World’s largest oil exporter meets world’s largest oil consumer
Posted: 30 May 2005
US-Saudi partnership under the spotlight
A recently concluded forum, organised by the Center of Strategic and International Studies (CSIS) placed US-Saudi relationship under the spotlight.
The forum, themed “The U.S.-Saudi Partnership in the Changing Energy World" was addressed by high-powered speakers HE Ali I. Al-Naimi, Saudi Arabia's Minister of Petroleum and Mineral Resources; Samuel Bodman, U.S. Secretary of Energy; Sen. Jeff Bingaman, ranking member of the Energy and Natural Resources Committee of the U.S. Senate; Abdallah S. Jum'ah, Pr esident and CEO of Saudi Aramco; and David J. O'Reilly, Chairman and CEO of Chevron.
The forum on May 17 - coming a little more than 60 years after the meeting between King Abdulaziz Al-Sa'ud and Pr esident Franklin D. Roosevelt aboard the U.S.S. Quincy - was an important step toward developing better understanding on energy security and a common energy future for Saudi Arabia and the United States .
The forum was structured around two sessions. The first brought a government and political perspective on the issues, and the second focused on commercial and industry factors influencing bilateral relations.
Al-Naimi spoke in the first session, which was moderated by James R. Schlesinger, the first person to be U.S. secretary of Energy, in the 1970s.
New Capacity
Al-Naimi said recent events had caused some to question the future of energy. "The world's relative dependence on liquid hydrocarbon is unlikely to change much over the next 30 years. This means the oil industry must be prepared to develop and bring to market significant new production capacity in the coming years," Al-Naimi said.
He said the oil market has undergone many changes in the past 20 years. From the mid-1980s to the turn of the century, the oil industry operated in an environment of surplus upstream and downstream capacity.
Overcapacity kept prices low, contributing to complacency about the adequacy of existing infrastructure to meet future requirements. "The previous era of overcapacity has ended, and spare production capacity outside Saudi Arabia is now minimal. Upgrading capacity at refineries worldwide is out of step with crude quality," Al-Naimi said.
That has created a perception of a tight market and has contributed to upward price pressure. "I believe the additions to both production and refinery capacity worldwide over the next several years should help to ease the current anxiety," he said.
He also assured participants that Saudi Arabia 's reserves are plentiful and the Kingdom stands ready to increase output as the market dictates. "For the past 60 years, we have built a reputation of reliability second to none. Looking to the future, our mission is to remain the world's most reliable supplier of petroleum," Al-Naimi said.
 In analyzing the factors contributing to today's energy situation, Al-Naimi said that ensuring availability and reliability of supplies requires more than simply increasing crude oil production capacity. Other important issues must also be addressed, such as downstream bottlenecks, aging energy infrastructure, energy conservation, cooperation among producers and consumers, expanding the human capital in the energy industry and promoting new technologies.
Saudi Arabia is in the forefront of efforts to stabilize markets and alleviate constraints, he said. Achieving stable oil prices, however, requires a global effort. Consumers and producers face a variety of hurdles, but the problem is not lack of resources. Remaining world oil reserves are abundant, he said.
Concluding his address, Al-Naimi quoted Abraham Lincoln: "The dogmas of the quiet past are inadequate to the stormy present. The occasion is piled high with difficulty, and we must rise with the occasion. As our case is new, so we must think anew and act anew."
Special Relationship
Bodman's remarks underscored the special relationship between the world's largest exporter of oil and the world's largest consumer. Bodman said the energy situation today transcends the two countries and represents a global challenge. He also expressed deep respect and appreciation for the role Saudi Arabia plays in that global challenge.
"I am impressed by the thought and commitment of the Saudis," he said. "We recognize the Kingdom's leadership in maintaining the spare production capacity, and we acknowledge Saudi Arabia as a moderating force in the global oil trade. The Kingdom is responding effectively and responsibly to oil market needs and has made major commitments over the medium term to raise capacity."
The second session featured Jum'ah, along with Chevron chief David O'Reilly and CSIS senior adviser Luis Giusti, and was moderated by PFC Energy chairman J. Robinson West. Jum'ah gave an industry perspective on issues such as diminishing spare production and refining capacity, the liquids supply-and-demand tipping point and the national oil companies' control over proven oil reserves.
He said the foremost challenge facing the petroleum industry is meeting the phenomenal growth in oil demand. Jum'ah spoke about positioning Saudi Aramco to help meet that demand and highlighted the company's unmatched reserve base and ambitious plans to add new increments and increase production capacity from the current 10.5 million barrels per day to nearly 12 million bpd.
Jum'ah concluded by calling for even closer cooperation between Saudi Aramco and U.S. businesses and institutions - enhancing already strong bonds. "I believe that American companies can further enhance their future prospects by exploring new business models and marrying Saudi Arabia 's needs with their own unique capabilities," Jum'ah said.
Considering the international outlook for oil and gas, and given Saudi Aramco's massive expansion programs, Jum'ah highlighted major areas in which U.S. businesses and institutions can find lucrative opportunities and at the same time complement Saudi Aramco's strengths. Those areas include engineering, procurement and construction of upstream and downstream projects; technology and research cooperation, especially to produce ultra-clean fuels; oil-field services; and investment in the entire gas-value chain.
Oil Demand
Sen. Bingaman closed the forum by saying the core reality is that the United States and the world are going to need all of the oil that Saudi Arabia and other petroleum-exporting countries will produce in the coming years.
He reminded the audience that despite the phenomenal growth in the Chinese energy demand, the U.S. Energy Information Administration forecasts that oil demand in the U.S. will increase more than oil demand in China between now and 2010.
Bingaman said that as oil will continue to play a vital role in U.S. economic security, it is important for the United States to maintain its strong friendship with the Kingdom of Saudi Arabia .
 Commenting on U.S. and international energy policy, Bingaman said the Senate sees the initiatives Saudi Arabia is taking to enhance its oil production during the next decade as a stabilizing force. He said it is a good thing that Saudi Arabia is maintaining 1.5 to 2 million bpd of spare production capacity. U.S. policy makers and the oil market at large will rely on this buffer in case of oil-market disruptions.
He added that the ability of Saudi Arabia to be a buffer is a consequence of some impressive technical achievements, such as the Shaybah development. He said Saudi Aramco is on the cutting edge of new technology and demonstrates remarkable technical capabilities.
The forum, sponsored by Saudi Aramco and Chevron, was characterized by participants as being helpful in presenting important perspectives from global oil leaders on a variety of pressing issues.
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