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Ladies and gentlemen,
I am very happy to be back in Washington to participate in this
second conference on the U.S. - Saudi Arabia economic and energy
relationship. 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. 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 a 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 conducive to world economic growth.
We have witnessed during our lifetimes an unprecedented growth in
the global economy that has produced better lives for many of the
world's peoples. There is no doubt in my mind that the economic
progress of the 20th century, and now the 21st century, was made
possible by the availability of plentiful supplies of
reasonably-priced energy, and, in particular, petroleum.
It is an impressive story, but not one that often grabs headlines.
In fact, it has been easy to become complacent about something as
quietly consistent and reliable as the availability of petroleum
and the products we derive from it. 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 that are an integral part of modem 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. And, 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 unequalled anywhere. We believe that we have a
responsibility to use this endowment in a constructive manner to
bring stability to world markets whenever 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 is the 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 interests to do so. We do all
this so that we can maintain the reliability upon which the world
has come to depend.
During times of turmoil, when the world has needed more crude oil,
Saudi Arabia has worked without fanfare to promote stability in
world markets. One has to look no further back than early 2003 --
which was a particularly difficult time for world oil markets. A
cold winter in the northern hemisphere, nuclear power problems in
Japan, soaring natural gas prices in the U.S., political unrest in
Venezuela, a strike in Nigeria, and war in Iraq -- all threatened
to destabilize world markets. But Saudi Arabia was able to respond
quickly with additional supplies to restore equilibrium to world
markets by utilizing its spare production capacity.
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 nay-sayers 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. Unlike these pessimists,
I am quite optimistic about the future.
Will there be challenges to overcome? My answer is yes, there are
always challenges.
Are we up to the task? Most certainly. We have faced many
challenges before and by exercising our will, skills and
intelligence we overcame them. And we will continue to do so in
the future.
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 older
fields will 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 rise, 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 heard 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 proved 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 detail on Saudi Arabia's reserves and
future production potential in the conference's second session.
Some skeptics express disbelief at the nearly three-fold increase
in our reserves number over the past 30 years. There is nothing
magical about these numbers. Our years of experience gained from
producing our 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 peaking seriously and are constantly monitoring and
assessing the latest data and trends. I am happy to report to you
that our analysis gives us reason to be optimistic about the
future. Current world proven reserves are estimated at 1.2
trillion barrels. The United States 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 assessments of reserves
located in existing fields. The additional oil raises the
conventional liquid reserves 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 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.
Some pessimists are even suggesting that output from Saudi
Arabia's own fields is set to decline sharply in the next few
years. Let me reassure you; this is not the case. As I stated
previously, the reserves we report are there. In fact, the
estimates are quite conservative and there is considerable upside
potential to book additional reserves. None of our booked reserves
require enhanced recovery techniques.
We are confident there is more oil to be found in Saudi Arabia.
There are vast areas of Saudi Arabia yet to be explored. They
present great opportunities for new discoveries. We expect the
cumulative impact of these new finds to be quite significant.
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 bpd to 12-15 million bpd 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 our fields. We produce them slowly
with the aim of maximizing overall recovery. Where other companies
may look at a 20-year production profile, we are looking to
produce our fields for 70-100 years. This is our guiding
principle, a principle we will not compromise for short-term
expediencies.
Let me say a quick word about technology. History has shown that
technology has dramatically lowered the cost of finding and
producing oil. New technologies like 3-D and 4-D seismic,
horizontal drilling and sophisticated computer modeling have all
had a dramatic impact on our industry. Granted, when used
incorrectly, technology can be detrimental. But I firmly believe
that with careful application, future technologies will provide us
even more effective tools to find and produce more oil, while
reducing costs from what they might have been.
It is undeniable that the world will eventually run out of oil.
Demand is projected to increase, and, to the best of my knowledge
oil continues to be a depletable resource. The relevant question
is not if, but when. On this we feel fairly confident. We believe
that there will be no shortage of oil for at least the next 50
years, perhaps much longer.
As I stated previously, based only on our knowledge of our
currently proved reserves, we believe that Saudi Arabia could
produce at substantially higher levels for the next 50 years. We
believe that reserve additions will enhance our future production
capabilities over and above what they are currently.
We are able to state confidently that sufficient quantities remain
to make oil an important source of energy for many years to come.
We believe there are sufficient reserves in Saudi Arabia and the
rest of the world to last until there is an inevitable transition
from the age of oil to the next great source of energy.
I remind the audience that the shift from coal to oil which
occurred in late 19th and early 20th centuries did not occur
because the world ran out of coal. It occurred because oil proved
to be the superior energy resource.
Eventually, technological advances will usher in a new energy
resource to replace oil. Oil will not cede its position as the
pre-eminent fuel because the world runs dry, but because
technology has rendered it less desirable. We in Saudi Arabia
believe that 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.
We have heard some commentators question Saudi Arabia's commitment
to the $25 OPEC basket price and to the $22-$28 price range.
Let me set the record straight on this issue. Saudi Arabia
continues to be committed to OPEC's $22-$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.
Let me expand on this point. There is no general shortage of crude
oil in today's market - supplies are readily available. Any buyer
or seller of crude oil will tell you this. Rather, prices are
being driven by other factors, including fears of instability in
key oil producing countries and regions, the movement of large
investment funds into commodities like oil, just-in-time inventory
practices, refining bottlenecks and the industry's struggle to
produce sufficient quantities of spec gasoline in the U.S. that
meets currently mandated environmental standards. In the U.S., a
plethora of state and local regulations have
"Balkanized" 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 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 that the organization is
purposely pushing prices higher. They cite as evidence OPEC's
decision to cut output. I would 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 LEA and the EIA, 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 the best information available was telling
us. It was not a move to abandon the $22-$28 price band for higher
prices.
In retrospect, demand was much stronger in the first quarter than
the experts anticipated. Projection of world-wide demand for 2004
increased from 1 million in November 2003 to 1.7 million bpd
recently. Five upward revisions of demand in five consecutive
months. 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 stability in oil markets. I must
caution you that OPEC is only one factor that impacts oil prices
and that higher crude oil production does not guarantee that there
is more gasoline available for U.S. consumers.
Ladies and gentlemen, I would like to leave you with the following
points:
First, the U.S. and Saudi Arabia have shared for many decades a
commitment to ensuring the availability of sufficient supplies of
energy to meet the needs of the world's growing economies. We
share an appreciation of energy's role as the raw material for
fulfilling the aspirations of mankind.
Both of our countries also understand the importance of stability
in the oil market, security of supply and reliability of
deliveries. That is why Saudi Arabia has committed itself to be
the world's most reliable supplier of energy. We back up this
commitment by having developed and nurtured an oil industry whose
capabilities, I am proud to say, are second to none. We do it
through a massive commitment of financial resources to acquire the
latest technologies, to attract the brightest minds, and to train
a modem workforce able to meet the challenges of the 21st century.
We do it by maintaining spare production capacity and regional
supply relationships even when they run contrary to our short-term
economic interests.
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
growing demand for many years.
Yes, the Age of Oil will eventually come to an end. But we see no
shortages on the horizon. 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.
Source: http://www.saudiembassy.net/2004News/Statements/SpeechDetail.asp?cIndex=402
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