct result of underinvestment
during the previous two decades.
Some individuals also mistakenly believe that
economic growth is inversely related to the
price of oil or to the amount of oil a country
imports. Recent experience has shown this is not
true. There are many outstanding recent examples
of energy import dependent countries achieving
impressive economic growth rates during periods
of rising oil prices.
Neither high prices nor substantial energy
import dependence has been a major impediment
for these dynamic economies. We must not think
of energy import levels as a negative indicator.
They are not a sign of failure; but rather an
indicator of success. The more their economies
grew the more energy they needed. And, the more
energy they used the more their economies grew.
The reality is very low oil prices are not
sustainable. In fact, they invariably lead to
volatility and subsequently higher prices for
the reasons I have just outlined. Sustainable
economic growth requires reliable energy
supplies and stable prices. These two conditions
are only achieved when the needs of both
producers and consumers are met.
Prices must be high enough to offer an adequate
return to producers without hurting consumers.
Only then, do the necessary conditions exist for
sustainable economic growth.
Reliable supply and stable prices are the
metrics by which we measure our oil policy. We
do so because they are good for the world
economy, and as such, they are good for the
long-term health of Saudi Arabia’s economy.
Next, I would like to summarize the key
elements of Saudi Arabia’s oil policy. It
includes:
1. A willingness to supply markets with
additional oil in times of need to maintain
short-term price stability. To this end, we are
committed to maintaining at significant cost to
ourselves, at least 1.5-2.0 million b/d of spare
capacity to act as a cushion against unforeseen
supply interruptions or surges in demand. This
is a powerful tool which helps Saudi Arabia
stabilize oil markets in times when dislocations
occur;
2. A practice of pricing our crudes according
to local market conditions using regional
benchmark crudes that reflect the underlying
market demand and supply conditions;
3. A belief that market stability is enhanced
by greater knowledge of markets and greater
market transparency. To this end, Saudi Arabia,
under the direction of the Custodian of the Two
Holy Mosques, King Abdullah bin Abdulaziz, has
established the International Energy Forum
Secretariat, which is headquartered in Riyadh.
The International Energy Forum provides an
opportunity for producers, consumers and
industry to work toward the common goal of
improving our understanding of markets and how
they work;
4. As I discussed earlier, our policy
recognizes the need for oil prices to offer an
adequate return to producers while protecting
consumers, thus providing an environment
conducive to long-term stability for oil
markets;
5. A recognition that Saudi Arabia has a
crucial role to play in expanding energy
supplies to meet the world’s growing energy
needs. Saudi Arabia takes its role as
pre-eminent supplier of energy to the world
seriously, and we are undertaking major new
initiatives to increase future energy supplies.
These initiatives will raise our production
capacity to 12.5 million b/d by 2009.
We are also investing heavily to increase our
capacity in the down-stream where there is a
critical shortage of capacity to meet the
projected future demand for finished products.
Through these investments, Saudi Arabia hopes to
make a significant contribution toward
maintaining reliable supplies of energy in the
coming decades.
At this point, I want to address Saudi oil
policy as it relates to Islamic and developing
countries. The Custodian of the Two Holy
Mosques, King Abdullah bin Abdulaziz has
mandated that Saudi Arabia’s oil policies give
special attention to developing countries.
We believe that the most important thing that we
can do for developing countries is to help
create an environment conducive to sustainable
economic growth with an oil policy that promotes
adequate supplies at reasonable prices. We
believe this policy serves the best interests of
all developing countries.
Saudi Arabia is committed to an on-going
exchange of visits and increasing dialogue with
officials from other developing countries in
general, and Islamic countries, in particular.
We have an active program of helping the oil
industries in our fellow developing countries.
To this end, our policy is to encourage
relationships with oil and oil service companies
from developing countries that desire to work in
Saudi Arabia and that have a competitive edge.
We also have an active program for sharing our
decades of experience through advice, training,
exchanging of experts and more.
Distinguished delegates, Ladies and
Gentlemen, in closing I want to thank you again
for the opportunity to address you today. As
representatives of developing nations, we all
aspire to greater prosperity. Reliable energy
supplies and stable energy prices are keys to
that prosperity.
We in Saudi Arabia know that if the economies
of developing and Islamic countries grow, our
economy will also grow. We share the same goals
and our futures are intertwined. With
enlightened policies and realistic expectations
from both energy producers and consumers, we can
bring about a brighter future for mankind.
Thank you.
Source:
