Saudi Aramco CEO, Khalid Al Falih, has revealed his plans to further ramp up E&P investment over the next five years
The global oil and gas industry has experienced major changes that have shaped the global energy picture over the last few years. This shift has been experienced in four strategic areas which Al Falih, described at the Oxford Energy Summit, as “sweeping new realities” to which Saudi Aramco will shape its new strategies.
he first of these changes is the falling demand for energy, particularly for oil and fossil fuels. “Before the world was rocked by the financial crisis of 2008, there had been an expectation of rapid and sustained growth in energy and oil demand,” said Al Falih.
“In just four years, that perception has been significantly altered.” Global economic growth is not expected to return to pre-crisis levels for at least several years.
Life-style and demographic changes as well as environmental and governmental pressures have also shaped global demand for energy. Demand for more energy efficiency and concern about carbon emissions has lowered demand even further.
The U.S.A. has begun to pursue more aggressive fuel economy measures aiming to increase efficiency of light vehicles from 30 miles/gallon to around 55 miles/gallon by 2025.
Demand this year is only expected to increase by 850 thousand barrels per day, less than 1% growth, where as growth averaged more than 2.3% between 1965 and 2010. Over 20% of this incremental demand is due to the gap left by Japan’s nuclear power outages.
In addition to falling demand, Al Falih stated that the supply of oil and gas is no longer in question, highlighting the fact that there is an abundance of both.
Proven global oil reserves have increased by more than 200 billion barrels. The equivalent of discovering another Kuwait and UAE combined.
Natural gas supplies have grown, proven reserves are at more than 7,300 trillion cubic feet, enough for 64 years globally at current consumption levels.
Total conventional and unconventional resources are believed to be over 28,000 trillion cubic feet, enough for 250 years at current consumption rates.
The American National Petroleum council has indicated that an estimated 180 billion barrels of tight oil could be recovered with existing technologies; “that amount would climb to more than one trillion barrels, if oil shale acreage reaches its full potential,” said Al Falih.
Al Falih also noted another trend; the decline in investments for renewable energy.
“Global investment in green energy plunged to $25 billion in the first three months of this year, the lowest since the global financial crisis,” he said.
Lack of confidence from European investors and cheaper gas in the US are limiting growth opportunities for the renewables industry.
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He agreed that renewable energy sources do hold long-term potential; technological improvements have led to falling costs.
But argued that there was a lot of misleading hype about how quickly they could make an impact.
“As a result there have been a lot of disappointments,” he said while pointing out the political and economic challenges which face renewable-energy technologies and as well as the difficulties in adapting them to existing energy infrastructures.
Finally, he argued that the global economic crisis has shifted attention away from international environmental policy as indebted governments turn towards austerity measures.
“We only have to look at the disappointment of Copenhagen; the uncertain future of Kyoto; and the failure to implement the Bali Plan of Action, to conclude that targets such as the IEA’s 450 parts per million CO2 scenario which called for the use of fossil fuels to peak before 2020 have become almost impossible to attain.”
While Al Falih remained confident stating that these three changes were not indicative of a struggling industry, or even an impending price collapse, he did suggest that these new realities underscored how uncertain the energy industry actually is.
In order to deal with these changes, Al Falih announced that Saudi Aramco will pursue its Accelerated Transformation Program which aims to: reshape its portfolio; develop its technological and human resource capabilities; revamp corporate systems to become more performance-focused and become a catalyst for economic growth in Saudi Arabia.
Aramco will first preserve its spare oil production capacity in order to maintain oil market stability and it will continue to strengthen its existing oil business to meet the rising call for oil production. “We plan to invest $35 billion over the next five years in crude oil exploration and development in order to keep our oil production portfolio robust,” said Al Falih.
Aramco also plans to increase its conventional and unconventional gas supplies by almost 250% over the coming couple decades.
The company will also expand its portfolio by pursuing related integration across conventional and unconventional areas. In particular it will expand its global refining capacity in order to increase the total worldwide capacity of its wholly and partly owned refineries to eight million barrels per day, making it the largest of any company in the world.
Aramco will also seek to build a petrochemicals business by integrating it with existing refineries and infrastructures.
Aramco is also evaluating the potential of Saudi Arabia’s unconventional gas supply as well as its solar energy capacity.
The Kingdom’s open desert spaces experience roughly 3,000 hours of sunshine each year, emitting about 7,000 watts of energy per square meter, among the highest in the world.
In addition to expanding its portfolio, Aramco plans to develop its technological capacity.
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The company will develop oil discovery and recovery abilities, develop advanced fuel formulations, master carbon capture and maximize the potential of nanotechnologies.
The recent formation of Saudi Aramco Energy ventures, a subsidiary designed to invest in start-up technology companies is expected to generate greater value through innovative technologies in “a wide range of areas from upstream and downstream oil and gas to energy efficiency and water,” he revealed.
Aramco will also develop its long-term human capital to ensure that it can protect itself against computer virus attacks like the one it experienced last month. Developing its human resources will also require reshaping its corporate systems, changing planning processes and ‘busting bureaucracy’.
Developing Saudi Aramco and economic growth throughout Saudi Arabia will go hand-in-hand. The company aims to become a catalyst for economic growth in the Kingdom through creating a globally competitive and vibrant energy sector.
This will be accomplished through raising educational standards and developing a knowledge base for the younger generations, this will also include reducing the national level of energy intensity by creating a more efficient country.
By growing and integrating chemicals with world-sale refining operations, Aramco aims to build a world-leading chemicals business that can create new industries in the future. “Many of these will be conversion industries located in industrial parks adjacent to our refining-petrochemicals manufacturing complexes, producing semi-finished and finished value added products,” says Al Falih.
The strategy will include spending at least $500 million each year on chemicals-related technology to create a company of around 20-30,000 employees. The project will also allow Saudi companies to enter the $1 trillion dollar global petrochemical industry.
If research into unconventional gas proves to be successful, then liquid fuels could be replaced by more efficient natural gasses for power generation.
On top of its business development goals, Saudi Aramco reaffirmed its commitment towards affordable energy through responsible business, environmental consciousness, and safety.
