Aramco chief: We must strike an energy balance

“Then, I would like to look at the complex interplay of those two imperatives, and the ways in which we at Saudi Aramco seek to achieve a sustainable balance between them.

Allow me to begin by focusing on access to energy. As we gather here in one of the most advanced and most affluent nations on the planet, we run the risk of unintentionally reducing energy accessibility to an abstract problem rather than something which shapes the lives of real human beings. It’s worth remembering that today some two billion people have no access to modern forms of energy, while another two billion can only enjoy limited access.

Aside from the considerable human toll of energy poverty, there are also dire environmental impacts, particularly the deforestation and pollution resulting from the burning of crude forms of  biomass.

Certainly none of us would begrudge the extension of greater prosperity to these disadvantaged individuals and families, and in fact hundreds of millions have in recent decades enjoyed prosperity that was once unimaginable, but which has been enabled by modern energy.

However, these more affluent and more energy intensive lifestyles mean global demand for energy will expand steadily, and when you consider that our planet’s population is set to grow by roughly yet another two billion people by the middle of this century, it’s clear that demographics will also contribute significantly to the growth of our energy needs.

Consequently, we will have to meet the world’s increased energy needs, and must do so in the most responsible manner.
So how do we best address the challenge of ready access to affordable energy?

The short answer is that the world will continue to rely on traditional fossil fuels for most of its energy needs for the coming decades. In fact, these energy sources – namely coal, oil and natural gas – are expected to account for about four out of every five units of energy that mankind will consume for the foreseeable future.

In addition, even though the share of fossil fuels in the energy mix may decline over the longer term, the absolute quantities of energy from these sources will continue to rise simply because total energy demand is set to expand so significantly.
At the same time, alternative sources of energy should grow—and indeed must grow—in order to play their part in meeting that rising demand.

Certainly we should encourage the development of both renewables and more energy efficient end-use technologies, though we need to avoid the temptation of market-skewing cross-subsidies among fuel sources.

However, the growth of such sources is likely to be slow and uneven due to a range of daunting technological, economic, environmental, infrastructure and consumer acceptance issues, and given that the scalability of these energy sources remains a major challenge.

Furthermore, we need to make a complete and rational assessment of alternatives, including their realistic deployment rates, the comparative economics of various energy sources and technologies, and their total environmental impact.
For example, prospects for many biofuels have been dimmed by rising food prices, high carbon emissions over their life-cycle, and ethical concerns over using land, water and energy to grow crops for fuel rather than food.

The high cost and intermittent nature of wind and solar means they must be part of a broader and more stable system utilizing conventional energy sources, and when it comes to nuclear, there are lingering concerns regarding plant safety and the safe disposal of spent fuel. Similarly, plug-in hybrid and electric vehicles must still overcome issues related to battery charging time and driving range, initial vehicle cost, and the need to draw their electricity from environmentally sound and sustainable sources.

It’s no good driving a zero-emissions electric car if the juice for the batteries comes from an outdated, inefficient, coal-fired power plant somewhere over the horizon, which simply increases emissions and transfers them from vehicle tailpipes to power plant smokestacks.

We must also consider the roughly one billion motor vehicles currently on the road, as well as the massive existing industrial, commercial and residential equipment and facilities based on proven petroleum technologies, meaning that even when alternatives do become viable, it will take a long time to displace this existing base.

Furthermore, the devil is often in the details: If we look at just transportation, electric propulsion systems are being envisaged for light passenger vehicles. But heavier vehicles like buses, trucks, trains, planes and ships—which account for a significant proportion of the energy used for transportation and whose energy demand is set to grow faster than light vehicles, have no such prospects on the horizon.

Let me summarize my view of the access side of the energy equation by reiterating three simple conclusions: One, for the foreseeable future the world will continue to rely primarily the same conventional energy sources that have generated an unprecedented century of progress and prosperity. Two, the contribution of alternatives will grow but only gradually. And three, the role of alternatives in various energy sectors is likely to expand unevenly: More and faster in electric power generation but slower overall in transportation.

That means that even as we pursue promising new alternatives—as we should—we must continue to invest in efforts to both increase access to hydrocarbons and improve their performance, given their predominant role in the foreseeable future.

This brings me to the issue of acceptability, and what i consider to be our industry’s “public permit” to operate as petroleum enterprises. Let me first look at environmental considerations.

