Saudi Arabia - Jeddah Energy Meeting

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June 27, 2008

Jeddah Energy Meeting:
The Saudi Perspective

Editor's Note:

This week government leaders and energy industry representatives met in Jeddah at the invitation of Saudi Arabian King Abdullah to address the challenge of soaring global energy costs. Saudi Arabia's Minister of Petroleum and Mineral Resources, Ali Al-Naimi, took the lead in expressing the Kingdom's position on the energy crisis to the Jeddah Energy Meeting and SUSRIS provides the official Saudi Press Agency accounts of his remarks here for your consideration.

We suggest you check the expanded SUSRIS Special Section on the Energy Crisis which provides a compilations of SUSRIS articles, related news reports and photographs from the Jeddah conference and about the troubled global energy markets.

Jeddah Energy Meeting
Minister of Petroleum and Mineral Resources Al-Naimi

Jeddah, June 22, SPA -- Ali bin Ibrahim Al-Naimi, Minister of Petroleum and Mineral Resources, welcomed the audience at Jeddah Energy Meeting and thanked them for accepting the kind invitation of the Custodian of the Two Holy Mosques King Abdullah bin Abdulaziz Al Saud to discuss and deliberate the current prevailing oil prices which affect oil producers and consumers, governmental, intergovernmental bodies, private sector entities, national and international oil companies, and organizations and institutions from beyond the realm of petroleum.

Saudi oil minister Ali Al Naimi (L) at the opening of the 3rd OPEC summit. (Photo: SPA) In a key speech at the conference held here today, Al-Naimi said: "Given the vital importance of petroleum to modern life, the global nature of the oil markets and the far-ranging social, political and economic impacts of high prices and market volatility, we all have a stake in this conversation. After all, current market conditions are in the interest of neither producers nor consumers, and none of us can be content with the status quo".

He added: "A year ago prices were in the range of $65 a barrel, now, they are almost double that. What has happened during this relatively short period of time? Between the second quarter of 2007 and the second quarter of 2008, global demand rose by an estimated 800,000 to 1.2 million barrels per day, but at the same time global oil supplies rose between 1.4 and 1.6 million barrels per day - substantially more than the increase in demand. Accordingly, days of forward cover increased from roughly 52 to 54 days during the last 12 months, and inventory levels are currently well within their normal range."

Minister of Petroleum and Mineral Resources went to say: "And yet we have seen this enormous run-up in prices, coupled with wide price swings - as you recall, earlier this month WTI prices spiked nearly 11 dollars in a single trading session, despite the fact there was no major disruption of supplies or one-day spike in demand. Clearly something other than supply-demand fundamentals is at work here, and a simplistic focus on supply expansion is therefore unlikely to tame the current price behavior".

An oil tanker takes on crude at Saudi Aramco's Rabigh port on the Kingdom's western Red Sea coast. (Photo by Ken Childress/Saudi Aramco/PADIA) He drew the attention to the fact that: "Concerns over long-term supply shortages seem to be playing a role in strong futures prices, though I believe these concerns are badly misplaced. The world has enough petroleum resources, both conventional and non-conventional, to meet oil demand for many, many decades to come, even before we factor in future technological advances which will enable us to produce our resource base even more effectively. Of course, there is systematic decline in Japan's petroleum consumption and the long-term price elasticity of demand; there are also downward pressures on demand which must be considered, notwithstanding demand growth in developing nations such as China and India.

Al-Naimi clarified that "What is required over the long-term is not more oil in the ground, but rather the assets to bring it to the surface, to process it, and to supply it to markets around the world. The Kingdom for its part is providing those assets through its vast integrated investment program all along the value chain."

He added that "Our industry is experiencing stretched refining capacity worldwide, and a number of infrastructure bottlenecks around the globe are creating difficulties. Just as importantly, a shortage of complex conversion capacity to process heavy sour crudes, coupled with increasingly stringent and varied refined product specification, are also causing pain for consumers at the pump."

He pointed out that "Our industry has navigated such rough waters in the past without witnessing the kind of price rises and market volatility that have brought us together today. Looking at the data that are in front of us today, studying the best forecasts we have of future supply and demand trends, and considering my previous discussions with many of you, I have reached a number of conclusions about the current market situations - a set of beliefs based on facts, if you will.

