Your Highnesses, Excellencies, ladies and gentlemen: good morning. It is a pleasure to join you today—and I would like to thank Randy for both his kind invitation and his thorough introduction. Once every three years our industry comes together for one of its most important gatherings, the World Petroleum Congress, and it is a privilege for me to address this international audience here in Doha, one of the great energy capitals of the world.
I am particularly glad to speak to you now, when we are on the cusp of what I believe will be a new renaissance for petroleum. This belief, as I recently outlined, emanates from four new sweeping realities that are reshaping the world of energy, especially petroleum.
· First, an increasing abundance of oil and gas supplies serving to deflate “peak oil” and energy security concerns;
· Second, the faltering pace of various alternative energy sources, including renewables and nuclear;
· Third, new economic realities, leaving neither the resources nor the resolve to make massive investments in idealistic but unrealistic energy programs;
· And fourth, a shift in environmental priorities, including the fact that climate change has been superseded on the global agenda by the need for economic recovery, job creation, and fiscal discipline.
As a result, we now have a confluence of factors which I hope will position the petroleum industry for a new era of success. Rather than the supply scarcity which many predicted, we have adequate oil and gas supplies, due in large part to the contributions of unconventional resources. That also means the world now has even more time for the gradual but meaningful development of renewables, and for them to overcome technical, economic, environmental and consumer acceptance obstacles by competing on a level playing field.
Ladies and gentlemen, these sweeping realities and the new era they herald are important not just for our industry, but for the entire global economy and societies the world over. That’s because petroleum powers all kinds of economic activity, from transportation and services to chemicals, agriculture and manufacturing; it enables economic and social development for communities; and it fuels the more affluent lifestyles which the world’s ever-increasing population will continue to demand. In fact, it’s fair to say that without petroleum, nothing ticks!
But when I speak about a “renaissance” for our industry, I’m not talking about another decade of boom where we spend more and make more. Rather, I am referring to an era in which we fulfill our commitments to humanity by helping to elevate and sustain the quality of life across the globe, including meeting our obligations to the natural environment. To me, that is the higher purpose we serve through the energy we provide.
And let me caution that while many of the conditions for a new “golden age” are in place, there is nothing inevitable about the long term business success of our companies unless we ensure the greater prosperity for the stakeholders we serve. Although our industry has accomplished much, and while we can take pride in our achievements, we will have to work hard to get things right. So today, I would like to describe a set of four key tenets that can guide us on our way to a renaissance for oil and gas, while helping to fulfill the higher purpose of our industry.
The first of those tenets is what I refer to as our “staying power”: the adoption of a long-term approach to business, grounded by both realism and resilience. In other words, it is what an athlete might term “stamina.”
To develop adequate and reliable energy resources, we must weather the inevitable short-term cross-winds and the ups and downs of the market while holding fast to our strategic assessments and core convictions. Such stamina is essential if we are to meet the expectations of our customers for increasing petroleum supplies, even as the industry as a whole moves to more difficult and more expensive frontiers. I’ll be the first to acknowledge that adhering to that long-term view isn’t easy when the financial markets demand short-term results—and yet I believe it is critical if we are to bring this new golden age to fruition. Let me elaborate.
As you know, it takes a long time to develop petroleum projects in increasingly harsh, complex and demanding environments. The typical upstream project cycle in our industry, from leasing to exploration and then to production, is in the range of 10 to 15 years. Combine this long cycle time with the traditional volatility of the oil market, consider the increasing scope and scale of many projects, and add in how many other factors can change over a decade and a half, and it is clear our business is not for the faint of heart. And while stamina and resilience may not matter to the sprinter, they are absolutely essential to the marathon runner.
To drive home this point, allow me to cite one example from among Saudi Aramco’s own portfolio of megaprojects.
Our Manifa project, at 900,000 barrels per day of capacity, is one of the largest heavy crude oil increments ever undertaken. Furthermore, the field’s geography—in shallow waters in the fragile ecology of the Arabian Gulf—requires unique, environmentally-friendly access solutions involving a novel causeway design linking drilling islands to shore. When we made the investment decision on Manifa in 2007, oil prices were above 70 dollars per barrel and demand prospects were looking strong. But right after fixed-price contracts were awarded, the global economic crisis turned everything upside down.
Crude prices slumped to below 35 dollars, demand projections fell, and yet project costs did not proportionally decrease, clouding the outlook for the investment. At that point we were sitting on some four million barrels per day of spare capacity—even without Manifa—and many suggested we terminate our contracts and build later, once demand rebounded. But most of our contractors were already suffering due to the recession, and had we cancelled the program they would have had to lay off a substantial number of personnel. Aside from undermining the bonds of partnership we enjoy with our contractors, the loss of capacity and capability among some of our most valued service providers would clearly have negative ramifications for our future projects.
