Saudi Aramco: An Energy Supplier with Global Impact

Good evening, ladies and gentlemen.  It is an immense pleasure to be with you tonight.  I would like to thank Lady Barbara Judge for the invitation to speak before this distinguished group, and to express my appreciation to John Griffith-Jones and KPMG for their hospitality this evening.

This occasion has a particular significance for me, because of the importance I personally attach to the work of SOAS.  As an Arab, I believe that there is a greater need for a more nuanced assessment and appreciation of the Middle East, its rich history and its contemporary political, economic and social conditions.  As a political science graduate, I appreciate the ways in which the social sciences help us chart an increasingly complex world, and make better decisions as a result of that comprehension.  As the leader of a company whose operations and interests span the globe, I recognize the importance of the far-reaching developments we are witnessing in Africa and Asia, and the need to understand how economic globalization, political change and technological advances are shaping their cultures and societies.  As an oil man, I believe that greater global stability and cross-cultural understanding are indispensable contributors to enhanced energy security and the development of our industry.  And finally, as the parent of children who are still making their way in the world, I consider it imperative that we teach young people to actively celebrate diversity and the value of mutual endeavor in an ever more interconnected global community.

Achieving these objectives depends not only on gaining and sharing information and ideas within specific areas of activity, but also on transcending academic, linguistic, cultural and even generational boundaries.  That’s because the world around us doesn’t break down into prettily wrapped packages labeled “politics,” “economics,” “technology,” “demographics,” “culture,” etc.  Instead, events in one area of society exert an influence on all others, often in ways which are difficult to perceive and understand, are challenging to track and measure—and which can be nearly impossible to predict and forecast. 

I am pleased to note that SOAS has adopted a holistic approach which recognizes that the interrelationships between different fields of knowledge are at least as interesting as developments within a single academic area.  Such cross-disciplinary activities and the vibrant geographical and cultural regions that the School covers in its studies and research are what make the work of SOAS scholars and students so important.  I want to take this opportunity to applaud the School on its achievements, and to express my appreciation for the contributions that the members of this International Advisory Board make toward those accomplishments.

Of course, one element in today’s world that has an immense—and I would even go so far as to say immeasurable—impact on individuals, institutions, societies and entire nations is energy.  As business leaders, policymakers and diplomats, officers of various institutions, and academics and researchers, you have all had to grapple with energy-related issues in your professional capacities, and been impacted by them in your personal lives.  These days, nearly every headline or news broadcast seems to have an energy-related component, whether it’s volatile energy prices and their economic impact, energy security and its influence on regional and national politics, environmental concerns and considerations, or technological developments driven by factors tied to energy production, consumption and  conservation. 

Because energy is so central to contemporary life, its impact is immediate, profound and widespread.  And because petroleum is such an important component in the world’s energy mix—and since oil and gas together will continue to meet nearly 60 percent of global energy needs in 2030—Saudi Aramco has a major role to play in enabling prosperity for the world’s population.  In fact, when I meet new people and they ask what business I’m in, I don’t say “oil and gas” or even “energy.”  Instead, I tell them that I’m in the business of making people happy; of enabling them to live more dynamic and more vibrant lives; to move and work and travel more freely; and to build stronger communities and brighter futures for their children and their grandchildren. 

This evening, I would like to share with you a bit more about what Saudi Aramco is and what it does, describe the unique mission we pursue as a corporation, and outline the ways in which we meet our obligations as one of the world’s foremost suppliers of energy.

As many of you know, we manage the world’s largest reserves and are the world’s largest exporter of crude oil.  The reservoirs entrusted by the Kingdom of Saudi Arabia to Saudi Aramco’s stewardship contain roughly a fifth of the world’s total proven reserves of crude oil, and we currently produce about one in every ten barrels of oil the world consumes.  We also manage the planet’s fourth largest reserves of natural gas, which we produce and process largely for domestic consumption, powering Saudi Arabia’s economic development and diversification and fueling and feeding a wide range of industries and utilities.  In addition, as an integrated petroleum company, our operations extend into the refining, sales & marketing, and shipping of oil, besides manufacturing of petrochemicals.

