Saudi Arabia warns of crude price spike above 2008 record high
15 June 2009
Saudi Arabia has warned that oil prices could again surge above the
record high level in 2008 within three years unless other producers
join the Kingdom and pump sufficient investment into capacity
expansions.
The government-owned Saudi Aramco,
the world's largest oil exporter, said the collapse of crude prices in
the second half of 2008 was only a temporary phenomenon and demand
would pick up again in the near future.
"We must recognise that depressed oil prices are not only detrimental
to the economies of petroleum producing nations but also to the
interests of consuming countries. That may seem counterintuitive, but
consider that sustained and timely investments in petroleum projects
and infrastructure are essential for maintaining future supplies at
adequate levels," said Mohammed Madi, Chief Representative in Beijing
of Aramco's Saudi Petroleum.
"Current oil prices do little to encourage the necessary massive
investments, and without them we may experience supply shortages once
demand picks up in the future. Unfortunately, our industry may already
be sowing the seeds for future problems. If others do not begin to
invest similarly in new capacity expansion projects, we could see
within two to three years another price spike similar to, or worse
than, what we witnessed in 2008," he said.
Addressing an oil conference in China this week, Madi said the industry
as a whole has been affected by the weak global economy and its
downward pressure on energy demand. He noted that last year marked the
first time in a quarter-century that global demand for crude oil
declined.
He cited recent estimates by the International Energy Agency (IEA) that
global crude demand would decline by about 2.6 million barrels per day
in 2009.
Madi described it as a significant decrease, roughly equivalent to the total production of Venezuela, Kuwait or Nigeria.
Faltering demand has also translated into rising inventories and
sharply lower crude prices, he said, adding that despite the recent
improvement in prices, they are still below half of their record level
in late July 2008. He said these developments have impacted all parts
of the hydrocarbon industry, and given that petroleum is a "fungible
commodity" traded on global markets, companies and corporations all
around the world have been impacted.
"In other words, whether we look at suppliers or consumers, upstream
producers, midstream refiners, downstream marketers and manufacturers,
or service providers and engineering and construction companies, we are
now operating in a very different environment," said Madi.
"And while volatility is nothing new in our business, the sheer scale
and scope of the changes we have seen over the past 12 to 18 months
could be classified as unprecedented, at least in the recent history of
the petroleum industry... and it is precisely because these market
developments have been so abrupt and so widespread that we run a real
risk of mistaking short-term phenomena related to the current cycle as
indicators of sustained, long-term trends in the oil sector.
Madi cited IEA forecasts that total world primary energy demand will increase by nearly 45 per cent between now and 2030.
"The IEA also predicts that oil demand will expand markedly over the
same period, from roughly 83-84 million bpd at present to 104 million
bpd by 2030, an increase of about 20 million bpd, nearly 1.5 times
Saudi Arabia's current maximum sustainable crude oil production
capacity," he said.
"There is no mystery about the drivers of long-term crude oil demand
growth, of course. First, we must consider demographic growth -
primarily in developing economies - which will mean a substantial
increase in the total number of energy consumers in the decades to
come. Secondly, there are the rising living standards in many nations
around the world, including China, which the IEA estimates will account
for more than 40 per cent of all new global demand for oil over the
next two decades.
"As the benefits of economic and social development are extended to
billions of more people around the planet, they and their children will
be leading healthier, safer, more mobile, and more affluent and
prosperous lives. In other words, as these individuals and families buy
larger homes filled with more appliances, enjoy more varied diets,
purchase more cars and other vehicles, and travel further and more
frequently for both business and pleasure, they will be pursuing more
energy-intensive lifestyles."
Madi warned that given the long lead times and considerable financial
investments needed to bring new crude oil production capacity online,
as well as to build the processing, transportation, shipping, refining
and marketing infrastructure required to get those new supplies to
consumers, under investment now has the potential to trigger not only
high prices in the medium term, but also tight capacities at various
points along the petroleum value chain for many years beyond that,
depending on the strength and speed of the global economic recovery.
"But if it engages in wise, timely investments and stays focused on
long-term needs rather than short-term noise, the industry can avoid
such a scenario and instead create the conditions necessary for greater
stability, reliability and predictability all the way from the
reservoir and the wellhead to the refinery and the retail forecourt,"
he said.
"And because at Saudi Aramco
we recognise that petroleum is essential to our economies and our
societies, because we believe so much is riding on our efforts, and
because we remain committed to fulfilling our responsibilities to our
stakeholders both in the Kingdom and around the world, we are
continuing to invest both upstream and downstream, domestically and
internationally, and for today and tomorrow," he added.
