By
'Abd Allah al-Jum'ah
SAUDI
ARABIA/GENERAL
The
Future of Global Energy: Uncertainty Surrounding Global Energy
Issues and Policies, And Its Impact on Future Supply
Expansion
Energy
is an essential driver of the world’s economic
health and social well-being, and in some shape or form, energy
touches the daily life of each and every individual on the
planet. Today, though, we are meeting amid considerable uncertainty
in the energy and petroleum markets, as well as the global
economy.
Over the past year, oil prices have been buffeted by the combination
of relatively healthy demand, concerns for supply interruptions,
stretched refining capacity, world and regional events, and
a continued debate about the role of financial speculation
in oil price volatility. More recently, the effects of the
sub-prime debt problem have rippled through global markets,
risking global economic growth and creating uncertainty for
the oil market in general, and oil demand in particular. If
these uncertainties were not enough, volatility among key world
currencies has confused the situation further.
It is against
this backdrop that we take a look at the issue of energy
security that is on so many minds—and legitimately
so, in my view, given the criticality of energy to our modern
way of life, and to our hopes and aspirations for the future.
To achieve
the goal of energy security, the world currently employs
a variety of what I’ll call conventional strategies,
such as beefing up the security of the world’s energy
infrastructure; stockpiling oil; pursuing source diversification;
and boosting the degree to which alternatives contribute to
energy supplies, etc. Let me first say that these strategies
make positive contributions to enhancing supply security and
should be continued. However, in my view, they offer only part
of the answer. The remainder of the solution requires us to
look at these concerns from a different perspective, and also
consider the underlying causes that give rise to these supply
security issues in the first place. As any Texas cowpuncher
will tell you, the best way to clear brush is to remove it
root and branch, not just trim the leaves!
Geology Rather Than Geopolitics
That is to say, if we could proactively address the fundamental
causes of our energy security challenges, many of the most
pressing concerns would diminish in intensity and relevance,
and in some cases would dissipate altogether. If we are indeed
serious about developing more effective and more enduring energy
security solutions for the long term, then surely we should
be targeting the root causes of our supply concerns rather
than simply battling with their various manifestations like
the many heads of the Hydra.
Imagine, for a moment, that the primary causes of conflict
and tension in the key production areas of Latin America, the
Middle East, Central Asia and Africa were effectively addressed,
and that stability and tranquility were to prevail in those
regions. Clearly, many of our present supply concerns would
be alleviated to a great extent, and those of us in the oil
business could focus on geology rather than geopolitics, and
get back to analyzing seismic data rather than worrying about
security arrangements.
Now I’ll be the first to admit that it would be naïve
to assume that the many complex issues afflicting energy-rich
nations of the world will disappear overnight, or that lambs
and lions are going to lie down together anytime soon. Successfully
resolving these problems will not be easy, but precisely because
any progress on such issues would be so significant to achieving
meaningful energy security, I believe these efforts deserve
the world’s sustained attention, even as we continue
our work along more traditional avenues of energy security.
Of course,
such a position assumes that there are plentiful energy resources
available to the world, and in particular
that there are abundant reserves of oil that remain to be produced.
Not everyone would agree with that assumption, and in recent
years the so-called peak oil theory has been the subject of
a good deal of popular attention and speculation. Back in November,
I addressed the issue of oil resources at the World Energy
Forum in Rome, and argued that, for the purposes of the peak
oil discussion, it is essential to consider the planet’s
total endowment of liquid fuels. In other words, we have to
look at both conventional oil and such non-conventional resources
as condensate, natural gas liquids, extra heavy oil, bitumen
and tar sands, oil shales – and even coal-to-liquids,
gas-to-liquids, and bio-fuels. That’s because the fuels
and feedstocks produced from each of these sources serve the
same end-use segments, ranging from transportation, industrial
and power generation, to domestic and commercial needs, and
the manufacture of petrochemicals.
