Remarks by Mr. Amin Nasser, President & CEO, Saudi Aramco
Thank you, Your Excellency Nordine Ait-Laoussine for that kind introduction.
Ladies and Gentlemen, good morning, and bonjour tout le monde
I am grateful to the organizers – particularly our friends at IFPEN – for inviting me to join this premier gathering of the oil industry. And it is a pleasure to be sharing this session with my good friend Patrick.
I think Saudi Aramco and Total’s special relationship is NOC-IOC cooperation in action, and something we can explore during the Q&A.
The last time I spoke at this event was in 2004. Back then, people were talking about the end of the petroleum industry, driven by the concept of ‘Peak Oil Supply’. 13 years later we face supply abundance!
Instead, today we hear about ‘Stranded Resources’, and ‘Peak Oil’ now refers to demand. I believe these concepts are equally misleading, and I want to focus instead on the real challenges we face.
Before I do, let me say a few words about the oil market.
The current oil market sentiment and volatility is shaped by a wide range of short-term factors. Weekly changes in U.S. rig counts and production levels; bumps in inventories; the financial markets; the futures market; the shapes of forward curves; and a range of daily analysis and opinion all contribute significantly to price formation.
But they also obscure the fundamentals, including crucial longer-term factors, and I will return to this later. The good news is that the market is moving toward rebalancing. For example, we now see occasional inventory bouncing instead of the consistent upward trend witnessed previously. There has also been a rapid drawdown of floating storage during the first quarter of this year. This returning confidence is being driven by improving fundamentals, and accelerated by the production agreement reached last year.
As a result, I expect the market to continue improving.
Looking further ahead, the signs are even more encouraging.
The global economy is forecast to double in size by 2050, while roughly two billion additional people will need access to affordable energy. So overall demand for energy will be substantially higher than today. And this higher demand will only be met by using all energy sources. Because despite the progress being made, alternatives still face multiple challenges, and we should all anticipate a long and complex energy transition.
The conclusion is clear: oil demand will continue to grow… in absolute terms… at fairly healthy levels… for the foreseeable future.
It is why I believe ‘Peak Oil Demand’ is not in sight for at least the next few decades, and why the notion of ‘Stranded Resources’ is not one I recognize.
The problem is, these assertions conceal the real challenges we face. Let me pull back the curtain a little today…
To begin with, perhaps the key lesson from our industry’s entire history is that bumps in the road are inevitable. Building broader resilience is therefore essential, and I believe five areas deserve the most urgent attention.
The first challenge is long-term investment.
As I just mentioned, all energy sources will be required to meet the increasing global demand for energy, especially oil and gas. In fact, an estimated 30 million barrels per day of oil production capacity needs to be developed over just the next five years.
But short-termism and volatility, combined with premature expectations of a rapid energy transition, is fueling uncertainty and misleading markets and investors. And incremental, short-term, and lower capital investment projects are just not going to cut it.
So while the short-term market points to an oil surplus, the supplies required for the years ahead are falling behind substantially because the vast, long-term investments in proven and reliable energy sources are not being made. This presents a grave and growing threat to world energy security.
Second, is the specific challenge of cost.
With price levels half of what they were before the downturn, the legacy cost structures are no longer sustainable, particularly as costs are starting to rise with increased activity. So all of us must work toward transformational cost efficiency that makes our businesses more profitable even in weak market conditions.
Third, I wanted to single out cost, but it is only part of the wider challenge of relentlessly questioning the basic building blocks of how we conduct our business.
At a recent Upstream conference, we called it E&P 2.0, as the status quo is unsustainable. But it covers everything – from business models and competiveness to continued revenue growth that generates adequate returns for shareholders, without compromising on safety or the environment.
The fourth challenge is climate change.
Following the historic signing of the Paris Agreement – which Saudi Arabia ratified last year – Saudi Aramco is playing a key role in supporting the Kingdom’s contributions. For example, doubling our gas production will increase the share of clean gas in the Kingdom’s utilities to almost 70%, which will be the highest of any G20 nation.
We will also help to transform the Kingdom into a global solar powerhouse, which has an initial target of almost 10 GW by 2023. And industry peers like Saudi Aramco and Total are coming together in the Oil and Gas Climate Initiative, or OGCI, backed by a 1 billion dollar investment in developing innovative low emissions technologies.
The fifth challenge is making real technological breakthroughs to deliver clean, sustainable energy over the long-term.
That includes technology that will minimize the greenhouse gas of oil and gas while the energy transition unfolds. In fact, Saudi Aramco’s 11 global research and technology centers and offices – including one here in Paris with IFPEN – powerfully demonstrate our belief in that long-term mission.
In partnership with European automakers, we are developing and demonstrating highly-efficient engine technologies like Gasoline Compression Ignition to reduce the transport sector’s greenhouse gas intensity.
Ladies and Gentlemen, when we look beyond short-term factors and misplaced notions, I see the oil market pointing upward and expect it to continue improving.
That does not mean everything is rosy.
We need to be far more resilient, which means fundamentally transforming the way we conduct our business while reducing the greenhouse gas footprint of oil. But if we can meet these challenges head-on, the stage is set for oil to remain a crucial part of the global energy mix for a long time to come.
And I hope that positive message will ring loud and clear in investors’ ears, as our industry rises to the challenge once more.
Thank you, and merci.