| Editor's
Note:
The Saudi-US Relations Information Service is
pleased to provide its readers with participants' remarks from the 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. It is important to bring
you the comments of leaders from Saudi Arabia and the United States on these
important issues.
The following are introductory remarks made by
Dr. Dan Yergin, Chairman, Cambridge Energy Research
Associates, and Abdallah S. Ju'mah, President and CEO of Saudi
Aramco.
Click
below to read previous transcripts from this conference:
U.S.-Saudi Relations and Global Energy
Security
Dr.
Dan Yergin, Chairman, Cambridge Energy
Research Associates: Abdallah
Jum'ah is President and CEO of Saudi
Aramco, has a very wide range of
responsibilities for a company really
that produces
ten percent of the world's oil
currently, has about 13
percent
of the world's oil production
capacity.
Mr.
Jum'ah has a distinguished career in
Saudi Aramco across the entire range
of the company's operations. He's been
a member
of
the Board of Saudi Aramco since 1994.
In the first part of the 1990s he was
Executive Vice President in charge of
International
Operations;
and in 1995 became President and CEO.
So we look forward very much to your
perspective on these questions.
Abdallah
S. Jum'ah, President
and CEO of Saudi Aramco: Thank you, Don.
Distinguished
guests, ladies and gentlemen, good
morning still.
I
would like to commend CSIS and the
U.S.-Saudi Arabia Business Council for
convening this discussion for oil
resources
and
the security and stability of the
world oil market. Today's discussion
is particularly timely because
forecasts of energy
supply
and demand are attracting heightened
interest, compounded by a growing
sense of unease regarding oil reserves
and the
sustainability
of oil supplies.
My
remarks will center primarily on Saudi
Aramco and the role we envision
ourselves playing in the future supply
of oil. I
will
focus on five areas that I believe are
relevant to today's discussion. They
include our reserves, future
production
potential,
reservoir management strategies, the
key enablers that underpin our
reliability, and finally, the
multi-dimensional
relationship
that has existed between Saudi Aramco
and the range of U.S. institutions for
more than half a century.
I
would like to preface my remarks by
reiterating a key point made by His
Excellence al-Naimi this morning. He
noted that
despite
the gloom and doom the world in fact
has plenty of oil and that we need not
be concerned about a shortage of
supply for
a
long time to come.
The
worries about resource adequacy
expressed by some analysts remind me
in many ways of the book, "The
Limits of
Growth",
published
in 1972 by the Club of Rome. You may
recall that this book ignited a
serious debate concerning the imminent
exhaustion
of natural resources including
petroleum. Despite the doomsday
scenario outlined in the book the
world's oil reserves
have
in fact continued to grow over the
last three decades, despite healthy
consumption, and indeed are presently
at the
highest
level the world has ever seen.
Recently
some questions have been raised
regarding the crude oil reserves
managed by Saudi Aramco.
Although
this topic has been thoroughly
addressed by our technical and
professional staff in various forums
including the session held at the CSIS
last
February,
I
would like to briefly touch on this
issue.
Saudi
Aramco's proven oil reserves -- and
mind you the Minister was talking
Saudi Arabia and I'll be talking Saudi
Aramco,
so if you see a difference between the
figures he has mentioned and the
figures I'm mentioning it's this
distinction.
I'm
talking about the company, he's
talking about the total country.
Saudi
Aramco's proven oil reserves currently
total 260 billion barrels. That's with
a B. They are contained in 85 fields
and
are spread across over 320 different
reservoirs. To date only 23 of these
fields have been developed and even
these fields
still
contain roughly half of our current
reserves. The other half of course is
contained in undeveloped fields and
there are
62
of them.
Saudi
Aramco's estimates of its proved
reserves are conservative by industry
standards since we utilize cautious
assumptions
in their computation. Particularly our
estimates do not include potential
contributions from proven enhanced oil
recovery
processes. In addition, our reserves
replacement program has been highly
successful, and for the past several
decades we
have
been able to make healthy additions
for at least to fully replace our
production.
These
reserve additions have been achieved
through exploration, delineation, the
improved performance of production
fields.
Our initial efforts have naturally
focused on developing a better
understanding for our existing
reservoirs and we have
utilized
extensive reservoir petrophysical,
geologic, geophysical and field
performance data in an integrated
manner. The result of
these
efforts have been large increases in
the proved reserves of our existing
fields.
Given
our large oil reserve base we have
been focusing our exploration efforts
in the last decade primarily on
natural gas,
and
these efforts have yielded rich
dividends. The company's oil
exploration activities have been kept
at a more moderate level
but
have still resulted in a number of
discoveries.