Even if
we leave aside the potential of coal-to-liquids, gas-to-liquids
and bio-fuels, the world’s total in-place endowment of
conventional oil and non-conventional fuels ranges between
13 and 16 trillion barrels. To put that number in perspective,
to date the world has consumed roughly 1.1 trillion barrels,
or 7-9% of the in-place endowment. Of course, we also need
to consider the even more critical question of how much of
this endowment can actually be recovered and converted into
supplies, and at what pace and at what cost.
Recoverable Resources
According to analysts, the range of recoverable resources
from both conventional and unconventional liquids lies between
3 and 6 trillion barrels, depending on the economics of development,
improvements in technology, recovery factors to be achieved,
environmental considerations, government policies, and of course
regional and global political trends. At Saudi Aramco, we believe
the low figure of 3 trillion barrels represents an ultraconservative
set of assumptions, and will be substantially exceeded in most
scenarios. Here, the contribution of non-conventional resources
and their development pace will ultimately depend on how badly
the world needs this energy, and how much effort is expended
to create a structural environment which enables greater development
and higher recoveries. Frankly, though, I see no reason why
we cannot improve the recovery rates of both conventional and
unconventional liquid resources, tapping that precious energy
at an appropriate pace of development and supply.
Without a doubt, though, we will need to work together if
we are to move our recovery figure to the higher end of the
scale, and in my view, such an effort should be based on four
key elements. To begin with, there is the potential for substantially
improving oil field recovery rates through new tools and techniques,
and second we can grow reserves in known fields by delineating
additional oil and gas pockets, building on our existing and
evolving knowledge of these reservoirs, and concentrating on
new concepts such as resources in oil field transition zones
and residual oil zones.
To give
you an example of increased recoveries through the use of
cutting edge technologies – such as extended reach
wells, intelligent completions and geo-steering – combined
with better reservoir description, improved monitoring and
reservoir management strategies emphasizing longer-term field
performance, at Saudi Aramco we are starting to raise recoveries
in some fields to the level of 70% of original oil-in-place.
In fact, I have challenged our professionals to set that recovery
level as the target for as many of our oil fields as possible.
Third,
there is also tremendous potential to find significant yet-to-be-discovered
oil by applying emerging technologies
and extending the search to new frontier areas. Finally, we
should tap the vast potential of non-conventional resources,
where the principal challenges are not finding these resources,
but overcoming a variety of technological, environmental and
economic hurdles associated with their production and processing
into useful supplies. The special challenges facing higher,
economic recoveries from the unconventional heavy oil and oil
shale resources include the need for cutting-edge R&D and
development of ground-breaking technologies, plus the allocation
of necessary gas and water resources, besides other issues.
Energy Use Efficiency
Coupled
with those four efforts should be initiatives to improve
the efficiency of energy use and conservation, complementing
energy supplies in order to satisfy the anticipated growth
in worldwide demand. If such collaborative efforts are undertaken
against a backdrop of healthy oil prices – which improve
the economics of previously marginal plays, technical concepts
and geological provinces, besides encouraging more efficient
use of precious energy supplies – I believe that our
ability to meet energy demand growth will be greatly strengthened.
Of course,
that’s the upside. If, on the other hand,
conventional and non-conventional oil resources fall victim
to well-intentioned but ultimately flawed or confusing energy
policies, then the necessary investment of time, toil and treasure
may not materialize, and a significant proportion of these
precious resources might not be recovered. In other words,
just because together we can do something doesn’t mean
we will, and many of the factors that will promote or hinder
increased recovery of oil resources lie beyond the control
of the petroleum industry itself – making collective
determination and cooperative action essential for our energy
future.