First, as I noted earlier I believe that there has been a parting of the ways when it comes to oil supply-demand balances and other industry fundamentals on the one hand, and the price behavior and market volatility on the other. Industry fundamentals cannot account for today's high prices, nor for the enormous degree of market volatility that we have experienced of late.

Instead, I believe price rises and volatility are being fueled by a wide range of other factors which lie beyond the ability of the petroleum industry to address or even influence. Perhaps foremost among these are recent trends in the global financial markets, including weak equity and bond markets that have encouraged investors to move their capital into commodities like oil.

I would also note that while there is little or no correlation over the past two years between global crude oil inventories and crude oil prices, there has been a strong correlation between the increasing volumes of crude oil futures trade on the NYMEX and rising prices. According to many observers and analysts, inadequate oversight, regulation and reporting of speculative investments in commodities have further exacerbated this situation."

Al-Naimi asserted that Saudi Arabia has a historical commitment to market stability and for that reason, as a matter of policy, he said, we have maintained spare production capacity at high cost to the Kingdom. As you know, we have readily employed this spare capacity in the past whenever the market has justified its use. In today's environment, I am convinced that supply and demand balances and crude oil production levels are not the primary drivers of the current market situation and that markets are already well supplied. But despite this assessment, I also strongly believe that each of us must do what we can to alleviate these difficult conditions. Therefore, given our current spare capacity, today I would like to state that for the remainder of this year Saudi Arabia is prepared and willing to produce additional barrels of crude oil above and beyond the 9.7 million barrels per day which we plan to produce during the month of July, if demand for such quantities materializes and our customers tell us they are needed."

Al-Naimi added: "Although we already have the ability to sustain our production comfortably at increased levels for many more years, Saudi Arabia will continue to implement its slate of new crude oil increments, with projects that will see the Kingdom's maximum sustained production capacity rise to 12.5 million barrels per day by the end of next year. This will enable us to continue to maintain our spare capacity in the interest of global market stability -- which is in everyone's interest.

In addition, we have identified a series of future crude oil mega-increments totaling another 2 1/2 million barrels per day of capacity that could be built if and when crude oil demand levels warrant their development. Among these prospective programs are a 900,000 barrels-per-day increment in Zuluf, a 700,000 barrels-per-day increment in Safaniyah, a 300,000 barrels-per-day increment in Berri, a 300,000 barrels-per-day increment in Khurais and a 250,000 barrels-per-day increment in Shaybah."

He went on to say that "At the same time, Saudi Arabia will press ahead with our planned investments in the refining sector, which over the next five years total some 2 million barrels per day of new refining capacity both in-Kingdom and abroad. Later this evening, in fact, Saudi Aramco and Total of France will sign a shareholders agreement for their 400,000 barrels-per-day export-oriented refinery in Jubail - a facility which will be configured to process Arab Heavy crude, and will therefore help to close the gab between existing refinery configurations and the global crude oil slate.

These are massive investments, which over the next five years will total some 129 billion dollars between the upstream and downstream segments of the industry. As the old phrase says, we're putting our money where our mouth is. Keeping with its longstanding policies, the Kingdom has undertaken these projects and investments in the interest of global markets and in order to meet the needs of consumers around the world -- and we view our responsibilities and commitments as energy suppliers as a solemn trust.

Saudi Arabia is making these investments in the belief and with expectation that other countries, corporations and institutions will also do their part to meet the multifaceted challenges posed by the current market situation, and will intensify their efforts just as we continue to strengthen our investments, capacities and operations. In light of my earlier discussion, we strongly believe that actions by consuming nations in several important areas could play a pivotal role in complementing our efforts to collectively and effectively address the prevailing market situation.

Considering the complexity of the issues that I have outlined, there are many initiatives that would go a long way toward meeting our common objectives. Of these, I would like to highlight the following:

First, through well considered changes in a range of national and international policies, help create an enabling and stable environment in which investments and expansions would flourish across the petroleum supply chain.
Second, further to the recent agreement involving the oversight of ICE Europe Futures, consider other appropriate regulator, oversight and reporting enhancement to help dampen irresponsible financial speculation.
Third, suitably relax product specifications and fuels mandates to make more products available, using the available refinery configurations and capacity from available crude oil supplies.
Fourth, we urge everyone to help bring down the political temperature that has played a part in causing oil price spikes.
Fifth, to help provide quick relief to consumers at the pump, consider suitable reduction of taxes on oil products."