In light of growing global demand for petroleum and the Kingdom’s own economic expansion, we continue to expand our already massive scope of operations.  In fact, we are currently engaged in a series of massive megaprojects which will not only increase our oil and gas production capabilities, but also extend our business portfolio into new areas.  As a result, we will have 12 million barrels per day of production capacity by the end of next year, which includes one-and-a-half to two million barrels per day of spare production capacity which the Kingdom maintains in the interest of oil market stability.  This spare capacity is not cheap to develop or to maintain, but it has repeatedly proven its worth when events have disrupted supplies from other producers, and is integral to the responsible role that Saudi Arabia plays on the global stage.

Some of these upstream projects are unprecedented in their size and scope.  For example, our Khurais project has been termed “the giant of the giants,” and when it comes onstream next year, Khurais’ 1.2 million barrels per day of crude oil production capacity alone will be nearly equal to Algeria’s total current production, and in the neighborhood of half of what Venezuela, Iraq or Kuwait produces.  Our Manifa program, which is slated for completion in 2011, includes 900,000 barrels per day of capacity—a little more than Qatar’s total daily production. 

At the same time, we are also working on two 400,000 barrel-per-day export-oriented refineries, on the Arabian Gulf coast at Jubail with Total and in Yanbu‘ on the Red Sea with ConocoPhillips—investments which together total more than 25 billion dollars.  As we near completion of our PetroRabigh refining and petrochemical facility on Saudi Arabia’s West Coast, a joint-venture undertaking with Sumitomo Chemical, we are also partnering with Dow Chemical on an even larger integrated refining and petrochemical facility in Ras Tanura on the Kingdom’s East Coast.  In addition to extracting additional value from the Kingdom’s precious hydrocarbon resources, these facilities will also serve as the hubs of industrial clusters and spawn new industries, based on an expanded slate of petrochemical materials to be produced.  These projects are at the very epicenter of today’s energy world, and also offer plentiful openings for world-class firms and strategic investors looking for promising long-term opportunities.

Given such a wide range of activities, the sophisticated character of the technological tools of our trade, and the competitive nature of our industry, there is always a risk of losing focus—of failing to see the forest for all of the trees that seem to get in the way.  However, Saudi Aramco’s strategic direction as a company, and the philosophical framework which we use to capture its various aspects, help ensure that we are progressing toward our vision, delivering on our commitments, mobilizing our workforce in support of those objectives, and meeting the needs of our various stakeholders both at home and abroad.  While every company is special in some way, we’re not quite like any other company on Earth, given the unique mission which results from the sheer volume of the petroleum reserves entrusted to us, the criticality of those resources to the global economy, and the responsibilities we bear as the national petroleum enterprise of Saudi Arabia. 

To capture the various responsibilities we have as a company, I have characterized Saudi Aramco’s strategic direction as a tripod, consisting of three separate but interrelated obligations: our commitment to international petroleum markets, our commitment to national development in the Kingdom of Saudi Arabia, and our commitment to commerciality.  This tripod concept has been widely communicated across Saudi Aramco, and is used to assess both our current undertakings and our future investment and expansion decisions. 

Internationally, we’re committed to helping meet global energy needs, to providing petroleum in a reliable and responsible manner, and to acting as a cornerstone for enhanced worldwide energy security.  As a result, Saudi Aramco is a potent force for market stability and a critical contributor to sustained economic growth and development, given the impact of our petroleum exports on markets both East and West.  For example, we are the number one supplier of crude oil to major economies like China, Japan, Korea and India, in addition to being a major supplier to the world’s biggest crude oil consumer and its single largest economy, the United States of America.  As such, our ability to provide a reliable supply of energy to the world is frankly indispensable for continued global economic growth, and with it the elevation of living standards.

Nationally, Saudi Aramco is, of course, a key source of revenue for the state and by extension for Saudi society.  But we are also an important driver of industrial growth, economic development and diversification, and job creation.  Some of our impact comes from the petroleum products and natural gas supplies we deliver throughout the Kingdom, while some stems from the business we do with the local private sector, or the wages we pay and the training we provide to our people.  We are also committed to sharing knowledge with other institutions in both the public and private sectors, and where possible helping other entities in the Kingdom to be stronger and more effective contributors to the country’s prosperity. 

