The Saudi-US Relations Information Service is pleased to provide its readers with a transcript of remarks from an April 27, 2004 conference hosted by the Center for Strategic and International Studies and the U.S.-Saudi Arabian Business Council.  The conference addressed U.S.-Saudi relations and global energy security with high-level speakers from the United States and Saudi Arabia.  The conference explored the link between affordable energy and economic growth. 

This discussion of relations and energy is especially timely.  Just last week Saudi Foreign Minister Saud al-Faisal, addressing a Foreign Policy Association and U.S. Saudi Business Council event, said he wanted to "sound the alert that the harmony of our long and fruitful relations is threatened."  Moreover, the rising cost of crude oil in the world market and of gasoline in the US while OPEC moves to cut production have raised even more questions about Saudi-US relations in this critical area of cooperation.  These questions recently consumed much of American media in the reaction to Bob Woodward's book "Plan of Action." They were also explored in an appearance on "Meet the Press" by Saudi Arabia's ambassador to the U.S., Prince Bandar. 

Therefore, we believe it is important to bring you the comments of leaders from Saudi Arabia and the United States on these important issues.  Transcripts from other presentations at the conference will be circulated in coming days.

The following are introductory remarks made by Brent Scowcroft, President, Forum for International Policy and Minister Ali al-Naimi, Saudi Arabian Minister of Petroleum and Mineral Resources.

Brent Scowcroft, President, Forum for International Policy and CSIS Trustee:

It's a great pleasure for me to add my welcome to you for today's conference and to introduce the first panel of the conference but let me begin with just a couple of general remarks. 

As our sponsor and Patrick Cronin said, this could not be a more timely topic, and I certainly commend the U.S.-Saudi Business Council and CSIS for their foresight.   

Earlier this year, CSIS sponsored the first in a series of events dealing with global oil supply.  At one meeting, senior Saudi Aramco officials I think persuasively made the case for the kingdom's substantial reserve base, reservoir management practices, and their intentions to be a reliable, long-term supplier.  Today's meetings, as Patrick Cronin has said, are designed to go beyond these initial technical talks to the broader topics of the energy security and the U.S.-Saudi relationship.

Events since September 11^th have reinforced the view that a defining feature of the 21^st century is global interdependence.  And nowhere in the market is it more evident than in relations between the Kingdom and the United States. 

Interdependent relations always suffer from stress.  The genius of diplomacy and the strength of long-term relations are the willingness and ability of the parties to manage and solve problems cooperatively as they arise. 

Every relationship is imperfect by any number of measures but our mutual willingness to persevere over a long and somewhat difficult period suggests that both sides view the effort as critical and strategically important.  That effort begins with dialogue.  And, that dialogue is about to take place with our first panel on energy security and new perspectives.

No one is better able to begin the oil part of that dialogue than our first speaker, His Excellency Ali Al-Naimi, Saudi Arabia's Minister of Petroleum and Mineral Resources.

Minister Al-Naimi's career spans 50 years and is marked by unique accomplishments and distinguished service.  He is the first Saudi to rise through the ranks of Aramco to become Company President and Chief Executive Officer.  His career has progressed through the full range of the company's exploration, producing and staff operations, beginning in the oil fields of the Eastern Province.

In 1995, he was appointed minister, becoming the first Saudi to serve both as head of Aramco and then Minister.  In addition, he serves on the Supreme Petroleum Council, the Supreme Economic Council and as Chairman of Aramco. 

In his career, he expanded the Saudi oil sector, integrating it into the world oil market and making Aramco a truly world-class company.  Most recently, he oversaw the opening of the natural gas sector to foreign equity investment. 

Please join me in welcoming Minister Al-Naimi.

Minister Ali Al-Naimi: Good morning, ladies and gentlemen. I am very happy to be back in Washington to participate in the second conference on the U.S.-Saudi Arabia economic and energy relationship. First, though, I would like to thank John Hamre, the President of the Center for Strategic and International Studies for organizing this timely conference and for his kind invitation to address this distinguished gathering.

Much has been said recently about the two issues of great importance to Saudi Arabia. The first is the U.S.-Saudi relationship; and the second is the future of oil. My remarks today will address both issues.

It would be incorrect to say that the history of U.S.-Saudi relations is only about oil. The relationship between our two countries is more complex and extensive than that and examples of cooperation in areas of mutual benefit are numerous. Nevertheless, there is no denying that the key pillar of our relationship is a shared commitment to ensuring the availability and security of adequate supplies of petroleum to meet world needs at fair prices that are conductive to overall economic growth.

One flips on the switch and the light comes on. When you need to go to the market to buy food you jump in your car, turn the key and off you go. When you need the plastics which are an integral part of modern life, they are there. Something as reliable and readily available as petroleum, however impressive, is often taken for granted, only drawing attention when something goes wrong.

