Remarks by Amin H. Nasser, Saudi Aramco President & CEO
Your Excellencies, Distinguished Guests, Ladies and Gentlemen, good morning, and Günaydin.
Let me thank the World Petroleum Council for inviting me to address this premier gathering of the oil and gas industry in one of the world’s great cities.
Like many of you, I was here in Istanbul last October for the World Energy Congress.
There was widespread agreement that even as the world transitions to alternatives, the petroleum industry will continue to be at the heart of the global energy mix for the foreseeable future.
But for oil and gas to maintain that role, while continuing to ensure global energy security, there are several realities that need to be considered in any broad-based energy strategy.
So today I would like to elaborate on those realities, and how we are responding to them at Saudi Aramco.
To begin with, if our history is any guide, there can be little debate that the energy transition already underway will be a long and complex process.
It took coal more than a century to partially displace biofuels and reach a share of 50%.
It took oil 80 years to do the same.
While natural gas has taken more than 80 years to reach just 25% of total energy consumption.
Looking at today’s energy mix, the expectations for alternatives are through the roof.
But while electric vehicles are making progress, the reality on the ground is that they make up less than two tenths of a percent of the 1.2 billion total vehicle fleet.
Even under the most aggressive 2 degrees climate change scenario, the International Energy Agency still does not see that share reaching 10% by 2030.
As for renewables, they are also gaining ground.
But their intermittent nature, and the need for large scale electricity storage and grid stability, are still major challenges.
And, in any case, they do not directly compete with oil.
In other words, history is repeating itself.
It still takes a long time for new fuels to seize market share from legacy fuels.
Furthermore, even when legacy fuels do begin to lose market share, history tells us that absolute demand for them continues to rise significantly for long periods of time.
Coal is a good example.
While its share peaked in the early 1900s and has now dropped to around 30% today, absolute demand for coal has risen by about 200 folds since then.
As well as the lessons from history, what we already know about the future will also have a massive impact on the transition.
Over the next quarter of century, we are going to see:
- A world economy more than double its size.
- About 2 billion more energy consumers.
- And the energy poverty that affects billions today, reduced if not eliminated by then, while living standards rise.
The implications are clear.
Though the level by which global energy demand grows could vary as the energy transition unfolds, there is no debating the growth itself.
So these are the realities that we face.
An energy transition that is likely to be just as long (and certainly more complex) than any we have previously experienced.
A long period when alternatives will not be ready to shoulder a major burden of supplying adequate and affordable clean energy.
And rising demand for all sources of energy – with oil and gas at the heart of the mix – will be the reality for decades to come.
(In)Adequate Oil Supplies
So far so good, but is the world paying enough attention to ensuring adequate energy supplies during the long transition?
There seems to be a growing belief that the world can prematurely disengage from proven and reliable energy sources like oil and gas, on the mistaken assumption that alternatives will be rapidly deployed.
If we look at the long-term situation of oil supplies, for example, the picture is becoming increasingly worrying.
About $1 trillion in investments have already been lost since the current downturn began.
We then have the growing oil demand I just mentioned and the natural decline of developed oil fields.
Even conservative estimates suggest about 20 million barrels per day needs to be offset over the next five years to counter these two effects.
That is a lot of production capacity to be made up.
New discoveries are also on a major downward trend.
The volume of conventional oil discovered around the world over the past four years has more than halved compared with the previous four.
And none of this is being helped by misleading narratives about ‘peak oil demandʼ and ‘stranded resources’.
As a result, financial investors are shying away from making much needed large investments in oil exploration, long-term development, and the related infrastructure.
Investments in smaller increments such as shale oil will just not cut it.
Yet without those higher investment levels, the energy transition (and therefore energy security) may be fatally compromised.
Saudi Aramco’s Strategy
Of course, raising investment levels is not the only game in town.
The continuing market volatility is a powerful reminder that we must transform our own business model to build the resilience and discipline that will see us through the transition.
At Saudi Aramco, we are working hard in three interrelated areas.
First, when it comes to ensuring that adequate and affordable supplies of oil and gas are available throughout the transition, we are continuing to make the required long-term investments.
We plan to invest more than $300 billion over the coming decade to reinforce our preeminent position in oil, maintain our spare oil production capacity, and pursue a large exploration and production program centering on conventional and unconventional gas resources.
Second, a key lesson of the downturn is that strong financial capacity is essential to our ability to get through such periods and make those long-term investments.
We are focusing on our underlying cost structure, because greater efficiency and cost competitiveness – without compromising on safety or the environment – is mission critical for everyone.
We also firmly believe that integration can strengthen our portfolio resilience, as our refining and chemicals strategies attest.
Third, we must leverage the power of innovation and technology to make the use of oil and gas ultra clean and minimize emissions, as part of the Kingdom’s commitment to the Paris Agreement.
For example, doubling our production of natural gas to 23BSCFD over the coming decade will raise the share of gas in the Kingdom’s utilities to about 70% – the highest of any G20 nation.
We are also working with auto manufacturers to develop ultra clean engine-fuels systems of the future.
And we have partnered with many of the oil and gas companies here today to promote low emissions technologies.
In particular, the Oil and Gas Climate Initiative, OGCI, is investing $1 billion to develop and accelerate the commercial deployment of those technologies.
Elsewhere, we are paying special attention to advancing Carbon Capture, Utilization, and Storage technologies which have the potential to turn legacy fuels into zero-emission fuels.
And we are promoting the non-combustible uses of oil, which reduce greenhouse gas emissions from oil in a major way.
It is why we are prioritizing the direct conversion of crude oil into petrochemicals.
But we are not just focusing on conventional energy sources.
With economic diversification and future energy transformation in mind, the Kingdom’s Vision 2030 sees Saudi Arabia becoming nothing less than a solar powerhouse.
The Kingdom has already launched a phased program to build an initial renewables capacity of 9½GW by 2023, and Saudi Aramco will play an increasing role in achieving this critical goal.
Ladies and Gentlemen, like Istanbul, we can be proud of our history.
But we must also follow its example and write a new history for our industry if we are to succeed in energy transformation while effectively managing transition.
Industry leaders and policy makers must develop an aligned and compelling narrative that will attract the level of investments we need.
Part of that will be transforming our own business model to ensure that oil and gas are not just proven and reliable energy sources, but are as clean and affordable as possible.
Another part will be helping new energy sources to overcome the obstacles they face.
All without compromising the world’s energy security.
In other words, the roles of legacy fuels and evolving alternative energy sources need optimal shaping.
If, together, we can shape them, I believe a re-aligned, re-energized, and re-focused petroleum industry can drive global development for generations more to come.
Thank you, and Teşekkür ederim.