Calling for an “inclusive energy strategy,” the Saudi Arabia minister of petroleum and mineral resources listed factors of price volatility among “newly emerging challenges” facing the oil and gas industry.
At a Cambridge Energy Research Associates conference in Houston, Ali I. Al-Naimi said those challenges include globalized capital markets, emergence of energy as an asset class, and climate change.
Governments hoping to stabilize markets have been slow to respond to the new speed, scope, and complexity of capital markets, Al-Naimi said.
At the same time, investors’ strategies for oil have become increasingly sophisticated and oriented to trading against other commodities and hedging against the value of the dollar.
“There is no doubt in my mind that increased speculative interest in oil contributed to the extreme price volatility of the past few years,” Al-Naimi said.
“Market psychology” exaggerated last summer’s oil-price surge and is exaggerating the current price slump, he said.
Al-Naimi said climate change will more profoundly redefine the role of governments and governmental intervention in energy markets than will the economic crisis.
He called on the oil industry to lead efforts to improve energy efficiency and “provide consumers with a wide range of affordable, cleaner energy choices.”
He said an oil price high enough to encourage production from marginal oil fields, unconventional resources, and renewable energy sources is one of four conditions of a stable oil market.
Oil prices also should be low enough to facilitate economic growth and high enough to provide returns to producers that allow for timely investment and to encourage consumers to use oil efficiently.
Al-Naimi described an “inclusive energy strategy” as one that recognizes risks and uncertainties, emphasizes cost-effective solutions, and “does not presuppose where we will find the solutions to the challenges we face.”
Policy should be robust and flexible, he said. “We can only do this by separating what is theoretically possible from what is realistic and by examining the real economic costs and benefits of various policy approaches.”