From my perspective, there are significant opportunities to make petroleum more environmentally friendly, including cleaner burning fuel formulations, carbon capture and sequestration, and a host of other advanced technologies that are still in their infancy—and I believe it is incumbent on our industry to do its utmost to realise those enhancements.

Aramco’s Approach

Just as it is irresponsible to tackle issues related to energy supply without assessing their potential safety risks or impact on the natural environment, we must also evaluate the viability and ultimate benefits of environmental protection measures in light of the increasing global need for energy. Balancing access and acceptability is something we have taken to heart at Saudi Aramco.

In terms of enhancing access to energy, our oil reserves of about 260 billion barrels represent roughly a fifth of the world’s proven reserves, and at our current production rate, these reserves are enough for more than 80 years of production.
Yet we expect that over time those reserves will grow by an additional 40 percent, and are working to raise the rate of recovery from our major oil fields to 70 percent, or twice the world-wide average.

On the gas side, our existing proven gas reserves of 276 trillion cubic feet are the fifth largest in the world, and growing. In fact, over the last five years we’ve added more than 45 trillion cubic feet of gas to our reserve base, even as our natural gas production increased.

Furthermore, our future gas exploration programs target growing those reserves from deep offshore, sour gas, shale gas and tight gas reservoirs in addition to conventional onshore gas.

All of those efforts ensure that we will continue to provide vital petroleum energy to the world for generations to come.
In terms of providing oil to the market today, and in keeping with the Kingdom’s policy, we maintain large surplus production capacity at considerable cost to us.

This surplus capacity, which currently approaches four million barrels per day, has helped assure market stability, providing additional supplies whenever unforeseen events such as natural disasters or manmade strife and conflicts have struck.

Furthermore, we are making large investments in expanding our refining capacity, and are also integrating world-class petrochemical facilities with some of our major refineries.

In fact, over the next five years we are undertaking perhaps the most ambitious capital program in the petroleum industry, with the lion’s share of those funds directed to the gas and downstream oil sectors.

Our capital program is designed to allow us to continue to play our role vigorously and responsibly in furthering the supply of vital hydrocarbons to the world, and I am confident the positive impact of these massive investments will continue to be felt for many decades.

But as I noted, at Saudi Aramco we are also heavily engaged in addressing acceptability issues, including environmental stewardship.

To that end, we have been steadily boosting our environmental investments, and capital funding for our Environmental Master Plan has risen to nearly five billion dollars today.

As part of this plan, we are concentrating on producing cleaner fuels from our refineries, and enhancing the protection of our land, air and water resources, aside from our research into cleaner fuels and advanced engines, the reinjection of well cuttings, and gas flare recovery. We’re also devoting hundreds of millions of dollars to a CO2 enhanced oil recovery demonstration project, which boosts oil production by injecting into the reservoir CO2 that otherwise would have been emitted into the atmosphere.

Thus the technology not only protects the environment through carbon capture, but also boosts access to energy by enhancing ultimate recovery rates from oil reservoirs. These are the kind of win-win solutions we like to pursue, and which will enhance our industry’s ability to supply energy to future generations, reliably and responsibly.

In addition, we have placed operational excellence at the top of our corporate agenda, and although we are very proud of our safety record, we are determined to make Saudi Aramco the global leader in industrial safety.

That longstanding commitment to performance, coupled with our massive infrastructure and technology investments and our surplus production capacity, helps address issues of acceptability in the holistic framework I outlined earlier—including the stability of global petroleum markets and a range of concerns related to energy security perceptions. Allow me to close by saying that the best way to achieve a truly sustainable balance between accessibility and acceptability in all their complexity is to engage in a frank and constructive dialogue among all stakeholders.

Only by working together can we better understand the complex issues in play; trace the alternative energy paths the world has available for the future; assess the real potential of these alternatives over time; concurrently examine both environmental and economic imperatives; and finally, recognise the various interests at stake in both the developing and developed worlds.

The World Energy Council plays a vital role in furthering that dialogue, and I applaud its continued efforts to bring energy issues to the forefront of the public agenda worldwide.

At the end of the day, we must each act decisively in the short term while also considering the long-term implications of those actions, and do our level best to attain an optimal balance between access and acceptance which achieves the best possible results for the greatest number of people.