By Nadim Kawach
Emirates Business 24/7 2009
15 June 2009
Saudi Arabia has warned that oil prices could again surge above the
record high level in 2008 within three years unless other producers
join the Kingdom and pump sufficient investment into capacity
expansions.
The government-owned Saudi Aramco,
the world's largest oil exporter, said the collapse of crude prices in
the second half of 2008 was only a temporary phenomenon and demand
would pick up again in the near future.
"We must recognise that depressed oil prices are not only detrimental
to the economies of petroleum producing nations but also to the
interests of consuming countries. That may seem counterintuitive, but
consider that sustained and timely investments in petroleum projects
and infrastructure are essential for maintaining future supplies at
adequate levels," said Mohammed Madi, Chief Representative in Beijing
of Aramco's Saudi Petroleum.
"Current oil prices do little to encourage the necessary massive
investments, and without them we may experience supply shortages once
demand picks up in the future. Unfortunately, our industry may already
be sowing the seeds for future problems. If others do not begin to
invest similarly in new capacity expansion projects, we could see
within two to three years another price spike similar to, or worse
than, what we witnessed in 2008," he said.
Addressing an oil conference in China this week, Madi said the industry
as a whole has been affected by the weak global economy and its
downward pressure on energy demand. He noted that last year marked the
first time in a quarter-century that global demand for crude oil
declined.
He cited recent estimates by the International Energy Agency (IEA) that
global crude demand would decline by about 2.6 million barrels per day
in 2009.
Madi described it as a significant decrease, roughly equivalent to the total production of Venezuela, Kuwait or Nigeria.
Faltering demand has also translated into rising inventories and
sharply lower crude prices, he said, adding that despite the recent
improvement in prices, they are still below half of their record level
in late July 2008. He said these developments have impacted all parts
of the hydrocarbon industry, and given that petroleum is a "fungible
commodity" traded on global markets, companies and corporations all
around the world have been impacted.
"In other words, whether we look at suppliers or consumers, upstream
producers, midstream refiners, downstream marketers and manufacturers,
or service providers and engineering and construction companies, we are
now operating in a very different environment," said Madi.
"And while volatility is nothing new in our business, the sheer scale
and scope of the changes we have seen over the past 12 to 18 months
could be classified as unprecedented, at least in the recent history of
the petroleum industry... and it is precisely because these market
developments have been so abrupt and so widespread that we run a real
risk of mistaking short-term phenomena related to the current cycle as
indicators of sustained, long-term trends in the oil sector.
Madi cited IEA forecasts that total world primary energy demand will increase by nearly 45 per cent between now and 2030.
"The IEA also predicts that oil demand will expand markedly over the
same period, from roughly 83-84 million bpd at present to 104 million
bpd by 2030, an increase of about 20 million bpd, nearly 1.5 times
Saudi Arabia's current maximum sustainable crude oil production
capacity," he said.
"There is no mystery about the drivers of long-term crude oil demand
growth, of course. First, we must consider demographic growth -
primarily in developing economies - which will mean a substantial
increase in the total number of energy consumers in the decades to
come. Secondly, there are the rising living standards in many nations
around the world, including China, which the IEA estimates will account
for more than 40 per cent of all new global demand for oil over the
next two decades.
"As the benefits of economic and social development are extended to
billions of more people around the planet, they and their children will
be leading healthier, safer, more mobile, and more affluent and
prosperous lives. In other words, as these individuals and families buy
larger homes filled with more appliances, enjoy more varied diets,
purchase more cars and other vehicles, and travel further and more
frequently for both business and pleasure, they will be pursuing more
energy-intensive lifestyles."
Madi warned that given the long lead times and considerable financial
investments needed to bring new crude oil production capacity online,
as well as to build the processing, transportation, shipping, refining
and marketing infrastructure required to get those new supplies to
consumers, under investment now has the potential to trigger not only
high prices in the medium term, but also tight capacities at various
points along the petroleum value chain for many years beyond that,
depending on the strength and speed of the global economic recovery.
"But if it engages in wise, timely investments and stays focused on
long-term needs rather than short-term noise, the industry can avoid
such a scenario and instead create the conditions necessary for greater
stability, reliability and predictability all the way from the
reservoir and the wellhead to the refinery and the retail forecourt,"
he said.
"And because at Saudi Aramco
we recognise that petroleum is essential to our economies and our
societies, because we believe so much is riding on our efforts, and
because we remain committed to fulfilling our responsibilities to our
stakeholders both in the Kingdom and around the world, we are
continuing to invest both upstream and downstream, domestically and
internationally, and for today and tomorrow," he added.
By Nadim Kawach
Emirates Business 24/7 2009