The oil and gas industry is becoming much more interconnected and moving towards "mutual interdependence," according to Sharaf Salamah, president of Saudi Refining Inc.
The keynote speaker late last month at the National Petrochemical & Refiners Association's annual meeting, Salamah addressed three primary topics: energy security and oil imports, long-term prospects for US refining and petrochemicals, and Saudi Arabia's oil policy.
Salamah said that a country's dependence on imports has a historically negative connotation and has been described as "dependency" and "vulnerability."
He said, "This conventional perception of energy security seems to be changing and for the right reasons. Energy and its imports can serve as a unifying force, as long as consumers and producers work together to make energy available to all on a long-term basis at equitable prices."
Interdependence
Salamah cited the status of natural gas in Europe as an example of interdependence by design.
"Europe is a crucial economic market for major suppliers of gas: Russia and Algeria," he said. "While Europe is dependent on gas imports, the exporters are strongly dependent on export revenues. A better description of European (gas) imports from Russia and Algeria would be 'mutual dependency' rather than import vulnerability."
The US oil situation parallels the natural gas situation in Europe. While the US holds about 2% of the world's proven oil reserves, imports account for about 56% of its crude oil supply.
"The US is one of the most important economic markets for oil exporters and, in fact, the producers are more dependent on export revenue that the US is on oil imports," Salamah said. "There is a strong mutual interdependency, which underpins the security of supply."
Long-term energy issues should be viewed in the context of an integrated national policy framework, Salamah said.
"The energy debate points to two alternative directions," he said. "One leads to open and free markets, growth in trade, international economic integration, mutual self interest, stability, and a general move toward globalization. The other points to an almost opposite direction, emphasizing self-sufficiency with minimal consideration for economic optimality."
According to Salamah, the first direction is clearly in line with US interests.
The refining and petrochemical industries thus have "a long and bright future," because alternative fuels are not expected to garner much of the market share for energy demand in the next 20 years.
According to US Energy Information Administration estimates, fossil fuels will account for 87% of energy demand by 2025, Salamah noted.
Saudi policy
Saudi Arabia's oil policy "rests on two main pillars: maintaining market stability in support of the world economy and encouraging equitable oil prices to support the Saudi economy."
"In response to the market situation," Salamah said, "(the Organization of Petroleum Exporting Countries) just last month increased oil supplies by 1.5 million b/d. Saudi Arabia played a major roleUin achieving this substantial supply increase."
Salamah reiterated, on behalf of the Saudi government, his country's commitment to continue to stabilize world crude markets.
"Saudi Arabia currently maintains almost 2 million b/d of surplus production capacity at a large expense to the kingdom," he said.
"Saudi Arabia has also made concerted efforts to minimize price volatility in the market," he added. "However, this task is becoming increasingly difficult owing to significantly reduced flexibility in the global oil system. This has resulted from reduced inventories at various levels, inadequate investments in infrastructure leading to system bottlenecks, and reduced downstream investments doe to insufficient profit margins."
He said that the US and Saudi Arabia share similar goals of moderate and equitable oil prices. Too-high prices lead to economic concerns and too-low prices lead to negative impacts on global investments.
"We consider the US to be our most important market in the world and remain committed to its needs," he said.
Salamah sees a bright future for the US oil industry. "I trust that this future will be assured by a pragmatic direction of US energy policies, emphasizing free markets, mutual interdependence, and global economic integration, which are in the US's as well as the world's long-term interest."