We have also embraced our role as good corporate citizen, with social responsibility initiatives ranging from health, safety and environmental outreach programs to educational initiatives and corporate philanthropy.  While CSR has recently become a buzzword in business and industry, for Saudi Aramco it has underpinned the company’s operations from the inception of the enterprise, with early programs to help establish an electric power company in the country’s Eastern Province, demonstrate how to grow farm products in a desert environment, combat malaria and build local schools.  Today the Kingdom’s needs have changed, and so we are now focused on developing a stronger culture of volunteerism in local communities, with volunteer-based initiatives like mangrove-planting in tidal areas and specialized programs focusing on orphans, the elderly, and people with special needs.

The third arm of the tripod is our commitment to commerciality, and our strong focus on operational efficiency and the bottom line.  Our charter makes it clear that Saudi Aramco must operate on a commercial basis, and in that sense we conduct our business just like any of our multinational peers.  For us, commerciality means achieving best-in-class performance, pursuing projects that provide a reasonable return on investment over the long term, and having a strong presence in significant global markets and in nations set for substantial demand growth.  While some national oil companies have a reputation for inefficiency and waste, at Saudi Aramco we gauge our performance against the very best in our business.

And yet the tripod concept really comes into its own when we use it to assess our existing operations or potential projects from all three perspectives.  Ideally, we prefer our investments to concurrently satisfy our objectives in each of the three dimensions, or fall into what we call the “golden quadrant.  Naturally, that’s not always possible.  But in a vast majority of such situations, considering the centrality of our focus on commerciality, we require that our investments pass the economic attractiveness test.

Our recent entry into the petrochemical sector is a good example of a golden quadrant initiative.  These new projects are helping to meet growing international demand for petrochemicals; the downstream industries and business clusters which they will help promote will greatly enhance value addition, create good jobs and provide new career opportunities for Saudi Arabia’s growing population; while these facilities will concurrently boost the profitability of our refining assets.  Our export-oriented refineries are yet another golden quadrant program, given their simultaneous contributions to global refined products markets, local economic development, and our bottom line.

Of course, underpinning all aspects of our strategic direction is a commitment to the protection of natural ecosystems wherever we operate.  Like corporate social responsibility, environmental stewardship was something that Saudi Aramco was pursuing long before it became fashionable.  In fact, our first environmental policy statement was issued in the 1960s, and over the years, we’ve developed a broad array of operational requirements, engineering standards and performance guidelines to systematize our commitment to the environment.  Today, we continue to develop new ways to minimize the environmental footprint of our operations and of petroleum’s end-use applications.  That’s important, because economic prosperity and environmental protection are both important to us, warranting concurrent focus on these two crucial universal imperatives.  I strongly believe that the petroleum industry should be an important part of the solution to this challenge—perhaps the greatest challenge currently facing mankind—and Saudi Aramco is committed to playing a leading role in that endeavor.

Let me now very briefly talk about how our business model that I have outlined differs from what one would find in a typical multinational corporation.

Perhaps the most important distinction I would make is our ability to look to the long term.  For example, we find and prove oil reserves for much longer periods of time than a regular oil company does, more consistent with the long term nature of the oil industry.  Similarly, we develop production strategies for our oil and gas reservoirs with a 50-year time horizon, rather than just a decade or two, because we know that with slow depletion, those extensive reserves will still be part of our production portfolio a half-century from now, and since as a state-owned company, we are shielded from the excessive short-term focus of the financial markets.  Multinationals, by contrast, are under much greater pressure to rapidly recover reserves in order to satisfy their shareholders.  This long-term approach to our reserve base is also important because it will allow yet-to-be-developed production technologies to be applied to a greater proportion of the oil in place, and thus help to maximize ultimate recovery—meaning more oil for future global consumption. 

The second critical element in our way of doing business is our commitment to operational reliability.  It’s one reason we maintain the spare production capacity I mentioned earlier, design individual petroleum facilities with significant redundancy, and ensure that our overall oil and gas networks have an appropriate degree of operational flexibility.  Operational reliability is also contingent on maintaining safe and secure plants and facilities, and here we rely upon an integrated system of highly trained industrial security personnel, sophisticated access control and remote monitoring equipment, well-developed incident response protocols, and close cooperation with governmental security forces.

