Is the sky falling on the oil industry? Ali Al-Naimi is confident the current plummet in prices is just a “blip.”
“The short term is here to stay,” said Al-Naimi, the 81-year-old minister of Petroleum & Mineral Resources for Saudi Arabia, at an opening address of IHS CERAWeek in Houston on Tuesday. “We will always have these blips.”
Al-Naimi’s confidence that the oil industry will recover is based on arithmetic, not hope. He told the IHS CERAWeek audience that world demand for oil will continue to grow. He cited estimates by the International Energy Agency and others that demand will grow by an average of 1.2 million barrels per day through 2021.
“The fact is that demand was, and remains, strong. You can argue over small percentage falls or rises, but the bottom line is that the world demands, and gets, more than 90 million barrels per day of oil,” said Al-Naimi. “Long-term, this will increase. So I have no concerns about demand, and that’s why I welcome new, additional supplies, including shale oil.”
Al-Naimi said a freeze on oil production that Saudi Arabia is advocating will over time result in supply and demand balancing, and support a rise in oil prices. He also emphasized the role of market economics in rightsizing oil production.
“Producers must find a way to lower costs, borrow cash or liquidate,” Al-Naimi said. “It sounds harsh and unfortunately it is but it is a more efficient way to rebalance markets. Cutting low cost production to subsidize higher cost supplies only delays an inevitable reckoning.”
Asked about Saudi Arabia’s interest in shale oil by IHS Co-Chair Daniel Yergin, Al-Naimi said the nation was “doing its homework” and had found sources of both shale oil and gas. However, he said no production was occurring because conventional oil production was more economical.
Al-Naimi said Saudi Arabia was producing natural gas for domestic use but not for export. The country currently produces 12.5 billion cubic feet of natural gas annually and expects to produce 25 billion cubic feet by 2025.
Al-Naimi offered a spirited defense of the oil industry to the IHS CERAWeek audience. Rather than being a “dark force,” he said, “fossil fuels are good. And they are needed. They are an abundant natural resource. Over the past 250 years they have transformed our economies and our societies. Their mass production has resulted in mass consumption. They create and sustain economic growth and prosperity.”
The problem the world faces is not fossil fuels, but harmful emissions that they produce when consumed, Al-Naimi argued. He said the answer was to develop technologies that would minimize and eradicate these emissions.
He noted that Saudi Arabia now injects 800,000 tons of CO2 into the ground each day. He said that would increase in the future. He said other technology answers include using CO2 to create polymers and higher efficiency engines.
Al-Naimi attended the COP21 climate meeting in Paris in January(?) and called the meeting a success. While he said Saudi Arabia recognizes the threat posed by climate change, he said it was misguided to think the answer was to leave fossil fuels in the ground. He said it was inconceivable that renewables could meet the world’s growing thirst for energy.
However, Al-Naimi said he saw great potential for solar and wind power to provide a growing share of the world’s power.
“Solar is going to be the answer in the future,” the oil minister predicted.