Naimi comments on importance of Arab oil and role of OPEC

Saudi Oil Minister Ali Naimi, in a speech on 22 May to the 9th Arab Investment and Capital Markets Conference in Beirut, emphasized the importance of the Arab world as a source of oil for the future. He also defended the role of OPEC and national oil companies (NOCs).
Mr Naimi said his aim was to discuss "the horizons and directions of the international oil market and the policy of OPEC in the wake of the third Gulf war -- along with the kingdom's strategy for developing the oil and gas industry."

The Saudi oil minister said “there were two facts in the world of energy and economy today that one can not ignore or overlook. The first is the central role for oil in global energy consumption; and the second is the central role of the Arab world in global oil reserves, production and trade.”
“The predominance of oil during the past century, with the biggest share in energy consumption, is expected to continue for at least the coming three decades at 40 % -- irrespective of intense efforts tolessen the dependence on it in industrial states.”
“Also, the share of natural gas will increase to become second most important source of energy after oil -- to a point where both these sources will represent approximately two-thirds of the energy consumption necessary for the global economy to develop and flourish.”

“This growth will consolidate the demand for oil, with the centre of the weight of demand shifting from industrialized states to a group of developing states. Their demand represented approximately 30 % of world oil consumption two decades ago. It is now 40 %, and is expected to account for more than half of global demand by the start of 2020.”
“Furthermore, these states will absorb more than 65 % of the expected increase in global oil demand -- around 28 mm bpd -- by the beginning of 2020, with more than one-third of that increase coming from China's share. It is expected that China's imports will double, with China becoming the second biggest importer of oil after the US. These facts and expectations on the oil demand side will have consequences for energy policies and the growth of the global economy for the next few decades.”

“Now, if we look at the issue from the angle of oil and gas supply and demand, the picture shows a number of indications. In the middle of the 1970s, the Arab world's share of global reserves of oil was 47 % -- at that time 660 bn barrels. Today, and after global production of more than 600 bn barrels, global oil reserves have increased to more than 1 t barrels as a result of technical developments in exploration and production operations.”
“At the same time, the Arab world's share of those reserves has risen to 60 %. During the past two decades, despite an increase in production of around 20 mm bpd from a number of other regions in the world, the Arab world's relative share is still at its mid-1970s level, reaching 27 %. And its share of oil traded globally is around 45 %.”

“Estimates indicate that despite the expected increase in production from Russia and the Caspian of around 5 mm bpd by 2020, the Arab world's share will rise to 35 % of global production which is expected to reach 107 mm bpd that year. The Arab world's share in the global oil trade is expected to reach 65 mm bpd -- more than half the total.”
“The growth in global supply and demand over the past two decades was caused by the accelerated pace of international economic growth, especially in Asia, the relative fall in the real price of oil, massive technological advancement, the restructuring of the oil industry, the prominence of NOCs, and the opening up of markets. Because of these factors, the subject of security of supply was not a very pressing one in consumer regions. At the same time, fear of a depletion of supplies was not a pressing issue in producing regions during the same period... The expectations are that the investment needed to safeguard the increase in crude oil production in the Arab world is somewhere in the region of $ 10 bn-$ 15 bn a year for the next two decades.”

Mr Naimi then turned to the role of OPEC against the background of changing political and market circumstances. "Some people," he said, "were pleased to announce the imminent demise of OPEC after the outbreak of the Iraq-Iran war, or the Iraqi invasion of Kuwait, or the price collapses in 1986 and 1998... We are again hearing voices announcing the end of OPEC or a diminishment of its role following the ending of the war on Iraq. Some are expecting that the return of Iraq's ability to produce and export will happen without coordination with OPEC, or even with its withdrawal from the organization.”
"These hasty conclusions are based on inaccurate political hypotheses and ignorance at the nature of the market. Iraq is a founding member of OPEC and Baghdad was the birthplace of the organization. Iraq, like other OPEC and non-OPEC producers, is keen to achieve fair and stable income from its oil resources -- especially for reconstruction and the rebuilding of its oil production capacity.”

“There is no doubt that safeguarding the unity and well-being of OPEC and its role in stabilizing the market at a price appropriate to achieve economic and political stability for Iraq and others is a matter of utmost concern for all its members. OPEC, in the various stages of its history, has taken practical measures to cope with supply disruptions from its members -- no matter what the cause -- and with the resumption of supplies afterwards.”
“The cut in supplies after the Iranian revolution, after the Iraq-Iran war, during the occupation of Kuwait, the crisis in Venezuela, and recently during the war on Iraq -- all these were dealt with collectively within the organization, as was the case when production and exports from these states resumed after the crises had ended. And I do not see any reason why the situation should be different when Iraqi production and exports get back to normal.”
"I am certain that there is a continuing role for OPEC, given the expectations for supply and demand that I indicated and which will see an increased share for the organization in the market in the coming two decades. So there is scope for all the states in the organization, including Iraq, to gradually expand production to meet market needs."

Finally, Mr Naimi turned to "the prominent and profound" role of NOCs as the leading players in the global oil industry. "Some circles," the minister continued, "try to disparage NOCs' ability to exploit and manage the oil and gas resources in their states, either out of real or pretended ignorance of what these companies have achieved in their field or by circulating information that is at variance with the facts.”
"If those companies were provided with a business climate in their states like that enjoyed by other international companies, and they found the right organizational and administrative structure, then they would be able to undertake a variety of tasks within the industry. Based on my long connection with the experience of the biggest NOC in the world, SaudiAramco, I can honestly say that, provided with this climate, the necessary structure, and the development and training of a national workforce, the performance of NOCs would be able to stand comparison with companies like them that are described as international."

Turning to the Saudi oil and gas sector, Mr Naimi said that the kingdom had sustained a production capacity of 10.5 mm bpd during the past few years, with around a quarter of that kept as spare capacity to meet incremental demand and achieve stability in the markets.
Maintaining the kingdom's spare production capacity needed "continued investment to set up production facilities, pipelines and storage centres. These investments are expensive and necessitate a very efficient oil industry to use the production capacity in the most appropriate time and manner." Mr Naimi said Saudi Aramco was proof of "the success of NOCs in exploiting oil and gas resources.”

“That sector is linked to the national economy through investment opportunities or through the transfer of some of the activities to the private sector. For example, at present around 12,000 Saudi contractors are contracted to carry out work for Saudi Aramco, with the value of contracts during 2002 reaching more than $ 4 bn, in addition to supply contracts worth $ 1.6 bn.”
“As part of the government's effort to involve the private sector, we are working on a proposal for an integrated project for local and international investors for oil refining and petrochemical production, with feedstock from the Rabigh refinery on the Red Sea coast. Investment will amount to billions of dollars."