World Energy Congress (WEC) Remarks by Amin H. Nasser, Saudi Aramco President & CEO
Your Excellencies, distinguished guests, ladies and Gentlemen, good morning, and Günaydin. Let me first thank the World Energy Council for asking me to address this prestigious global event. It is a privilege to be with you all today. I am also delighted to be sharing this session with my good friend and colleague, Bob Dudley.
I must say that Istanbul is an inspired choice of location for this Congress. Famous as the city where east and west meet, it is a perfect place to gather the full strength of the energy industry, and discuss the frontiers we must all embrace to deliver a secure, equitable, and sustainable energy future.
This morning, I would like to share Saudi Aramco’s perspective on our industry’s future, using three broad periods of time. Let me start with the environment we face today, which has never been more challenging and more dynamic.
As we all know, a lot has happened in the global oil markets since our last Congress in Korea three years ago. Back then, Brent crude was trading at around $110 a barrel; today it is not even half that price, and it even traded earlier this year at less than a quarter.
The oil and gas industry has been shaken by collapsed earnings, jobs losses, and business shutdowns. In fact, if the market weakness continues, we expect that around $1 trillion in marginal resources development may be delayed or canceled by the end of this decade.
And, potentially, there is an even graver consequence.
Just as the resilient global oil production we have been seeing over the past couple of years is underpinned by a decade of healthy investments, I am concerned that the capital deferrals we are currently witnessing will have the opposite effect over the next decade. If they do, I fear that global oil supply growth will fall behind demand over time. That would have a major impact on both oil prices and the global economy.
Having said this, as you know, the market is starting to recover, so let us hope things continue to improve. At Saudi Aramco, our response has always been to take a long-term and flexible approach. We have continued to invest prudently in our core oil and gas projects, and in the downstream and chemicals. Where we have deferred and stretched projects, these have mostly been in discretionary and support investments.
And we are continuing to maintain our spare production capacity to help respond to unforeseen events, and help minimize their potential impact on the global economy.By doing so, we are playing our part in enhancing the energy security of global consumers, like Turkey.
Looking next at the transition period as the world moves towards alternatives, the facts are clear. The world’s primary energy demand today is about 280 million barrels per day of oil equivalent. Roughly 80% of it is supplied by fossil fuels, and close to a third is met by oil. By 2040, that primary energy demand will rise from 280 million barrels per day of oil equivalent to 360 million. Yet it is anticipated that some 75% of it will still be met by fossil fuels.
What is more, although the share of fossil fuels in the global energy mix decreases by 2040, their demand in absolute terms still grows, rising from 230 million barrels per day of oil equivalent to 270 million. And for oil specifically, it is expected to rise from over 96 million barrels per day to about 104 million.
So the role of oil and gas in the global energy mix seems likely to remain significant for decades to come. Yet business as usual cannot be our future model.
Low oil prices do not change the fact that the current oil and gas resources, as well as new discoveries, are more challenging and more expensive to develop. Equally, today’s oil and gas fields are becoming increasingly mature and complex to operate. And although alternatives and renewables face hurdles, their role will steadily grow, as the world moves towards a new energy era driven by the Paris Agreement on climate change.
Ladies and gentlemen, let me be clear. Navigating this transition period will require a new roadmap – a real and holistic “Energy 2.0”, if you will. And the whole of our industry will need to develop and embrace this new business model.
Clearly, Energy 2.0 will encompass a wide range of issues, but I want to concentrate on three important and closely related components this morning.
First, we must continue making adequate and timely investments in the supply of oil and gas. That sounds like more of the same, but I am concerned that these longer-term investments might not be made, thanks to the combined effect of price uncertainty, and environmental, regulatory and social pressures.
However, at Saudi Aramco, our investments continue to be driven by our long-term focus.We plan to invest more than $300 billion over the coming decade to reinforce our preeminent position in oil, maintain our spare oil production capacity, and pursue a large exploration and production program centering on conventional and unconventional gas resources.
Second, the current environment has demonstrated that strong financial capacity is an essential component of greater resilience.
Without it, our industry will not be able to get past soft patches like the current downturn, and make those long-term investments. Another essential component of Energy 2.0 will be dramatically altering our underlying cost structure – even at Saudi Aramco where we enjoy the benefits of prolific oil and gas fields, and production costs that are among the lowest in the industry.
Greater efficiency and cost competitiveness – without compromising on safety or the environment – is mission critical for everyone, and it needs bold ideas. So, to create Energy 2.0 incremental improvements will not be enough; we will have to make transformational improvements.