Of course, many leading global companies are focused on achieving the leanest operations possible, squeezing the most out of facility capacities and maintaining just-in-time minimal inventories.  Yet such hyper-efficiency is often achieved at the expense of overall flexibility, with the result that a minor operational hiccup has the potential to result in major disruptions for end-users.   We seek to meet our multifaceted responsibilities by optimally combining systemic flexibility and sufficient spare capacity with efforts to realize greater efficiencies and enhanced profitability.  In that sense, Saudi Aramco’s business model incorporates many of the best elements of both national oil companies and multinational firms.

Another area which receives a great deal of attention at Saudi Aramco is the development of new technologies and innovative ways of approaching business and operational challenges.  The key to technological breakthroughs is knowledge, and during my tenure as Saudi Aramco’s president & CEO, I have made what I call “unleashing the genie of innovation” one of my primary objectives.  As business leaders, we all recognize that the global economy is becoming increasingly reliant on brains rather than brawn, and at Saudi Aramco we believe knowledge, the quality of thought, and above all the talents of our people are key differentiating factors for our firm.  Certainly within our industry, one of the most important comparative advantages a company will enjoy is its ability and capacity to innovate: combining market savvy, business acumen and technological know-how with the creative talents of its knowledge workers in order to solve a constant stream of competitive challenges and address new opportunities. 

The final critical cornerstone in our approach to business is our distinctive corporate culture.  Despite our massive reserves base, our sophisticated technologies and extensive infrastructure, ours is still, at its core, a people-centered enterprise, and the softer, human side of the business remains a top priority at Saudi Aramco.   Whether it is an engineer, a technician, a diver or a driller; whether he or she works in an office, in a plant, on a ship or in the field; whether the employee is a Saudi or an expatriate, young or old, male or female; we make a point of honoring his and her work as an employee, and appreciate the contributions they make to Saudi Aramco’s success. 

That environment has helped us to maintain a cohesive workforce, preserve hard-won experience and knowledge within our ranks, and avoid high employee turnover and the costs it incurs.  It has also enabled us to create a Saudi Aramco way, if you will, characterized by a strong work ethic and a can-do attitude, a commitment to fairness and teamwork, the relentless pursuit of performance, and the recognition of the importance of our energy for billions of our fellow human beings.  Those attributes have been with us since the earliest days of the company, and God willing they will see us through another 75 years of business success and reliable service to the Kingdom and the world.

Ladies and gentlemen, let me close this evening with a look at two bold initiatives Saudi Aramco is currently pursuing beyond the realm of our core oil and gas activities.  Both are based on our belief that the most successful societies of the future will be those who make the smoothest transitions from current economic models to truly knowledge-based economies with a global orientation, and these initiatives are designed to better prepare the Kingdom and its people for that journey of change. 

The first such project is the King Abdullah University for Science and Technology, which is currently being built on the shores of the Red Sea just north of Jiddah.  The Custodian of the Two Holy Mosques, King Abdullah, has entrusted Saudi Aramco with much of the university’s development, including the selection of faculty and staff, the development of its curricula, and the identification of the structures, policies and academic focus areas which will guide both its research and educational missions.  When it opens eleven months from now, KAUST will be a graduate university dedicated to scientific and technical research and teaching, drawing faculty, staff and students from all over the globe.  King Abdullah himself said that his desire is, quote, “that this new University become one of the world's great institutions of research; that it educate and train future generations of scientists, engineers and technologists; and that it foster, on the basis of merit and excellence, collaboration and cooperation with other great research universities and the private sector,” unquote.  At Saudi Aramco, we are working hard to realize the king’s bold vision for KAUST, and to plant the seeds of the university’s future success.

The second project Saudi Aramco is pursuing is the King Abdulaziz Center for Knowledge and Culture.  When it opens to the public in 2012, just down the road from the site where oil was first discovered in Saudi Arabia, the Center will be a dynamic institution designed to inspire a passion for learning, creativity, volunteerism and cross-cultural engagement.  Among its components will be a library, a museum and archives center, a children’s discovery zone, spaces for artistic and cultural performances, facilities for continuing education, as well as venues for lectures, conferences and symposia.  There will also be a strong online presence for the institution, its programs and its informational resources, enabling the Center to serve stakeholders far beyond its geographical location.