So instead of simply scratching Manifa—which might have made sense when viewed only in the short-term—we undertook a thorough joint review of the program with our contractors. That resulted in an intelligent and economic redesign of the project and its schedule, such as continuing work on surface facilities but stretching out the drilling campaign. We thus extended selected segments of the program by two years and saved more than two billion dollars in the process. It was difficult, but we stayed with Manifa despite the economic winds blowing around us, and the project is on schedule for a 2013 start-up.
Our downstream investment program, involving a number of world-scale refining and petrochemical investments in the Kingdom and abroad with a total cost of around 90 billion dollars, is no different. Although refining margins have been under pressure, we believe that in time these refineries will be both competitive and profitable, as well as essential to meet the market’s rising need for high-quality fuels and petrochemical products.
Our hosts here in Qatar are also familiar with gyrating markets—this time with integrated natural gas investments. To its credit, Qatar has stayed the course with its development plans in spite of depressed prices and a changed outlook. This decision to press ahead reflects Qatar’s long-term assessment of healthy demand for clean natural gas—and today LNG prices are recovering due to surging demand for energy in developing Asia. Qatar is now poised to reap the benefits from its exports—underscoring the virtues of stamina.
My second tenet centers on technology.
As we all know, the industry has come a long way from its earliest days. Upstream, the advent of seismic technology—especially 3-D seismic—has transformed exploration. In development the industry moved from shallow onshore wells to offshore, then deep offshore and now the Arctic. Likewise, we’ve progressed from vertical shafts to horizontal and multilateral drilling, and on again to intelligent well completions. Chemicals based on petroleum have helped to make our lives more comfortable, more convenient, and healthier and safer than ever before. In the area of environmental protection, emissions of conventional pollutants from automobiles have been reduced by more than 95 percent since 1970. Ladies and gentlemen, as impressive as all of this may sound, I believe we’ve still only scratched the surface.
In fact, it is my strong conviction that the potential of technology is limited solely by the confines of our own imagination, and our willingness to commit resources to research and technology development. Much of the new upstream and downstream processing technologies will come from within the industry. But in terms of end-use solutions such as improving the efficiency of petroleum, there are major untapped opportunities on both the “software” and “hardware,” or equipment, sides of the equation. For example, in transportation both oil companies and manufacturers of road vehicles, aircraft, ships and locomotives could and indeed should collaborate. I invite these various hardware manufacturers to come work with us on enhancing the performance of petroleum in their products, in ways that would be both economically and environmentally beneficial.
In my view, we also need to go beyond incremental improvements and look for big, game-changing ideas with the potential to revolutionize our business. More than a century ago, great inventions such as the diesel engine and the application of seismic technology in petroleum exploration were made. The onus is now on us to create our own disruptive technologies. This can be done by going back to basic research—including work in fundamental sciences like physics, chemistry and biology—as well as applied R&D to make dramatic advances that will enable us to really push the envelope of petroleum technology and unlock its future potential. But we need to face the reality that our industry lags behind when it comes to R&D spending, and we need to do a lot more in this critical area.
Saudi Aramco’s belief in technological advancement is reflected in our recently articulated strategic intent for technology, which calls for the company to transform into one of the world’s leading energy technology companies during the coming decade. We will back this intent with an expanded commitment of world-class R&D resources, both human and financial. The technology domains on which we will focus encompass the entire value chain of petroleum, with special emphasis on groundbreaking research. We are working on such futuristic initiatives as our proprietary Res-Bot technology, which involves intelligent nano-sensors providing direct and real-time data on reservoir properties; highly advanced and efficient reservoir simulation of massive systems; the use of super-critical water for desulfurization of oil; the management of carbon from mobile sources; and game-changing research into transportation fuels for the future. Here again, staying power and stamina are critical, and they serve as the foundation of all our R&D endeavors.
My friends, the third tenet for an optimal future for petroleum is people. As you know, the oil business is facing a major generational shift—what has been termed the “Great Crew Change”—as many of the most experienced engineers, technicians and specialized personnel reach retirement and a new crop of young professionals joins our ranks. There is both challenge and opportunity in this generational shift: the challenge of transferring hard-won expertise to a new generation, and the opportunity of capitalizing on the different and exciting skill sets, expectations, and worldview of this rising generation of young men and women.
And as always, values and ethics must be the foundation of our industry’s approach to people, so that our standards of integrity, reliability and discipline are preserved, while overlaying them with an organizational culture that enables top performance and encourages innovative and entrepreneurial thinking. That means moving away from the old command-and-control model typically found in the oil patch, and embracing quick decision-making and operational agility; greater empowerment coupled with increased accountability; and cross-disciplinary teams which transcend traditional organizational lines.
At our company, we are putting in place systems and structures which allow us to tap the energy and ideas of young professionals while also communicating the fundamental principles of our organizational culture—a process I have described as getting young people ready for the company, while getting the company ready for this young generation. To that end, we recently established a Young Leaders Advisory Board—or “Y-LAB” for short—to advise senior leadership on the views that younger employees have of our transformation journey, and to sample their ideas and insights.