Undeniably, we have faced numerous challenges over the past 30 years, but the one thing that has not wavered, that has worked with quiet consistency, efficiency and reliability is the supply of petroleum from Saudi Arabia to the United States and the rest of the world. Over the past 30 years through both the normal times and during times of upheaval, there have been few things more reliable than petroleum exports from Saudi Arabia.

Saudi Arabia is blessed with a magnificent endowment of petroleum resources unequaled anywhere. We believe that we have a responsibility to use this endowment in a constructive manner to bring stability to our markets, wherever we can. Our approach is one of moderation with the aim of ensuring security of supply for customers and stability of prices in the world oil market.

The reliability of supplies from Saudi Arabia is not just the product of good fortune, rather it's a direct result of Saudi Arabia's commitment to ensuring oil market stability. We work at it day in and day out, investing huge sums in the latest technologies, searching the world for the best talent, and then continuously training our workforce to meet the challenges of the new millennium.

It comes from our commitment to maintain spare production capacity at a significant cost to ourselves, to provide an insurance policy for world oil markets. And it comes from our commitment to maintain relationships in all major markets, even when it is contrary to our short-term economic interest to do so. We do all this so that we can maintain the reliability upon which the world has come to depend.

We believe that stability in world oil markets depends on having adequate spare production capacity for maintaining balance in the market. Saudi Arabia is committed to providing a major portion of the world's spare capacity. We do it because we understand the importance of having a cushion for those times in the future when for whatever reason supplies from other sources are insufficient to meet demand. Our spare capacity has paid great dividends over the years by helping to minimize disruptions to the world economy.

Let me shift my focus, ladies and gentlemen, to the future. We have heard recently a number of analysts declare that the end of the age of oil is upon us. These naysayers maintain that the world is running out of oil. They say that we need to find alternatives quickly if we are to avoid a calamity of historic proportions. They are drawn to this conclusion by their pessimistic assumptions about remaining oil reserves and the degree to which this oil is recoverable.

Will it cost more in the future to find and produce oil? Probably yes. New discoveries are likely to be smaller, in more isolated locations and possibly more challenging to produce. Some of the fields would require the application of enhanced recovery technologies to maintain production levels. However, history shows that technical advances have steadily lowered costs over time and incidentally, have enabled producers to increase their proven reserves. Even if costs do arise we are confident that they will not be an insurmountable barrier to the development of future petroleum reserves.

Is technology the problem as some of the pessimists maintain? Certainly not. The proper application of technology will raise output while holding down costs.

Now let me elaborate a little further on these points. With regard to recent claims that the world is rapidly running out of oil, I would like to point out that this is not the first time we have heard warnings of impending scarcity. In fact dire Malthusian predictions about oil and other natural resources have been voiced now and again for at least the last 100 years. The most commonly held argument is that mankind faces the imminent exhaustion of the world's natural resources, including petroleum, due to growing population and the profligate lifestyles of wealthy nations.

How did past predictions of doom and gloom fare? Not very well. During this period when we were supposed to be running out of oil, world oil reserves continued to grow from about 550 billion barrels in 1970 to more than 1.2 trillion barrels today. What is all the more remarkable is that this increase occurred despite the fact that the world consumed over 800 billion barrels during this period.

In the case of Saudi Arabia our reserves were estimated to be about 88 billion barrels in 1970. Today we conservatively estimate them at 261 billion barrels, despite the intervening 35 years of production. Saudi Aramco President and CEO Abdallah Jum'ah will provide greater details on Saudi Arabia reserves and future production potential in the conference's second session.

Some skeptics express this belief. Of the nearly three-fold increase in our reserve number over the past 30 years there is really nothing magical about these numbers. Our years of experience gained from producing oil fields along with advances in technology have provided us with invaluable new knowledge about our petroleum resources. This knowledge has helped us to better appreciate their size and enhanced our ability to recover these resources.

I would like to emphasize that all of our reserve estimates are extremely conservative and you can rest assured that our booked reserves are very real.

But what about the future, you may ask? We take the issue of oil production taking seriously and are constantly monitoring and assessing the latest data and trends. I am happy to report to you that our analysis gives us reasons to be optimistic about the future. Current world proven reserves are estimated at 1.2 trillion barrels. The U. S. Geological Survey estimates that another 1.3 trillion barrels of oil and natural gas liquids will become available in the future. This will come from undiscovered resources and more accurate assessment of reserves located in existing fields. The additional oil raises the conventional liquid reserve and resources to over 2.5 trillion barrels.