Our
oil exploration efforts will be
appropriately accelerated in the
future, and this leads me to a brief
discussion
of the future growth in oil reserves.
Based
on exploration data acquired across
the Kingdom and various regional
studies we estimate that more than
half of Saudi Arabia's
potential hydrocarbon-bearing areas
are still relatively unexplored. These
areas include the central and western
parts of
the
[Robal Kali], the empty quarter in the
south; vast areas in the northwest of
the country; and the Saudi Arabian
portion of
the
Red Sea.
Extrapolating
from available data we expect to find
between 80 to 100 billion barrels of
recoverable reserves in these areas
not
including additional recoveries
expected from our known fields.
The
USGS published their estimates for the
world for the year, up to the year
2005 and the mean value estimated by
the
USGS
in the year 2000 for that time that we
would be finding some 87 billion
barrels of recoverable reserves.
Therefore our
estimate
of future oil reserves could well
reach in the range of 340 or 360
billion barrels. And based on our
current production
rate
that translate into a resource to
production ratio of more than 110
years, meaning we have the ability to
raise our
production
capacity to much higher levels if
required.
This
raises the issue of Saudi Aramco's
production capability. Saudi Aramco's
current production capacity is 10
million
barrels per day, and that includes of
course two million barrels of surplus
production capability. This capacity
has been
tested
and put into effect as required, and
depending on global market demand we
can produce and sustain the 10 billion
barrels a
day
level for more than 50 years by
relying primarily on our already
proved reserves.
Further reserve expansion efforts will
certainly
push the plateau beyond the 50 years.
There
was a question this morning about how
soon we can bring that additional
capacity and I must tell you that we
have
always
committed to bring the capacity in 90
days. We say 10 million barrels in 90
days. During the Iraqi war we were
able to
bring
9.6 in 24 hours; and we were able to
bring the 10 million barrels in 72
hours.
We
have developed a range of long-term
crude development scenarios that call
for raising the production to 12 or 15
million
barrels per day depending on demand
growth. We are confident that we can
develop and sustain at these levels
for at
least
the next half century by utilizing a
higher proportion of Saudi Aramco's
existing probable and possible
reserves.
Potential
also exists for extending the 50 year
horizon for these higher production
levels by further expanding reserves.
Such
expansion will come from a combination
of oil focused exploration that
leverages Saudi Arabia's rich
hydrocarbon
potential;
the prudent use of technology; well
conceived reservoir management
practices; and incremental oil
recoveries
through
the application of enhanced recovery
processes.
Naturally
we will make capital commitments to
expand capacity when market conditions
warrant, but we have no doubt
whatsoever
regarding our ability to deliver extra
production should the need arise.
This
confidence in our ability to sustain
our production over the long term
stems from the quality and quantity of
our
reserves
data and from our prudent reservoir
management practices. I'll return to
the crucial reservoir management
practices
later.
Although
many of our large oil fields have been
producing for decades they are still
not mature by industry norms. In fact
the
overall state of depletion of Saudi
Aramco's developed fields is only some
28 percent, significantly lower than
the 60 percent
level
that typically defines maturity.
We
deplete our fields very gradually in
order to maximize our ultimate
recovery. The average annual depletion
rate of our
fields
is in the range of just two percent
compared to an industry average of
between four and ten percent.
An
example is our [Sheiba] field in the
empty quarter in Saudi Arabia. This is
one of our medium-sized fields. The
current
reserves
of the fields as of now, after five
years of production is 18 billion
barrels. The 18 billion barrels is
higher than the
combined
worldwide reserves of any other
company in the world, international
oil company in the world. When we
designed the
facilities
for our [Sheiba] field we designed
them for a depletion rate of one
percent per annum, and actually we
have
been
producing the field now for five years
and we have depleted that field at
five percent.
We
are also putting probably the largest
increment the oil industry has ever
seen to be brought at one time in the
same
place
and that is the development of the two
fields of Qatif and Abu Sa'Fah. This
is a development of 800,000 barrels
per day and
we
have designed that increment to
deplete at two percent per annum.
Saudi
Aramco's reservoir management
philosophy was addressed in some
detail at the CSIS meeting held in
February, but I
believe
it's important to reiterate that
approach.
Our
reservoir management principles
distinguish us from operations
elsewhere and reflect the
custodianship that comes from managing
the largest fields on the planet --
fields whose
reserves
play a vital role in ensuring the
continued health of the global
economy.
I
should point out that in terms of size
these fields are a class of their own.
These are not your normal well fields.
These
are
just totally a class of their own.