This institution—a lasting gift to the local society from Saudi Aramco on the occasion of our company’s 75th anniversary—will better connect our people to their own rich civilization and proud history while also bringing other world cultures to the Kingdom.  As such, I believe it will serve as a powerful stimulus for the development of new ideas, perspectives and relationships, and thus help promote social progress and intellectual achievement not just in the Kingdom, but in the entire Middle East region.  In addition, a more harmonious global community, which the Center will help to promote and sustain by advancing the appreciation for cultural diversity and enhancement of global understanding, is itself an important contributor to greater energy security.  Finally, I also believe there are numerous areas for cooperation between the new Cultural Center and the School of Oriental and African Studies, and I hope that these possible avenues of exchange will be explored as our Center continues to develop and grow. 

My friends, over the last three quarters of a century, generations of dedicated men and women have transformed a speculative search for petroleum resources into a world-class company.  Saudi Aramco owes its current position as industry leader to their efforts and to the unique corporate culture which they created.  Today, even as I speak our people are hard at work in many different areas of operations, both in the Kingdom and around the globe, to deliver on our commitments as an energy supplier, as a national enterprise, as a good corporate citizen, and as an efficient and profitable company.  We’ve committed ourselves and our company to fulfilling the many responsibilities entrusted to us, helping meet the myriad challenges facing the global energy sector, and playing our part in powering continued prosperity for billions of our fellow human beings.

But as I said earlier, I’m not just in the energy business; my colleagues and I are in the business of making people happy, and that means working to realize a more prosperous present and an even brighter future for our nation, our region and the wider world.  In addition to our core responsibility to supply the vital energy that the world needs both today and tomorrow, Saudi Aramco also provides a dynamic example of diversity in action, illustrates the benefits of cross-cultural cooperation and collaboration, and is testament to the immense power of partnership in the pursuit of shared objectives.  By the same token and for many of the same reasons, I believe the School of Oriental and African Studies also has an important role to play in helping us to make sense of the complex forces that are shaping our societies, in addressing the underlying causes of tension in our region, and ultimately in creating the conditions necessary for a more tranquil, more peaceful and more prosperous Middle East.

I consider myself privileged to have such opportunities to make a lasting difference, because in the end, I believe that making our communities and societies better places to live is both our challenge as leaders of top-tier companies and organizations, and our obligation as individual men and women.  Thus I have taken to heart the words of the American anthropologist Margaret Mead, who once said, “Never doubt that a small group of thoughtful, committed people can change the world; indeed, it's the only thing that ever has.”  The members of the faculty, staff and International Advisory Board of SOAS are among that group of thoughtful and committed individuals, and it has been a privilege to be given this opportunity to talk about my company, and to share my views and perspectives with such a distinguished audience this evening.

Abdallah S. Jum'ah is the former president and chief executive officer of the Saudi Arabian Oil Company (Saudi Aramco). He served as president and chief executive officer from 1995 through 2008. Jum'ah also served on Saudi Aramco’s Board of Directors and on the Saudi Arabian Supreme Council of Petroleum and Mineral Affairs, chaired by the chaired by the Custodian of the Two Holy Mosques, King Abdullah Bin Abdulaziz Al Saud.
 
Jum'ah was born in al-Khobar in Saudi Arabia’s Eastern Province. He studied political science at the American University in Cairo and at the American University of Beirut, and later completed the Harvard Business School Program for Management Development at Harvard University in Cambridge, Massachusetts. His career in Saudi Aramco began in 1968. He was elected Aramco vice president of Power Systems in 1981, and was named senior vice president and later executive vice president of International Operations. In 1995, he was named president and chief executive officer. After taking the helm of Saudi Aramco, Jum'ah led the expansion of its downstream and gas businesses and continued transforming the company into a fully integrated international oil and gas enterprise. 
 
In 2003, Jum'ah was identified by Fortune magazine as one of the most influential business people in the world, and in January 2005, he was appointed energy community leader by the World Economic Forum. Jum'ah was selected as winner of the prestigious Petroleum Executive of the Year Award for 2005. In April 2007, he was awarded an honorary doctorate by Hankuk University in Seoul, Korea.

Jum'ah currently serves on various boards and advisory committees in the fields of energy, business, economic development, higher education and corporate social responsibility, both in the Kingdom and around the world.