Saudi, US officials pledge response to tight oil markets

May 18, 2005
Saudi Arabian and US government officials expressed their determination May 17 to respond to tight oil markets that have pushed prices above $50/bbl.

Nick Snow
Washington Correspondent

WASHINGTON, DC, May 18 -- Saudi Arabian and US government officials expressed their determination May 17 to respond to tight oil markets that have pushed prices above $50/bbl. But they emphasized that their countries wouldn't be able to solve the problem by themselves.

"Let me assure you that Saudi Arabia is responding to the challenges we face in today's oil market," said Ali I. al-Naimi, Saudi minister of petroleum and mineral resources.

Efforts include offering additional crude oil as needed, expanding production capacity to meet future demand and maintain spare capacity, building refineries while expanding existing plants domestically and abroad, upgrading the Saudi tanker fleet, and investing in new technology, he said.

Achieving stable oil prices and balanced markets requires a global effort, Naimi told a Washington conference sponsored by Saudi Aramco, Chevron Corp., and the Center for Strategic and International Studies (CSIS).

"I want to emphasize that the problem is not a lack of resources. Remaining world oil reserves are abundant," he declared. "Rather, the current impediments include, for example, the proliferation of product specifications, a myriad of regulations, infrastructure bottlenecks, and a lack of accurate and timely data needed to improve market transparency."

Worldwide oil demand grew by 2.5 million b/d in 2004 alone, noted US Energy Sec. Samuel W. Bodman, who appeared with Naimi.

"High oil prices are affecting consumers across the board. Tight oil markets also reveal the need to expand infrastructure," he said.

Price effects
Bodman also said there is still a substantial amount of oil in the world.

"Much of the challenge involves its location in countries that are wrestling with their future," he said. "Many oil experts say it will take another 7-10 years, but I believe high oil prices will help stimulate supply and dampen demand."

While the administration of US President George W. Bush is not happy that the US has more than 30 different motor fuel specifications, he emphasized it would not impose additional federal regulations because of their possible unintended consequences.

"We will continue working with states to get them to reverse many of these specifications," Bodman said.

James Schlesinger, who became the first US energy secretary nearly 30 years ago, observed that the present oil crisis, "if it is a crisis," is the first that resulted not from political actions or upheaval but from "steadily increasing demand pressing against supply."

He questioned Bodman's assertion that high oil prices would stimulate development of new fields outside countries that currently are the world's production leaders.

"At $50/bbl, countries may be less interested in bringing in outside capital than at $20/bbl," Schlesinger said. "Part of the problem is their desire to retain more domestic control over their resources."

Noting that he was leaving for Russia in a few days, Bodman said, "These countries have had trouble attracting investment because their rules keep changing. In my judgment, they would be better off by attracting more investment from international oil companies. That is the message I intend to deliver."

Investment concerns
David J. O'Reilly, Chevron's chairman and chief executive, disputed the idea that publicly traded, multinational oil companies are not aggressively investing in resource development.

"We have a $50 billion program in our company alone. Much of it is outside the United States because opportunities here are limited. But we are committed to finding and producing more oil and gas," he said.

Tight markets won't loosen overnight by companies' simply spending more money on exploration and production, he maintained.

"There is investment. But there also is lag time," O'Reilly said, noting that projects can take 7-10 years to move from approval to initial production.

There is a role for national oil companies, suggested Luis E. Giusti, a former chief executive of Petroleos de Venezuela SA and now a CSIS senior advisor.

"International oil companies have to answer to their shareholders," he said. "A lot of the money that they have taken in with higher prices has gone to the shareholders because opportunities are limited."

Abdallah S. Jum'ah, Saudi Aramco's president and chief executive, disputed the notion that national oil companies will monopolize development opportunities.

"There are a lot of resources open to international oil companies," he declared. "The issue of access is more apparent that real."

Giusti, who headed PDVSA from 1994 through 1999, said Venezuela has about 78 billion bbl of reserves, 38 billion bbl of which is Orinoco heavy crude. Venezuelan production has fallen to about 2.6 million b/d due to lack of investment "and other things you have heard about," he went on. But he nevertheless expects the US to remain Venezuela's primary market.

So does O'Reilly. "It makes sense because the refineries here are better suited to heavy oil," he said.

US, Saudi Arabia
The only indication that there might be problems between the US and Saudi Arabia came from Jum'ah, who cited toughened US security precautions and their effects on visas since the terrorist attacks of Sept. 11, 2001.

"The US has provided us with a lot of education. I have at least 4,000 people on my workforce who went to school here. But today, that link has weakened," he said.

The Saudi Aramco chief said he recognizes US concerns over security. But he also has at least 400 employees who are students in other parts of the world now who he would rather have getting their education in the US.

"This issue is extremely important. That link has been weakened in the last 4 years," he said.

Contact Nick Snow at [email protected].