Can you give us an idea of what tight and shale gas reserves have been found?
We have numbers that geologists present to us, but they are still conceptual estimates. We really do not have booked recoverable reserves in terms of unconventional resources, because until you can know with certainty the resource base and drill enough wells to know the reservoir characteristics, and whether it is homogeneous or heterogeneous, and more importantly until you prove that it can be produced commercially, you cannot book them. So what we have now are conceptual resource estimates.
We know the resource base is there, but how much it is and when will we be able to put it down as commercially recoverable reserves, we have some more work to do. I have mentioned before that our resource base is in the hundreds of trillion cubic feet. Hundreds can become smaller if you go with P90, the 90pc probability.
On the other hand, it will be much larger if you used P10 figures, and something in the 200 trillion to 300 trillion cubic feet range if you are looking at the mean estimate. But at this stage, I would just caution it is still estimates of resources, conceptual in nature, and it will take a couple of years of intensive exploration and perhaps piloted production of this type of resources before we tell with certainty how much reserves we have and when we will be able to bring it to market.
Are you planning to do this alone or are you considering bringing in a foreign partner?
We are the largest company in upstream. We have the financial, technical and project management capability to undertake projects of any type in the upstream. Certainly within the geology of Saudi Arabia, we are more knowledgeable than anybody else. So as of now, we are not going to bring anybody.
Of course, ultimately there are sovereign decisions which the government can take, but this has not been even considered. Saudi Aramco is in the process of undertaking this exploration work on our own.
Is the development of shale gas and tight gas economically feasible at these prices for Saudi Arabia?
Well, for Saudi Arabia, oil in the long term as well as obviously today, can fetch in the range of $100 a barrel. From the value equivalency of gas, that translates to very high value for gas. So if you look at the trade-off between saving high-value oil for future production and export and instead burning gas in applications that are suitable for gas as industry fuel, such as power generation, then obviously non-conventional gas has a place in the energy mix.
Expanding gas supplies further will take a lot of investment and non-conventional gas will be certainly a lot more expensive than the gas we have produced in the past — both associated and even the expensive conventional non-associated gas that we have brought on stream, like the increments we are bringing now from offshore. Unconventional gas will be generally more expensive than those increments. But still, when considering the alternative of burning valuable liquids like crude oil and condensates, non-conventional gas will compete.
How much liquid fuel is being burnt, particularly in the peak summer months?
It is less than some numbers that have been publicized erroneously. I do not know where the data came from. I have seen 900,000 barrels per day and 1 million barrels per day, which are absolutely incorrect. I believe 500,000 barrels per day is in the range of the annual average crude oil being burned for power generation.
You have also said that if you carry on at this rate, your exports will fall.
Today, if you look at our total energy consumption in barrels of oil equivalent (boe), it is in the range of 4 million boe per day, give or take a couple hundred thousand. About 50 percent of it is gas-based. This includes feedstock into petrochemicals, some of it is LPG, some of it is ethane, some of it is natural gasoline which is a form of naphtha, but it is all derived from gas.
Of the other 2 million barrels per day, a lot of it goes into refined products and there is the 500,000 bpd of crude that goes into utility applications. I believe that what I said was that consumption will double by 2030 to 8.2 million boe per day if we do absolutely nothing. We are not going to do absolutely nothing. We are rational people. If we do not introduce efficiency measures, if we do not sharpen our consumption pattern, if we do not substitute different energy sources, if renewables do not make a dent into our energy mix, that will be the outcome.
The reason for that speech was basically to create what you would call a “burning platform” for people to take action and I think it has worked. You have seen within Saudi media, among decision makers and intellectuals a lot of debate since that talk I gave in Riyadh about needing to change the trajectory of our energy intensity. Those of you who were in Riyadh last week for the inaugural conference of the King Abdullah Petroleum Studies and Research Centre, saw the kind of questions that were constantly coming up and everybody seems concerned today.
We are committed and at Saudi Aramco we are partnering with all other stakeholders to ensure that we do not end up consuming 8 million boe per day for the size of the economy that we will have, because it will be extremely inefficient in terms of converting energy input into economic output.
Is any consideration being given to increasing the price of gas in the foreseeable future from $0.75 per million British thermal unit?
I think there has been a lot written about the pros and cons of changing energy and gas prices within the kingdom. Suffice it to say that ultimately, it is a decision for which the government is responsible. The regulations within Saudi Arabia mandate a government price for these kinds of fuels, and Saudi Aramco is on the receiving end of government decisions that will be deliberated and will come out in due course. We will know about them together when they are issued.
Saudi oil minister Ali Naimi was quoted on December 5 as saying that Saudi Arabia's crude production exceeded 10 million barrels per day. Is that accurate?