Permit
me now to share my thoughts on three issues that impact the
overall supply security equation, but also deserve special
consideration given my topic of uncertainty surrounding energy
issues and policies. The first of these is the role of alternative
sources of energy, and alternative technologies to replace
or rather complement fossil fuels. To begin with, as the world’s
population continues to rise and living standards continue
to improve, the world’s energy requirements will continue
to grow apace. That means that with time we will need to draw
upon a variety of energy sources, including alternatives, to
help meet demand. However, around the world, there are also
some expectations for an unrealistically rapid pace for the
development of such resources. If we look at the forecasts
made both by the US Department of Energy and the International
Energy Agency, we see that fossil fuels will continue to dominate
global energy supplies for the foreseeable future. In fact,
both bodies predict that the share of fossil fuels will remain
in the range of 82-to -87% by the year 2030.
Yet a number of well-intentioned strategies call for a much
more aggressive displacement of fossil fuels, despite major
technological, economic, infrastructure and public acceptance
hurdles remaining in the way of achieving such targets. That
has led to considerable confusion over what is realistic when
it comes to alternatives, and what the future call on alternatives
and conventional sources will actually be. Such uncertainty
clearly also has negative implications for the vast investments
required to expand supplies of fossil fuels.
In my opinion
the world simply cannot afford to leave massive quantities
of oil, gas and coal in the ground and move precipitously
to unproven alternatives, while still hoping to satisfy future
growth in global energy demand. At Saudi Aramco, we’re
putting that belief into action, and I would like to reiterate
the role that Saudi Arabia plays in supplying energy to the
world, and the commitment that Saudi Aramco is making to the
future with its ongoing investment program and plans.
Expansion Plans On Course
Despite
the wide range of uncertainties I’ve noted,
including confusion and uncertainty over energy policies; continuing
worldwide shortages of manpower, materials and services; as
well as rising costs; we have stayed the course with our investment
plans for oil production capacity expansion and a variety of
related initiatives that will help increase the world’s
energy supply capacity. Over the next five years, we plan to
invest some $90bn in our upstream and downstream projects in
Saudi Arabia and around the world. As part of that project
portfolio, the oil production increments we currently have
in progress total about 3mn b/d. Some of this capacity will
be utilized to offset natural decline of oil fields while the
rest will be employed to expand our production capacity from
about 11mn b/d presently to 12mn b/d next year.
At
the same time, on the downstream side, as our global refining
investments materialize, our worldwide refining capacity will
almost double from 3mn b/d presently to about 6mn b/d, which
should help alleviate the tightness in global refining capacity.
In fact, just up the road our Motiva joint venture is expanding
its refinery at Port Arthur by 325,000 b/d to 600,000 b/d,
making it the largest refinery in the United States and one
of the largest in the world. This expansion will bolster energy
security in the US by strengthening the supply of gasoline,
diesel, aviation fuels and high quality base oils. Our plans
to integrate world-class petrochemical facilities with our
refineries at Rabigh and Ras Tanura also continue to make good
progress.
After all is said and done, such tangible investments and
continued commitment to harnessing proven sources of energy
are the key to strengthening energy security amid growing demand.
However, market confusion and uncertainty about the future
energy mix make such investment decisions more difficult than
they should be, instead of reinforcing our ability to meet
future energy demand in a responsible, responsive manner.
Environmental Protection
Of course,
any energy deliberation would be incomplete without discussing
the issue of environmental protection and particularly
reducing greenhouse gas emissions – the second special-interest
topic I would like to address today. These are clearly important
and pressing imperatives, though the methods by which they
can be achieved while minimizing damage to the world’s
economies and societies – particularly in developing
countries – remain divisive. Given the world’s
concerns over greenhouse gas emissions, global warming, and
their potential consequences, this issue deserves our most
serious attention. Let me also be clear that as a practical
matter, we cannot afford to abandon fossil fuels and still
deliver the volume of energy needed to sustain the world’s
economic and social development, to alleviate global poverty,
and enable countless men, women and children to live more prosperous,
healthier, safer and more dynamic lives. Alternatives are simply
not ready to shoulder the load, nor will they be in a position
to do so anytime soon, given the time and effort needed for
them to make a more substantial contribution to the world’s
energy supplies.
