(Adds SABIC in first paragraph of speech)
March 7 The following is the full text of a
speech by Saudi Khalid Al-Falih, minister for energy, industry
and mineral resources of Saudi Arabia at CERAWeek in Houston on
“Preparing for the Future: The Imperative of Investment”
Thank you, Dan, for your kind introduction and for once again
assembling a veritable “who’s who” of the global energy
industry. CERA Week is highlighted on the calendar of every oil
industry leader, and it’s a pleasure to return to your podium
once again. Also, Houston is the epicenter of the global energy
industry and has been the host of our US operations, Aramco
Services Company, Saudi Refining, SABIC and Motiva for many
decades, so this is also a golden opportunity to catch up with
my colleagues and old friends.
I arrived here from Asia where His Majesty King Salman is on an
extended tour of that region’s major economies. During our
travels, the importance of energy to those growing nations has
been a constant theme, which in turn underscores the value of
this week’s gathering.
Ladies and gentlemen, if we look at global demographic and
economic trends there is little doubt that global energy demand
will grow significantly, despite advances in technology and
gains in energy efficiency leading to lower energy intensity.
As for the evolution of the global energy mix, the costs of
alternatives like renewables and electric vehicles are declining
as their technologies and performance improve. In the future
they will claim a greater share of a growing global energy
market—and we welcome their contributions. But we all know that
energy transformations are complex phenomena that take
considerable time to unfold.
Whether I’m in China, India, Indonesia or Malaysia, as I was
last week, I find that neither climate change policies nor
technology shifts have quenched their insatiable thirst for oil.
Indeed, demand for petroleum imports will continue to grow
steadily in the developing world, especially with the decline in
their indigenous oil and gas production.
Therefore, I am concerned that misguided projections of peak
demand and stranded petroleum resources may discourage the
trillions of dollars in investments needed to underpin essential
oil and gas supplies, during the long transformation of our
global energy system.
The risks of underinvestment driven by such theories amount to
nothing less than compromising the world’s energy security by
squandering staggering quantities of our planet’s natural energy
endowment. That in turn would create heightened market
volatility including damaging price spikes, and more acute
energy poverty in the developing world.
So for some time I’ve been concerned about worldwide investments
falling behind supply development needs. I’m most troubled by
lagging progress of long-cycle development projects, which are
needed to provide the “base load” of future global supplies.
The imperative of adequate future supplies is also why we
welcome the return of investors to US shale—regardless of what
you may hear.
Saudi government policy has always taken the long view of the
petroleum sector, whether it’s investing in the Kingdom’s
infrastructure; optimizing the productive life of our
reservoirs; developing our industry professionals and new
technologies; or strengthening the relationships we enjoy with
our partners, customers, suppliers and other stakeholders.
And that’s why despite the recent downturn, we’ve kept up our
capital spending. That has resulted in our drilling rig count
remaining near an all-time record as we maintain our maximum
sustainable capacity for crude oil and work to double our gas
capacity, while also building the world’s largest downstream
The more of us who embrace this approach of continuing to
prudently invest across the petroleum value chain regardless of
short-term volatility, the better equipped we will
be—individually and collectively—to survive the inevitable
market cycles in the long run.
At the same time, I want to add that as an industry we must
invest more to minimize the environmental impact and carbon
footprint of fossil fuels. Such investments will make petroleum
use more acceptable and more sustainable in a period of
significant technology shifts and growing concern over climate
Turning to short-term market conditions, there is also cause for
cautious optimism as we see the “green shoots” of the recovery,
driven by a better outlook on fundamentals coupled with the
historic production agreement of three months ago.
Let’s look briefly at the fundamentals first.
It is true that uncertainty may continue until the trend of
inventory drawdowns further asserts itself and the market
becomes more comfortable with its capacity to absorb additional
marginal supplies. [Ad lib: OECD commercial inventories are
still about 300 million barrels above the five-year average, but
have been declining in recent months.]
Looking at oil demand growth this year, we expect it to remain
fairly healthy in the range of about 1.5 MMBD, which is higher
than last year’s growth.
And on the supply side, while production might increase somewhat
in major non-OPEC producers like the US, Brazil and Canada, it
is likely to be more than offset by natural decline among other
non-OPEC producers like China, the North Sea and Mexico.