In conclusion, he urged all participants in the meeting to stand up, step up and be part of the solution. "The challenges before us require commitment, cooperation, and a lot of courage, the issues at stake are too big and too complex for any one entity to resolve, for any one sector of our industry to tackle alone, and not even for the oil industry as a whole to take on single-handled. Instead, we must commit to working together and to aligning the efforts of all stakeholders to achieve our common objectives. By so doing, we have an opportunity to resolve the current market difficulties, and thus to promote sustained growth for the global economy, greater prosperity for our nations, and a brighter future for all of our people. Let us not allow that opportunity to slip from our grasp."

Source: SPA

Jeddah Energy Meeting
Ali Al-Naimi Press Conference

Jeddah, June 22, SPA -- Ali bin Ibrahim Al-Naimi, the Minister of Petroleum and Mineral Resources, announced that the Kingdom of Saudi Arabia will continue to increase its oil production capacity to stabilize the market, stressing that the Kingdom believes that it should guarantee the flow of oil and it is ready for that.

Ministers and representatives from many producing and consuming countries, with the attendance of oil industry representatives as observers, met in Jeddah, Saudi Arabia, on 22 June 2008, to discuss the current oil market situation. Photograph of the conference information center. Photo: SPA In a press conference in Jeddah tonight following the conclusion of Jeddah Energy Meeting, he pointed out that Saudi Arabia has poured large additional quantities of oil in the market.

"Given the current levels of demand, we have pumped large quantities of additional oil production in the market to calm down those who feel worried about the levels of flow of oil. Then, consumers ought to say what do they want. At the same time, we will continue to increase our work to avoid instability of oil prices," he added.

He stressed that the Jeddah Energy Meeting has fulfilled all its objectives upon the testimony of all attendees, whether they were producers or exporters of oil or belonging to the oil .. industry.

He said there is a high degree of determination and commitment by the participants, given the nature of the situation prevailing in the market as well as the response to such conditions. Given the vital role of oil in our lives, the market is surrounded by a lot of circumstances that affect our economies and our lives, a matter for everyone to understand.

The minister explained that Jeddah Energy Meeting has defined specific steps to counter the current circumstances in the market and reduce the current fluctuations, calling for more steps to be taken over by producers to create policies and appropriate climate for investments to ensure future arrangements for the markets, facilitate and ease geopolitical tensions in the world.

He expressed confidence that these steps will be met by the related countries in order to stabilize the market.

Al-Naimi suggested that the current situation on oil market differs from that of the 1970s when oil prices soared, considering fears of oil price hikes as not new.

When putting its plans, the Kingdom looks at the whole world, a move not followed by others, the Minister said, adding that it also looks to the future and knows that its oil corporations are able to implement these huge projects.

He also stressed the keenness of the Kingdom on maintaining the market stability, considering meeting the orders of customers as part of the market stability.

He called on all parties to work together to acknowledge problems and offer solutions simultaneously.

On the Kingdom's oil production increase, the Minister confirmed there are efforts to make energy available, but we should bear in mind that the Kingdom is a developing country and does that gradually. Its efforts aim at diversifying energy sources and meeting the demand, he added.

There are a lot of efforts exerted by the Kingdom of Saudi Arabia to move in the direction of providing energy to find alternative energies to meet our needs, he said, adding that "at the same time, we want to achieve prosperity for our people and we also want to control the inflation." And thus, we are going to support the fuel, but such support will not continue forever, I believe."

We will try to diversify the sources of our economies, exert more efforts and work to preserve our wealth, the Minister of Petroleum and Mineral Resources said.

He denied that the Kingdom was subject to pressure to increase its oil production or to hold this meeting. What encouraged the Kingdom to call for this meeting is the escalation and fluctuation of oil, which negatively affected the economies of many countries in the world, especially the economies of developing countries. This is the main reason, he added.

He said that oil producing countries have asked consuming countries to reduce taxes imposed on their citizens, explaining that "reducing taxes on products in consumer countries was an unrest demand of all oil producing countries, a situation that will be examined by those countries now."

Source: SPA

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