Our
philosophy is based on five key
principles that govern the management,
production, and depletion of our
reservoirs.
First,
we seek to maximize the ultimate
recovery of hydrocarbons. Naturally we
look at economics, but optimized
recovery
is never taken lightly.
Our
second principle is reservoir
monitoring. We recognize that in order
to maximize recovery we must give
special attention
to
reservoir monitoring, particularly
surveillance techniques, using
observation wells and state of the art
technologies.
Our
third principle that again sets us
apart from common industry practice is
gradual depletion. As I noted earlier,
we
produce
our reservoirs at much loser depletion
rates than most other producers.
Fourth,
we place significant emphasis on
advanced diagnostics. Our intensive
computational efforts involving
detailed
reservoir modeling allowing us to
develop a much clearer understanding
of future reservoir behavior, both
aerially and
vertically
and at the level of a fairly fine
grid.
Fifth
and finally, we employ appropriate
technologies across our operations
which is almost a philosophy in
itself. Advanced
technology
produces continued improvements
infield performance and leads to
learning models of how to best produce
our
reservoirs.
By
producing our fields slowly we extend
their life cycle. When we extend the
life cycle we increase the benefits of
the new
technologies,
improved diagnostics, better
approaches to managing reservoirs, and
smarter ways of navigating
uncertainties. All
these
improvements lead to higher ultimate
recoveries and their attendant
business benefits including long term
market security.
Taking
a long term view of our operations is
essential in our approach. The long
term nature of the oil business
applies to
most
activities within our industry, but it
is particularly pronounced in the
upstream that's the exploration and
production
segment.
Unfortunately, the short term results
that financial markets typically
desire can undermine some companies'
ability to
adapt
a long-term view.
At
Saudi Aramco we are fortunate in that
we are not subject to undue pressure
for short term results. This does not
mean that
we
place any less emphasis on economic
efficiency, but rather enables us to
better balance our short and long term
priorities.
In
fact this dynamic has allowed us to
maintain a much higher reserve to
production ratio than is typical for
our industry.
Historically
when seeking to balance our outlays
between exploration and development,
we have given priority to those
exploration
investments that yield the greatest
dividend over the long term. Our costs
for finding, developing, and producing
additional
quantities of oil are among the lowest
in the industry. The vast petroleum
fields and reservoirs, our low
depletion
rates and our high reserves to
production ratio provides us with some
essential long-term flexibility while
also
enabling
us to respond effectively to high
demand growth scenario. This in turn
enhances the security and stability of
the
market
which is in everybody's interest.
But
what are the factors that contribute
to Saudi Aramco's strategic
capabilities and operational
performance and how do you
utilize
them to maintain our record of
liability?
There
are many different components in our
operations, of course, but ultimately
we rely on a combination of
appropriate
technology,
well trained and highly motivated
people, a strong financial position,
and a fully integrated network of
operational
facilities.
Undoubtedly
the development, acquisition and
appropriate application of advanced
technology has been a key enabler. In
fact
behind most significant advances in
exploration and production activities
has been corresponding advances in
technology.
To
give you an example of our emphasis on
technology, more than 20 years ago we
established an Exploration and
Petroleum
Engineering
Center of Excellence at our
headquarters in Dhahran. Today the
center is one of the largest of its
kind in
the
world, drawing upon roughly four times
as much data as NASA handles. We
continue to vigorously pursue the
development and
implementation
of cutting edge technologies including
enhanced imaging and modeling of
reservoirs to better understand
reservoir
dynamics,
improve monitoring and tracking and
other advanced exploration tools.
We
do not view technology as a panacea
and it cannot be applied
indiscriminately without analyzing its
costs and
benefits.
However, we are confident that
continued technological advances and
their appropriate application will
enable us to
discover
additional resources and to extract
more incremental oil from our known
reservoirs.
By
any measure, investment in technology
will be an essential part of assuring
abundant and reliable supplies of oil
far
into the future.
People
are important in any business. A world
class management team, a strong cadre
of capable professionals, and
well
trained operating and maintenance
personnel are the hallmarks of any top
notch oil company and Saudi Aramco is
at the
forefront.
We
take great pride in our work force
made up of some of the best and
brightest the Kingdom and indeed the
whole world has to
offer.
Our multi-cultural work force brings
together employees from over 50
countries and from a wide range of
professional and
technical
disciplines.
To
ensure that they have the skills and
savvy to stay on top we maintain one
of the largest corporate training
programs in the
world.
Just one measure of our continued
investment in our people. In fact our
training program provides ten million
training
hours per annum to our employees.