These improving market fundamentals have been boosted by the
recent OPEC agreement, augmented for the first time by a new
cooperative framework with major non-OPEC producers.
Of course, on many occasions in the past, non-OPEC producers
have simply reaped the benefits of OPEC supply reductions. But
this time around, we made it clear that we will not bear the
burden of “free rides,” and both groups are reinforcing one
another through voluntary management of their production. All
of us realize that such an expanded network of producers with a
larger share of global production is the only way to achieve a
constructive, stable market for all.
Having said this, OPEC remains an important catalyst to the
stability and sustainability of the market, which remain the
Organization’s highest priorities and have brought its members
into greater alignment than at any time in recent memory. But
history has also demonstrated that intervention in response to
structural shifts is largely ineffective, and I believe we’ve
learned that lesson.
That’s why Saudi Arabia does not support OPEC intervening to
alleviate the impacts of long-term structural imbalances, as
opposed to addressing short-term aberrations such as financial
crises, economic recessions, unforeseen supply disruptions, or
As for the current agreement, it is keeping with Saudi Arabia’s
policy of seeking a collaborative framework of production
management for a restricted period of time, with the aim of
accelerating rebalancing, and then allowing the free market to
work. Saudi Arabia has so far led by example by bringing our
production below the psychologically significant 10 million
barrel-per-day mark—which is well below our maximum production
At the moment it’s a matter of monitoring the markets and
conformance of participants, and depending upon our assessment
of the first half of the year, we will decide with our partners
what to do for the second half.
So, in light of improving fundamentals whose effect has been
amplified by the OPEC and non-OPEC cooperation framework, I am
optimistic about the global market outlook in the weeks and
months ahead—though I caution that my optimism should not tip
investors into “irrational exuberance” or wishful thinking that
OPEC or the Kingdom will underwrite the investments of others at
our own expense. In other words, we should not get ahead of the
market as informed by our recent experience.
Turning to the US oil and gas industry, it’s just as important
to note that our collective efforts to reduce global market
volatility directly benefit the US industry, which is the
bellwether of the global industry. That’s because the US is
both the largest market for petroleum and a significant
producer, in addition to being the hub for service industry,
supply chain and technology creation.
Saudi Arabia therefore has a vested interest in the robust
health of the US petroleum sector and the broader American
economy. Saudi government and private sector investments in the
US are vast, and we will continue to strengthen our presence
here, including multiple research centers, a number of
petrochemical opportunities for SABIC, and Saudi Aramco’s
flagship investment in Motiva and America’s largest refinery,
just east along I-10 in Port Arthur.
The division of Motiva’s assets between Saudi Aramco and Shell
will provide a greater degree of autonomy for Aramco to expand
the strong platform it has built over nearly three decades in
the American downstream sector.
Such an expansion is indicative of the alignment between the
United States of America under the Trump administration and the
Kingdom’s energy strategies and policies.
We welcome the new administration’s attention to strategic
energy issues, in particular its pragmatic and inclusive
approach to developing all sources to build a diverse energy
portfolio, and their pro-business and pro-petroleum sector
policies. I personally look forward to working with the new
administration—especially my friend and fellow Aggie, the
Secretary of Energy Rick Perry—for the mutual benefit of our two
great nations and indeed for the entire world.
And just as the American energy sector continues to thrive and
diversify, exciting commercial and investment opportunities are
being created back in Saudi Arabia through Vision 2030, our
government’s strategic roadmap to an even more prosperous
Kingdom and a more robust and diversified national economy.
Saudi Aramco was the original bridge between our two nations,
playing a pivotal role in establishing deep energy, business and
people-to-people relations. As we continue our national journey
of wide-ranging transformation, next year’s initial public
offering of a portion of Saudi Aramco is the centerpiece of the
broader Vision 2030 framework, and I believe that Aramco going
public will create many additional opportunities for engagement
and investment across the world—but definitely here in the
Ladies and gentlemen, let me conclude by simply saying that the
future for our industry, our companies and our two countries is
both bright and intertwined, and I look forward to working with
many of you in this room to realize that potential and take our
longstanding partnership to new heights.
(Editing by Marguerita Choy)