The current market situation has also demonstrated that integration can strengthen portfolio resilience for companies whose situations favor downstream, and especially those who excel at it. That is why we have grown our global refining capacity at Saudi Aramco to more than 5 million barrels per day currently, and plan to raise it to 8-10 by 2030. Similarly, our share of chemicals production capacity, across our global operations, will grow from 12 million metric tons per year to 34 over the same period.
Third, we must make sufficient investment in innovation and technology to make the use of oil ultra clean, as well as overcome the challenges faced by alternatives.
At Saudi Aramco, our goal is to become a world leader in cutting-edge energy, chemicals, and clean fuels technologies that boost efficiency, reduce cost, and minimize emissions. So we are leveraging global talent and expertise through 11 research centers and technology offices, spread across three continents, coordinated by our research and technology headquarters.
We are also making use of strategic alliances and venture capital, including Saudi Aramco Energy Ventures, which invests in high-end, start-up tech companies that are working on some of the world’s most difficult, but exciting, energy challenges.
And technological advances will help us to raise the aggregate recovery factor of our major producing reservoirs to 70%, and increase our oil resources by 100 billion barrels to reach 900 billion.
We are already making real progress. For example, we are focused on solutions across the entire spectrum of carbon issues. Our work ranges from collaborative research with auto manufacturers on integrated engine-fuel systems of the future and Carbon Capture and Storage, to our pioneering work on turning CO2 into sustainable polymers and chemicals.
And I should mention how we are particularly excited about our crude to chemicals initiative, which aims to eliminate the entire refining step of the process. These examples show that when it comes to shaping the future energy landscape in a greenhouse gas-constrained world, our approach must be industry-led, technology-driven, and have real commercial applications.
So that is our Energy 2.0 roadmap for the transitional period. What about energy over the long-term, remembering that fossil fuels are still expected to supply about three-quarters of total primary energy demand in 2040?
To economically introduce alternative energy sources at scale, I believe we must focus on three critical aspects.
First, technology investments are required to overcome the existing technical and economic hurdles facing alternatives in general, and renewables in particular, leading to groundbreaking enhancements.
Second, we need to see a prudent deployment of alternatives where they gradually, but steadily, assume a greater share of the energy burden, without causing disruption and economic hardship.
Third, and just as important as the other two, will be our response to the growing fragmentation, nationalism, trade protectionism, and rising tide of anti-globalization sentiment around the world.
In light of these uncertain headwinds and their potential economic impact, retaining the insurance of proven energy sources until the contours and substance of the alternative energy future are assured, is surely the smart play.
For us at Saudi Aramco, we see a powerful mixture of increased energy efficiency, more gas, ultraclean oil fuels, advanced technologies, and certainly renewables, to be the long-term direction. On top of all this, Saudi Aramco is also playing its part in the Kingdom’s own long-term strategy.
The newly-launched Vision 2030 was discussed yesterday by our Minister of Energy, Industry, and Mineral Resources (and Chairman of Saudi Aramco) in his keynote address. A key aim of the Vision is to diversify the Kingdom’s economy into suitable industrial sectors and services. That includes stronger commercial ties with partner countries like Turkey, and Saudi Aramco is already looking at some downstream opportunities here.
Likewise, it is a great opportunity for Turkish companies to bring their expertise and invest in the Kingdom’s future. Later today, we will be signing Memorandums of Understanding with 18 Turkish construction companies that will enhance our bilateral business relationship still further.
In addition, the Vision places special emphasis on localization. For Saudi Aramco, that means doubling the percentage of locally produced energy-related goods and services we source to 70% by 2021, boosting employment for talented young Saudis and driving export growth.
Finally, the Vision is clear about the power of partnership, and so are we. For example, it is why we are a founding member of the Oil and Gas Climate Initiative, or OGCI, with nine industry peers (and chaired by Bob), who account for more than 20% of global oil and gas production.
We issued a joint declaration before COP21 in Paris which not only set out the significant achievements already made by our industry on this issue, but how we will catalyze practical action on climate change going forward. And we were proud to sign it.
Ladies and gentlemen, I hope my remarks illustrate the new frontiers we must all embrace in this challenging environment.
And how Saudi Aramco is not only pursuing them, it is constantly redefining them, and the opportunities they bring us all. We know the final destination, which is alternative energy. But adequate supplies of reliable energy sources like oil and gas will be needed in the interim, while making them as clean as possible. It is the toughest journey our industry has ever undertaken, and it will take time.
We must also accept that business as usual cannot be our future model, and is a critical first step in the transformation our industry needs. But with the pioneering qualities our industry is famous for, I truly believe we can make that bold yet smart move, and deliver the secure, equitable, and sustainable energy future the world needs.
Thank you, and Teşekkür ederim.