The price of oil at $100/barrel seemed “reasonable” and would not deter economic growth in Asia Ali Naimi, Saudi Arabian oil minister said Monday while reiterating the kingdom’s commitment to maintaining spare oil production capacity for the sake of market stability.
“Over the past 15 years, it is clear that oil prices have fluctuated more than at any time in history,” Naimi told the Credit Suisse Asia Pacific conference in Hong Kong.
“My first speech in Asia as minister was in Singapore in 1996. Oil was just over $20 per barrel and I told the audience that the price, at the time, seemed ‘reasonable.’ Four years later, I spoke at the Institute of Energy Economics in Japan and the price was around $27 per barrel. I told the audience that, at that time, the price also seemed reasonable.
“Today, it’s up around $100 — and guess what? Yes, it seems reasonable,” he added. “That said, I’m sure current levels will not deter further economic growth in Asia,” Naimi continued, noting that Saudi Arabian oil exports to the Asian market had grown by 50% since 1997.
Oil exports by the OPEC kingpin to China alone had gone from zero to 1 million b/d, he said, adding that Saudi Arabia had also entered into joint ventures in South Korea, Japan, the Philippines and China, a reference to downstream and storage agreements concluded by Saudi Aramco in recent years.
Naimi also sought to dispel what he said were myths over such issues as Saudi Arabia’s oil production capacity, the potential impact on its future oil exports from high domestic consumption and the belief that Riyadh needs a certain price level to maintain public spending.
“In essence, this price point is as much to do with the global economy than any national government,” Naimi said, according to a transcript provided by the oil ministry in Riyadh. “If the price crashes to $40/barrel, God forbid, this has a major impact on us, of course, but it also hits the global economy.”
He added: “Our central interest lays in global economic growth increasing, regardless of the price. To think we sit around dreaming up ways to keep the price at a certain level to fund domestic projects is fanciful.
“Our current level of infrastructure spending will not rise exponentially. The reality is that our economic growth, and the economic growth of the wider Middle East, depends on the health of the global economy.
“The bottom line is this: the prospects for the energy industry are stronger now than in any time in recent history. Wildly fluctuating prices may be good for a few traders, but it is not good for long-term economic stability and growth.”
As for Saudi energy demand, Naimi said Riyadh was diversifying its sources of energy, investing in gas and renewable and adopting efficiency measures.
“Current levels of oil consumption growth are temporary. Our position as long-term, reliable suppliers of oil to Asia, and the world, is not in doubt.” He reiterated Saudi Arabia’s commitment to maintaining spare oil output capacity and said questions as to the existence of this spare capacity were not justified.
Furthermore, he added, new technology was unlocking new conventional and unconventional oil and gas reserves while extending the life of conventional resources.
“Fracking in the US, offshore drilling in Brazil, increasing progress in the Arctic — these new reserves mean the harbingers of doom have been replaced by the prophets of plenty,” Naimi said.
“I believe new commercial reserves such as shale oil, are good news for the global economy, which relies on an increasing variety of energy sources to help power growth. I also hope this increased global capacity will ensure even greater stability for markets and prices,” he added.
“So it is not a question of whether Saudi Arabia has the spare capacity, but whether we need to spend billions maintaining it all. The answer is, of course, that we maintain a spare capacity to ensure oil market stability and to see that growing global economies are well supplied. We know it plays a pivotal role in protecting the world’s economic health and it is a responsibility we have faithfully and reliably discharged over several decades.”
Turning to what he said were certainties ahead, Naimi said that continued economic growth and transformation in Asia, which had not been impacted by the US financial crash of 2008, was not in doubt, noting new leadership across the region, a policy of economic prudence and fiscal management.
“This transformation will, of course, require energy to drive it. Again, I repeat my commitment: Saudi Arabia will continue to be a long-term energy partner within Asia,” Naimi said.
Saudi Arabia, the world’s biggest oil exporter, produced 9.2 million b/d of crude oil in February, according to the latest Platts survey of OPEC’s production. The kingdom puts official oil production capacity at 12.5 million b/d.