Saudi Arabia’s state oil company is feeling the impact of lower prices, but does not plan to change its spending plans or production levels, its chief executive officer said on May 6.
“We were expecting to produce around 10 million b/d at this time and now are producing about 8 million b/d. We’re not seeing any imminent increase in production because we’re not seeing any imminent increase in demand, but we continue to invest along the petroleum value chain because we expect high demand to return,” said Khalid A. al-Falih.
“We’re somewhat concerned because other oil producing countries aren’t continuing to invest at the same time because prices are low. At the same time, however, lower prices encourage economic recovery,” he said during an appearance at the Center for Strategic and International Studies.
Al-Falih noted that Aramco will put in place another 12 million b/d of oil production capacity in a few more weeks when it completes its Khurais oil field program. Its goal is to raise proven reserves within Saudi Arabia to 900 billion bbl from 700 billion bbl and its average recovery rate from 50% to 70%. The additional production will be both light and heavy crudes, including one onshore-offshore field, which it expects to produce 900,000 b/d when it comes on stream, he said.
‘World looks to us’
“When there is underinvestment in other producing countries, the world looks to us. There are plenty of resources outside of the Kingdom and we believe they should be produced. We’re technically capable of producing much more, but the government will need to decide if we need to go much above 12 million b/d. We think the optimum would be to stretch our resources out for as long as we can,” Al-Falih said.
Aramco’s investments include developing an “intelligent” field to maximize recovery; futuristic devices such as “res-bots,” tiny robots inserted into reservoirs to continuously report conditions; carbon capture and storage; and prerefining crude desulfurization, he continued. “All of these efforts will reduce environmental impacts while building on our experience with proven technologies and practices in a worldwide market,” he said.
With current low prices discouraging investments already, Al-Falih warned that governments talking too much about incentives for research and developing alternatives would only increase uncertainty in capital markets. He said a more pragmatic approach would be to improve proven fuel sources, complemented by growing research and development on alternatives.
“I think it would be very risky to bet the farm on unproven new energy technologies. Continuing to use conventional energy resources does not mean continuing to do business as we have, however. Environmental issues must be addressed, starting with carbon,” he said.
Unrealistic targets
Al-Falih said he expects refining to change as biofuels are developed. “We don’t believe some biofuel targets are realistic, but some gasoline crack spreads have been affected. We believe new refining configurations will emphasize distillates. We also expect bunker fuels and heavier products to be phased out gradually. Over time, the industry will adjust,” he said.
Al-Falih said he believes it would be more appropriate for US policy-makers to talk less about energy independence and more about energy security. “We believe the US can increase its energy security by increasing its energy interdependence. That may seem like a contradiction, but the US already has diverse sources. I also believe it’s appropriate for the US to start developing alternative technologies now, but it needs to be prudent because conventional fuels still will be needed to meet growing demand,” he said.
“Within the foreseeable future, we’re not adjusting our investments based on any discussions in Washington. Other producing countries might, such as Canada with its oil sands. The US will also need to consider producing more of its domestic resources, although some of them are in parts of the country where oil is viewed as evil. That issue should be addressed because all of us here know that oil is not evil,” Al-Falih said.
He suggested that additional government regulation of financial markets may be necessary after crude oil prices spiked in 2008. “We’re in the minority on what happened, at least publicly. We felt the market was well-supplied. At the same time, we were on the phone literally begging our customers to take more barrels to reduce pressure on prices. We continue to believe that speculators drove the increase a perception that supplies were tight. We found this odd since we had so much spare inventories and production capacity,” he said.