So, how
do we resolve this dilemma of protecting the environment
while at the same time meeting the world’s growing
appetite for energy? My sense is that the world community
needs to reach
a consensus on this issue and clearly articulate a future path,
so that we can work together. How do we get there? My own recommendation
would be fourfold:
1. Agree that we should continue to develop fossil energy
resources while making their utilization cleaner and more efficient;
2. Craft a consensus on energy strategies that devote sufficient
attention to the rational development of alternative sources
of energy and technologies, so that the level of their contributions
can be increased at a realistic pace;
3. Enhance the efficiency of energy use and conservation to
the greatest extent possible; and
4. Emphasize a range of both natural and technological solutions
to carbon sequestration based on their economics and practicality.
I strongly believe that there is vast unrealized potential
when it comes to applying futuristic technological solutions
to carbon sequestration, and the world may have just scratched
the surface on this issue.
Such an energy and environmental roadmap clearly requires
the commitment of a wide range of actors ranging across industrial
and economic sectors, policymaking bodies, and geographic regions.
At the same time, assembling such a vast and varied coalition
requires genuine commitment, a pragmatic and practical mindset,
and an agreement that we should quit working at cross purposes
in pursuit of disparate agendas.
Chinese And Indian Demand
Finally,
I want to weigh in on the debate about the degree to which
increasing Chinese and Indian demand is affecting
energy price volatility, and how these growing economies should
be effectively integrated into the global energy system. Of
course, rising demand for energy is a natural consequence of
expanding economic activities and rising living standards in
both India and China. It is equally clear that an increasing
share of China and India’s petroleum and natural gas
inputs must be obtained from beyond their own borders. But
rather than rushing to sound the alarm about this demand growth,
we’re better served by acknowledging the legitimacy of
these nations’ energy needs; recognizing that this demand
must be met on a par with the needs of other global economies;
and realizing that the global energy system is robust enough
to accommodate this escalating demand.
We should
also understand that continued engagement with these two
rising economic giants is the best way to shape their energy
outlook and policies, and to help ensure that the world’s
energy resources are utilized in the most effective and equitable
manner. Of course, as major energy consumers and increasingly
important economic players, both India and China should be
actively involved in the global energy debate, and be invited
to put forth their views and perspectives in order to increase
the effectiveness of our discussions. By doing so, and by pursuing
constructive cooperation rather than cut-throat competition,
we will be better positioned to handle these shifting patterns
of petroleum consumption and overall energy demand - and indeed
to meet the energy challenges which we face.
I strongly
believe that between conventional and unconventional liquid
fuels, the planet is sufficiently endowed with petroleum
resources to meet the world’s growing demand for many
decades to come. But I am deeply concerned that if the prevailing
confusion involving energy issues continues, and key players
scatter in different directions in trying to address those
issues based on varying agendas, there is considerable risk
that the necessary expansion of energy supplies would be significantly
compromised. If my company, and our industry as a whole, is
going to invest in and develop the right technologies, make
timely investments to expand oil and gas supplies, and continue
to provide a reliable supply of energy to the world, we will
need the proper enabling environment – including the
economic, technological, geopolitical, regulatory, policy and
environmental dimensions. But we also need the whole world
to arrive at greater clarity as to what it wants and realistically
can achieve in terms of a future energy mix; to achieve a greater
consensus among producers and consumers about the roles and
responsibilities of each in terms of realizing that mix; and
finally, to enhance the security of both supply and of demand
over the long term.
In the
end I’m confident that by adopting a more rational
approach to energy issues and the myriad factors which shape
them, and promoting a spirit of partnership and shared endeavor
among various stakeholders, the world can and will overcome
the energy, environmental and economic challenges that lie
ahead.
'Abd
Allah al-Jum'ah is Saudi Aramco President
and CEO. Petroleumworld does not necessarily
share these views.