Saudi Arabia's production includes Aramco's production and the production of other entities. We are not the only producer in the kingdom. There is Saudi Chevron and there is AGOC and our production from the Abu Safah field, which is shared with Bahrain. The figures that the minister mentioned could also include other liquids, such as condensate. It is not fair for me to try and dissect a number that was mentioned without me being there and without knowing the full context. I can confirm to you that Aramco's production has recently been significantly above 9 million barrels per day despite the seasonal decline of crude burning.
The Saudi Aramco crude oil formula prices for January show a significant increase versus the Dubai/Oman average, particularly to Asia-Pacific. Does this reflect a potential drop in production because you think demand may drop next year?
I will caution you in the strongest possible terms against correlating our formula prices with any production decisions made or to be made. We make them in absolute isolation from any decisions by the government, by OPEC, nor do we forecast future production by Saudi Aramco nor do we try to influence our customers in terms of wanting them to buy more or buy less. These are market-driven, based on the composition, what we call crude oil assays, what do our crudes have in terms of product yields and we run them through the typical refinery models in the Asian, European and US markets for which we price, and then we look at product prices and then we add them up, and we look at margins and price the crude against the marker to be fair and competitive in that market place.
We have relationships with our customers that have lasted for decades and we want them to last for decades. We want to make sure that our customers continue to see fair, predictable pricing methodology by Saudi Aramco, so we do not use it whatsoever, and neither does the government or the ministry ever think of using our formula prices as a tool of government policy. It is a purely commercial process that we make and our customers know the basis for it and I am sure if you talk to them, they will respect the professionalism and methodology that goes into it.
Some months we may get it perfect, some months we miss a little, but in the long term, we are consistently fair and transparent about the pricing formula process.
By how much have you increased investment in educational projects for society in the last few years?
We were honored when the King assigned us the task of establishing the King Abdullah University for Science and Technology. That project is a qualitative generational change. It is an announcement within the Kingdom and to the world that investment in the human sector is a priority. He entrusted Saudi Aramco with establishing a landmark institution in scientific research and education, and this is a great honor for the company. We achieved this in record time to the best of international standards.
We were also asked to establish the King Abdullah Petroleum Studies and Research Centre and this is linked with Saudi Aramco's competencies, but it also independent of us and it involves an investment in the knowledge sector because it includes methodical policy and market research. We have also partnered with the educational sector broadly — from elementary education to university education, partnership with universities, partnership with the ministry of education, because there is a conviction within the company's leadership that we should invest in preparing the Kingdom's future generations so that they can transform the Kingdom from an oil-dependent rentier economy to a knowledge economy.
Our investment in industry is in an indirect way an investment in human development. Most of the industries in which we are investing — whether Petro Rabigh or Sadara — or our encouragement of private-sector small and medium enterprises to invest with us in those sectors, aims to provide an environment to employ, develop and train human resources in the Kingdom. These investments probably take up more time from me and my colleagues in the company's management than the time we spend on petroleum investments. This is because we excelled at executing petroleum investments.
A lot of thought within Saudi Aramco now focuses on how to activate the sectors that complement the company in Saudi society and the Saudi economy. I think that is the biggest challenge. The challenge to companies, whether they are national or international companies, is not to simply generate headlines about sustainability and a few advertisements about environmental issues, but to invest in the human component of societies. Ultimately, no matter how successful a company is, if the society around it is faltering, the company will falter, and this has actually been the case in many other countries.
How come the Manifa project is not an increment and will keep Aramco's capacity at 12 million barrels per day?
First of all, when we talk about a capacity of 12 million barrels per day, you are talking nominally. That does not mean that we cannot produce 12.5 million barrels a day. When we set a maximum sustained capacity, it does not mean that that is the production ceiling when we fully open the valves. Every well we have is choked. There is a production level that we try to shoot for that allows us ultimate maximum recovery from that area from which the well is drawing crude oil.
With time, we reduce production from certain areas of the reservoir and we move to fresh or virgin fields so that we maintain economically optimum production over the long term. Some of our older reservoirs that have been going for 50 to 60 years at certain production levels need to be relaxed at some point or another, because they are more expensive to produce than our less mature reservoirs.
For example, we said Khurais has a capacity of 1.2 million barrels per day. Today, Khurais can produce for a year or more at 1.4 million barrels per day, both from the wells and processing facilities. The 1.2 million barrels per day is when you start having water ingress, which we do not. We have zero water cut in Khurais today. If I tell the head of our upstream to maximize Khurais, he can easily do 1.4 million barrels per day in 2012.
Ultimately, when Manifa comes on stream, we will be relaxing some of the production that is available today from some of our mature reservoirs so that in 50 or 60 years we will have the ultimate recovery rates that we aim for and which we would not have if we kept producing at maximum rates from some of the more mature reservoirs. That does not mean we are abusing them today, but we do not want to be abusing them 10 years from now. When Manifa comes on stream, if we continue producing all of those reservoirs at the same rate, we will have 12.9 million barrels per day. But we are not going to do that.
Once we do it, we will introduce reservoir management restrictions to relax those fields, because we are aiming to be able to achieve our maximum reservoir recovery later in this century and beyond.