Our
robust financial position is another
important aspect of our success. Saudi
Aramco carries little debt on its
balance
sheet
as our core oil production activities
have been funded traditionally through
internally generated income. The
company's
sound
financial condition, it's substantial
borrowing capacity if required, puts
us in a strong position to fund
capacity
expansions
when warranted by market demand.
Our
well integrated network of facilities
is another important contributor to
our reliability. These facilities are
designed
with multiple backup systems and are
configured to facilitate future
expansion. We pay tremendous attention
to
safety
and security throughout our
operations.
I
just want to comment also to add to
what His Excellency the Minister spoke
about this morning about physical
security of
our
facilities. We have always had, it has
nothing to do with terrorism or
September 11 or anything. Ever since
we built our
facilities
we have been providing our own, so I
have 5,000
security
guards hired by the company and we
have always had that. That is beside,
of course, government security. Our
facilities
are
protected with cutting-edge technology
in terms of surveillance, cameras, all
sorts of detection. Our access to our
facilities
is restricted. In the off-shore we
have helicopter surveillance of our
areas. We have patrol boats. We have
all
sorts
of surveillance that we have. So in
terms of physical security, I will say
it here, and I'm very confident, that
absolutely
there is nowhere in the world that oil
facilities are protected as they are
in Saudi Arabia and at Saudi Aramco.
To
better meet the needs of our customers
we operate a large owned fleet of
super tankers able to supply crude oil
on a
delivery
basis where desired. Summarily, we
maintain operational storage in both
the Caribbean and Western Europe,
enabling us to
better
serve our key markets and customers.
The company's massive crude oil
pipeline system connecting Saudi
Arabia's east and west
coast
also enhances our operational
flexibility and reliability. The
system can transport some five million
barrels of crude oil
per
day -- fully one-half of our current
crude oil production capacity, to our
Red Sea shipping terminals.
The
combination of these factors has
enabled us to maintain our reputation
as a reliable supplier of energy to
the world.
Despite
our long history we have never
suffered a supply disruption related
to our operations. Similarly there has
never
been
an operational situation in which we
were unable to meet a supply
commitment to one of our customers
worldwide.
We
know that our ability to provide a
reliable supply of energy is vital to
the world, to its countries, it
companies and
its
consumers, and we take our
responsibility very very very
seriously.
This
reliability has been tested
repeatedly. We have been called upon a
number of times including in recent
years to
rapidly
respond to market needs and each time
we successfully delivered on our
commitments.
When
regional political upheavals, domestic
civil unrest or operational problems
choked off crude oil supplies from
major
producers,
Saudi Aramco stepped up its efforts to
make up the difference. The same was
true last year. When crude markets
were
roiled
by the conflict in Iraq, our ability
to activate spare production and
export capacity enabled us to calm
market fears,
to
replace barrels lost as a result of
the hostilities, and to ensure a
continued reliable supply of crude oil
to meet the needs
of
our customers, particularly in the U.S.
These
actions underline the importance we
attach to the relationship between
Saudi Aramco and the United States,
and not
just
in times of crisis. Saudi Aramco is
the number one supplier of crude oil
to the U. S. market and that fact is
not about to
change.
We
view the United States as a favored
destination for our crude and we have
worked diligently to maintain our
market share
in
this country.
Virtually
all our super tankers are dedicated to
bringing crude oil to the American
market, providing tremendous
operational
flexibility and reliability.
Our New
York based marketing services
subsidiary, Saudi Petroleum
International,
works
closely with our American customers to
anticipate their needs. Our Motiva
refining and marketing joint venture
in the
United
States, a partnership with Shell USA,
provides refined products to consumers
throughout the southern and eastern U.S.
This
joint venture is now celebrating its
15th year of operations.
Our
subsidiary offices in Houston and here
in Washington also have a role to play
in sustaining the vital Saudi Aramco
business
relationship. We consider this
historical relationship to be very
very special. The United States relies
on us for a
reliable
supply of energy, but this is also a
relationship of mutual dependence and
of mutual benefit.
We
look to the U.S. for training and
human resource development
opportunities for our people, for
industry
partnerships,
for world-class engineering and oil
field services, and for the precision
made technologically advanced
equipment
necessary
for our day-to-day operations in the
Kingdom.
In a very real sense our
relationship with the U.S. companies,
universities
and
institutions makes our job of
providing energy to the world
possible.
