IHS CERAWeek: Al-Naimi 'optimistic' that world oil market will rebalance

March 7, 2016
Ali Al-Naimi, Saudi Arabia minister of petroleum and mineral resources, remains "optimistic" that the world oil market will rebalance supply with demand, and therefore usher in higher oil prices.

Ali Al-Naimi, Saudi Arabia minister of petroleum and mineral resources, remains "optimistic" that the world oil market will rebalance supply with demand, and therefore usher in higher oil prices.

Speaking to attendees at the opening ministerial address Feb. 23 at IHS CERAWeek in Houston, the 81-year-old Al-Naimi admitted he's experienced oil prices below $2/bbl and as high as $147/bbl, with much volatility in between. "I've even survived peak oil," he joked, saying "I think I have a t-shirt somewhere with that on it."

When oil was fetching $100/bbl, Al-Naimi said, the price "seemed reasonable" even though historically, the price was high. At that price, he said, investment was unleashed around the world into previously uneconomic oil fields such as in the Arctic, the Canadian oil sands, Venezuela's Orinoco tar sands, and deepwater frontiers. This led to the robust growth of supplies from both conventional and unconventional sources, he said.

What is different about this most recent and long-running, downturn, Al-Naimi said, is that oil prices had reached a high-enough level that "every barrel on earth was being produced regardless of economics." The solution, he said, is to get back to the marginal cost of development. "It will end. When-I don't know. But it will," he said of the downturn.

Saudi oil policy

The oil market, Al-Naimi said, is much bigger than just the production coming from the members of the Organization of Petroleum Exporting Countries. The fact is, he said, that oil demand was, and remains, strong. The world's daily demand of 90 million bbl should come from many sources of supply, including from shale plays. Al-Naimi adamantly denied that the kingdom has "declared war" on shale oil in the US and that it is simply trying to maintain its substantially large market share.

Oil markets, Al-Naimi said, will correct with the "minimum of meddling," adding that it is "a simple case of letting the market work."

This latest downturn is no exception to this belief, he said. "This is not the 1980s. We are dealing with a challenging market that is much more sophisticated and complex." He said, "Each cycle comes with uncharted territory, even as the global oil market has become more efficient and dynamic over the past several decades, it continues to deliver surprises."

Saudi Arabia's oil policy remains multifaceted, Al-Naimi said. First and foremost, he said, the kingdom remains committed to meeting the demand of its customers. "Second," he said, "we invest vast sums to retain our vital spare capacity to help meet additional demand or address global supply disruptions should the need arise." Third, he said, "we seek stable oil markets." And lastly, "we remain committed to supplying a large portion of the world's energy demands on purely commercial terms," reiterating, "We're not chasing a greater market share."

Focus on climate change

Addressing climate change, Al-Naimi said, is something that should unite world partners rather than divide them. This was something that came into sharp focus after he attended the United Nations COP21 climate negotiations in Paris in December, he said. "We recognize the threat posed by climate change."

Investing in technologies like carbon capture and storage and renewable energy resources like solar and wind remains paramount, Al-Naimi said. Saudi Arabia currently injects 800,000 tonnes/day of carbon dioxide into the ground, he said.

As for renewables, he sees solar as the answer for the future. He envisions the kingdom in the future being able to export the btu-equivalent of 7 million bo/d worth of solar.

But, he said, the widely accepted narrative that emerged from COP21 that fossil fuels are harmful and, ultimately, must be kept in the ground is not fair and not right.

He said, "Now, a disclaimer: I'm Saudi oil minister, yes, and I'm speaking to a room full of oil men and women, so of course I would say this. But I'm also a realist. And I am pragmatic." Fossil fuels are good, abundant, and necessary, he said. Over the past 250 years, fossil fuels have transformed the world's economies and its societies. The problem is not fossil fuels themselves, but the harmful emissions caused when burning coal, oil, and gas, he said. He says the solution lies not in leaving these resources in the ground, but to continue developing the technology to minimize and ultimately eradicate harmful emissions.

He said Saudi Arabia also is a strong supporter of renewables like wind and solar, but believes it is "inconceivable" that renewables alone will supply the growing population with the energy it will need in the decades ahead.

"We should not be apologizing. And we must not ignore the misguided campaign to 'keep it in the ground' and hope it will go away," he said.

Later, when asked about the recently announced plan proposed by Saudi Arabia and three other producing countries to freeze production at January rates (OGJ Online, Feb. 16, 2015), Al-Naimi said it is the beginning of the process to rebalance supply and demand. "Cutting production is not going to happen," he said. There will be another meeting in March, he said, to get more producing countries to agree to the freeze.

About the Author

Steven Poruban | Managing Editor-News

Steven Poruban was hired as staff writer for Oil & Gas Journal in October 1998. Two years later, he was promoted to senior staff writer. In October 2004, he was then promoted to senior editor. He now serves as managing editor-news.

Before working for OGJ, Steven was a reporter for Gas Daily and editor of Gas Transportation Report. He attended Boston University then transferred to and graduated from Ursinus College in Collegeville, Pa., with a BA in English in 1993.