My fourth tenet today is responsibility, by which I mean starting with our widely accepted precept of protecting the natural environment but then extending the responsibility framework to include our societal obligations, the combination I have usually referred to as true sustainability.
The oil industry as a whole has committed itself to a responsible approach to business, which begins with producing and consuming petroleum in a sustainable manner consistent with our societal license to operate. Because oil and gas will continue to play a dominant role on the world’s energy scene for generations to come, it is imperative that we work even harder to minimize the environmental footprint of petroleum—especially its carbon emissions.
I’m glad that the industry has given special attention to the environmental aspects of petroleum production and its end-use. But the responsibility concept I’m addressing is much broader, and I am somewhat disappointed that the “annual sustainability reports” issued by some leading global corporations are largely limited to their environmental activities. In my view, our industry’s approach to responsibility should include deeper and broader engagement in the societies and economies we serve—and that applies equally to national oil companies and multinationals alike.
On the societal front, our strategic engagement must include helping local economies grow and diversify, and thus create well-paying jobs, by adding value to the commodities we produce through the leverage of competitive advantages like ready access to abundant resources, a young labor force, ample infrastructure, rising domestic demand, and favorable financial conditions. Our societal agenda should also include the promotion and procurement of local goods and services whenever possible. In addition, forward-looking petroleum companies should provide meaningful training to their local employees, transfer technology, share expertise and best practices, and undertake research and development locally.
At the same time, petroleum producers need to extend support to local educational institutions to raise educational standards, particularly in technical fields. Having young people well-versed in the so-called “STEM” disciplines—science, technology, engineering and mathematics—will be critical both for our own industry’s human resource pipeline in the years and decades ahead and for the lasting development of many host nations. Over time, such programs can greatly enhance the innovation and entrepreneurial ecosystems in developing economies, helping them to be more competitive in the global arena and diversify away from an overdependence on commodities.
When viewed in this larger context, it becomes clear that the tenet of responsibility is not a matter of nice-to-have, nice-to-do charitable activities, but rather of initiatives which provide real returns for the enterprise: they are driven not just by benevolence, but by good business sense. Nor should these programs be seen as a distraction from the commercial dimensions of our businesses or from operational excellence. Rather, “responsibility” entails a concurrent focus on efficient and cost-effective petroleum activities, targeted strategic investment in local economies and communities, and environmental stewardship.
Ladies and gentlemen, these four tenets—stamina, technology, people and responsibility—represent enormous and complex challenges for our industry, and in fact I believe they are too big for us to tackle on our own. If our industry continues to labor just in its own field, working in isolation from other relevant actors and players, then valuable lessons, best practices, innovative technologies and exciting synergies will be wasted.
What we need instead is what I would term “cross-boundary collaboration,” by which I mean pooling resources, sharing ideas, and teaming with companies, institutions and agencies outside the oil and gas business. Such collaboration is not totally new: we analyze rocks using computer tomography developed by health care companies, prospect with satellite imaging pioneered by the defense and aerospace industries, and harness massive computational power built by the IT sector. But how many of those tools and technologies were developed purposely in direct response to our own demand?
Furthermore, there is a whole universe of possibilities when it comes to the other tenets I have outlined: a long-term approach to business, developing people, and meeting our commitments to society and the environment. So our collaborative agenda should extend beyond technical issues and encompass so-called “soft” issues such as education and knowledge, social and broad economic development, and of course care for the natural world. That means expanding cooperation beyond business and industry, and working with government agencies and regulatory authorities, academia, and of course non-governmental organizations.
Frankly speaking, we have much to learn but also much to share with other sectors, and I believe that given the nuances of the human experience and the complexity of our modern societies and economies, solutions to pressing issues are best developed by utilizing multiple perspectives and bodies of knowledge. Because in the end, the most daunting challenges we face are not merely problems for our industry, but rather challenges for humanity as a whole.
Ladies and gentlemen, to summarize, I believe all of the elements necessary for a new golden age of petroleum are present—and despite the many challenges ahead, it’s an exciting and even exhilarating time to be in the oil business. But to make the most of these conditions, we need to demonstrate stamina over the long haul; make strategic investments in research and technology; create an environment which enables our people to excel; and work responsibly to support society and protect the planet. We must do this while committing ourselves to a level of cooperation and collaboration that goes beyond the confines of our industry, and creates meaningful solutions and dynamic synergies.
Then and only then will we reverse the widespread but misguided view of oil companies as profit-hungry, environmentally irresponsible and dismissive of society’s concerns. Instead, people will come to realize that our industry is at the forefront of securing greater prosperity for humankind, and that petroleum is an indispensable element in helping people realize their aspirations for a brighter future.
My friends, the degree to which we succeed in meeting those challenges will not only shape our industry’s fortunes, but will help to determine the condition of our fellow human beings for many decades to come. To me, that is our higher purpose as energy providers: enabling prosperity while powering possibilities.
Thank you, ladies and gentlemen, for your attention today.