Roughly
half of our professional employees and
an even larger percentage of our
senior management members are
graduates
of
U.S. institutions of higher
education. At this very moment some
450 students sponsored by the company
are enrolled in
university
degree programs throughout this
nation. By this time this number could
have been twice this much. In the last
two
years
we have had problems getting our
students here, and therefore 350
students that could have been in the
U.S. in
addition
to the 450 have gone to Tokyo, Japan;
Seoul, Korea; Beijing, China; the UK;
and Australia.
The
lessons that these Saudi Aramco young
men and women learn,
not only in the classroom but also in
the local communities and from their
fellow students, will stay with them a
life
time, further deepening the
professional and personal
relationships which our company shares
with this country. The
U.S. remains the destination of choice
for many of our young students, and I
hope that recent difficulties do not
hamper their
ability
to pursue degrees at American colleges
and universities.
It
was Calvin Coolidge, the one-time
resident of a white building just a
few blocks from here who said that
business of
the
American people is business. Here too
Saudi Aramco has a role to play given
the commerce we conduct with our
American
companies.
That relationship begins with our
crude oil operations. We rely on
American technology and quality in
many of
the
goods and services that we purchase
internationally. American firms have
played a key role in all our core oil
and gas
development
programs including recent mega
projects like the [Sheiba] field
development, the [Halavan Hawia] gas
plants, and
the
[Patifa Wusafa] development program
currently underway.
I'll
finish quickly. [Laughter]
They
have been involved in front-end
engineering, massive facility
construction efforts, IT network
installations and
upgrades,
ongoing oil field services. Since 2000
we have let contracts worth an average
of an excess of $1 billion a year with
U.S. companies. We have
benefited greatly from the know-how and
expertise of these American firms and
they have benefited
greatly
from our business.
Like
their service industry counterparts,
U.S. manufacturers are also vital to
Saudi Aramco's operations. Our people
out in
the
field rely on Caterpillar earth moving
equipment; deep desert rack from
Kenwood; and Baker Hughes drill bits.
If you walk
through
our facilities you will find Dell and
Sun work stations, Hewlitt Packard
printers, and Steel Case office
furniture. Our
company
moves in Chevrolet sedans, Ford pickup
trucks, Bell helicopters and Boeing
jets. We take pride in our reputation
for
unmatched
reliability and we in turn depend on
the reliability of these and countless
other products made in USA.
We
work with some of the biggest names in
the U.S. industry but we work with
small and medium sized firms, either
directly or
as
subcontractors, providing employment
opportunities in communities from
coast to coast. In fact more than
7,700 U.S.
companies
are registered as suppliers to Saudi
Aramco.
Our
purchasing and contracting activities
represent a considerable economic
benefit to those companies and to this
country.
In
addition, given the strong presence of
American-Saudi joint venture companies
in the Kingdom, much of our domestic
purchasing
activity has an American component.
As
most of you know, the American
connection goes back to the earliest
days of our company. Aramco was
American owned and
operated
for some five decades, and why we are
now a Saudi company and proud of the
fact, the pioneering can-do spirit of
those
early days remain. We owe much to
those early American contributions and
we continue to value the relationship
we have
today
with the U.S., its business sector,
its educational institutions, and its
people.
Our
American employees share that
sentiment. We have a number of third
generation American Aramcons working
our company,
men
and women whose grandparents were
among those early pioneers and whose
mothers and fathers continued to call
the Kingdom home.
Over
the last several years we have
welcomed several groups of U.S.
retirees back to the Kingdom to renew
old acquaintances
and
to establish new bonds. We are proud
to show them what we have accomplished
since they left and pleased that we
can
maintain
and indeed strengthen these
friendships.
In
all my conversations with these folks
there is one thing that everyone
agrees upon. Saudi Aramco's
relationship with the
U.S. is not only valuable to both us and
to you, my American friends; it's also
valuable to the world's economic
health.
Ladies
and gentlemen, Saudi Aramco has
immense proven reserves of oil with
substantial up-side potential. We are
capable
of expanding capacity to high levels
rapidly and maintaining those levels
for long periods of time at relatively
low
cost. Our cautious approach to
managing our oil fields makes good
sense, reflects our long term approach
to our operations and
stems
from the special responsibility with
which we have been entrusted by the
global economy.
We
will continue to leverage our natural,
technological, human and financial
resources to meet the world's
expectations
and
to maintain our unmatched record of
reliability as a supplier of energy.
Saudi
Aramco is fully cognizant of its
unique position in the global oil
supply chain and we are well
positioned and well
prepared
to play our part in assuring the
continued security and stability of
the world oil market.
Thank
you for your attention.
[Applause]
Please
visit the Saudi-US Relations
Information Service (SUSRIS)
Discussion Forum to share your views
on these issues.
[Click
here]
|