But that's not all. There are vast amounts of unconventional heavy oil and bitumen. The in-place volume of these two resources is estimated at about 3.7 trillion barrels -- 570 billion barrels or 15 percent of these resources are expected to be recoverable. Based on the current global oil consumption rate these conventional and unconventional oil resources would last for more than 100 years.

On this point I want to be clear, ladies and gentlemen. We have more than sufficient reserves to increase production capacity and are committed to do so in line with demand growth. We also possess the human, financial and technical resources to do the job. Our technical experts in a previous presentation here have shown clearly that Saudi Arabia could without much difficulty raise output from 10.5 million barrels per day to 12 or 15 million barrels per day and maintain that level of output for 50 years or more. How can we do this? We can do this because of our vast resources and because we are extremely careful in producing the oil fields. We'll produce them slowly with the aim of maximizing overall recovery wherever companies may look at a 20 year production profile we are looking to produce our fields for 70 to 100 years.  This is our guiding principle and a principle we will not compromise for short-term expediencies.

I remind the audience that the shift from coal to oil which occurred in late 19th and 20th and early 20th century did not occur because the world ran out of coal. It occurred because oil proved to be the superior energy source. Eventually technological advances will usher in a new energy resource to replace oil. Oil will not cede its position as the preeminent fuel because the world runs dry but because technology has rendered it less desirable.

We in Saudi Arabia believe there are sufficient quantities of oil left to make the transition to the next great energy source a smooth one.

Turning to a subject which is on the mind of many of you in the audience I would like to say something about current oil prices. I know everybody is interested in that.   [Laughter]

We have heard some commentators question Saudi Arabia's commitment to the $25 OPEC basket price and to the $22 to $28 price range. Let me set the record straight on this issue. Saudi Arabia continues to be committed to OPEC's $22 to $28 price bands and believes that an OPEC basket price of $25 is a fair one for both consumers and producers. However, oil markets are complex and not subject to control by anyone. Even Saudi Arabia and other members of OPEC with their vast reserves have only a limited ability to keep prices in their preferred range.

This is particularly true when the primary factors driving prices are things other than the supply and demand of crude oil in international markets. This is the case today.

In the U.S. a plethora of state and local regulations have vulcanized the gasoline markets placing increasing strains on refiners to meet local demands.

On this occasion let me state emphatically that Saudi Arabia is willing and ready to invest in two new 500,000 barrel per day refineries and their associated marketing facilities in the U. S. to help alleviate some of the bottlenecks in product availability. Some place the blame on OPEC saying the organization is purposely pushing prices higher. They cite as evidence OPEC's decision to cut output. I should like to correct this misunderstanding.

When OPEC decided to cut output the decision was based on the best information from the world's leading industry experts including the IEA and the AIA who were all saying that crude supply was running ahead of demand which indicates that the stage was set for a significant deterioration in oil prices in the second quarter of this year.

OPEC's goal in taking this action was to maintain a balance between demand and supply based on what was the best information available was telling us. It was not a move to abandon the $22 to $28 price band for higher prices.

In retrospect, demand was much stronger in the first quarter than the experts anticipated. Projection of worldwide demand for 2004 increased from one million in projections in November 2003 to 1.7 million barrels per day recently.  Five upward revisions of demand in five consecutive months.

Now what will the second quarter look like? Will the experts' original expectations for downward price pressure prove to be correct? There are signs that worldwide inventories have begun to build but no one really knows for sure. However I promise you that we and our counterparts in OPEC will continue to monitor developments very closely and will take appropriate action to maintain the stability in oil markets.

I must caution that OPEC is only one factor that impacts oil prices and the higher crude oil production does not guarantee that there is more gasoline available for U. S. consumers.  

Second, the future for oil and the oil industry is a bright one. This is not the end of the age of oil as some pessimists have been saying. There is plenty of oil left to be found and produced and petroleum will remain the dominant energy source for years to come. I assure you that Saudi Arabia's reserves are real and that we have the potential to produce at much higher rates in line with the growing demand for many years.

Yes, the age of oil will eventually come to an end but we see no shortages on the horizon and there is no reason for pessimism or panic. Pessimism and panic undermine oil market stability. There is time for progressive research and development and I see no reason that we should not experience a smooth transition to the next great energy source.

Finally, ladies and gentlemen, we will continue to face many challenges in the future as we have in the past. Perhaps the greatest challenge we face is to meet the world's growing appetite for energy. The U.S. and Saudi Arabia share a long history, working side by side we have achieved much. Working together in the early days we overcame harsh conditions and extreme hardships and brought Saudi Arabia's vast petroleum resources to world markets. We continue to share a strong interest in stable and secure oil markets and we both understand that stability and reliability are not achievable without demand and supply security.  We have much to build on and I believe working together we can pave the way for a better future for the world and its people.

Ladies and gentlemen, thank you very much.

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