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

This story was updated Feb. 24.

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 see higher oil prices return.

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 as low as $2/bbl and as high as $147/bbl. “I have even survived peak oil,” he joked, saying that he still has a t-shirt in his wardrobe that says so.

When oil was fetching $100/bbl, Al-Naimi said, the price “seemed reasonable.” At that price, he said, investment was unleashed into normally uneconomic areas such as the Arctic, the Canadian oil sands, and the deepwater. 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 already-large market share.

Oil markets, Al-Naimi said, will correct with the “minimum of meddling,” adding, “Let markets work.”

This latest downturn is no exception to this belief, he said. “This is not the 1980s. Each cycle comes with uncharted territory” and with “unwelcome 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. It also wants to maintain its level of spare capacity and will jump in during any type of crisis to meet the world’s demand. “We are not seeking [to expand] market share,” he reinforced.

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 great focus after he attended the COP21 meeting 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 belief that fossil fuels are harmful and should simply be left in the ground is not fair and not right. "I am the oil minister of Saudi Arabia, but I am also a realist and pragmatic.” Fossil fuels are good, abundant, and necessary, he said. Over 120 years, fossil fuels have transformed the world. The problem is not fossil fuels themselves, but the emissions caused when burning them, he said. The solution lies not in leaving these resources in the ground, he says, but to continue developing the technology to minimize emissions.

He said Saudi Arabia also is a strong supporter of renewables like wind and solar, but believes it is “inconceivable” that renewables will fill the demand gap any time soon.

“We should not be apologizing and ignoring the campaign to keep fossil fuels in the ground hoping that it will go away,” he said.

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 next month, he said, to get more producing countries to agree to the freeze.

Contact Steven Poruban at [email protected].