14 December 2015
JEDDAH: Saudi Arabia's huge oil and gas reserves make it an important international power.
Saudi Arabia's petroleum policy seeks to strike a balance between the present and the future.
It aims to boost national income and preserve Saudi Arabia's share of the oil market. And it seeks to continue in its role as a major supplier of energy to the world.
The Kingdom has huge oil and gas resources.
With today's technology, its proven recoverable reserves stand at 267 billion barrels. Its proven natural gas reserves are 300 trillion cubic feet. Annual production is compensated with new discoveries.
Upstream technology is advancing, and Saudi Aramco is a leader in this area.
Saudi Arabia is also also one of the most active countries in terms of exploring for shale oil and gas and detecting their reservoirs and volumes. It has huge volumes in several places.
Saudi Armco is also building advanced refineries which can treat heavy crude oil.
Increasingly, these plants can produce petroleum and petrochemical products that rank highest in terms of price, demand and added-value realization.
Saudi Arabia has close relationships and ongoing cooperation with all major oil producing and consuming nations.
It is a dominant force in the Organization of Petroleum Exporting Countries. Saudi Arabia plays a proactive role in stabilizing oil market conditions by building on its close relationship and ongoing cooperation with both producers and consumers, and through its effective and constructive engagement in OPEC.
Demand for OPEC crude in 2015 is estimated to stand at 29.4 million barrels per day, an increase of 0.4 million barrels per day over last year and representing a downward revision of 0.2 million barrels per day compared to the previous report. In 2016, demand for OPEC crude is forecast at 30.8 million barrels per day, an increase of 1.5 million barrels per day over the current year and unchanged from the previous assessment.
Akber R. Naqvi, executive director, Al-Masah Capital Management Limited, commented on the OPEC talks: "The recently held OPEC meeting in which nothing was decided when it came to production cuts or limits means that Saudi Arabia is still dictating the market."
Naqvi added: "It also widely believed that the true impact of flooding the oil market with oversupply to eliminate high cost producers will only start to show mid to late 2016; hence at this stage there is no real pressure on Saudi to rethink its strategy."
He also said: "At this stage Saudi's main role is to keep the market sufficiently supplied so that it drives out shale at lower oil prices. With oil rig counts declining and non-OPEC production levels starting to reverse, Saudi Arabia will continue to produce at current levels."
Naqvi said: "Saudi Arabia has enough capacity to supply at these levels well into 2016. The key then becomes Saudi becoming even more aggressive in price cutting and gaining even more market share especially in Asia and China; maintaining or adding current market share for Saudi means maintaining current export levels."
Commenting on output estimates, Fahad Alturki, chief economist and head of research, Jadwa Investment, said: Saudi Arabian crude production is expected to average 10.2 million barrels per day in 2015, slightly above our forecasted 10.1 million barrels per day."
The economist added: "We do not see Saudi Arabian policy cutting production in order to support upward movement in prices which has been spelled out by the minister of petroleum and mineral resources on a number of occasions."
Alturki said: "So far, the Saudi policy of market share has worked with lower prices undercutting both OPEC and non-OPEC competitors in key markets. In the US, China and Europe, Saudi Arabia has faced intense competition from producers such as Russia, Iraq and Nigeria, to name a few, who all face acute financial situations domestically."
He said: "Furthermore, this competition will only intensify as Iran comes back on-line, which has explicitly stated that it will aim to regain lost market share prior to sanctions. Again, Iran represents another producer that is desperate to increase oil sales in order to boost government revenue."
Alturki said: "Although Saudi Arabia's current strategy of maintaining market share will result in lower levels of oil revenues in the short-term, it will ultimately benefit the Kingdom in a few years' time. All major oil forecasters, (IEA, EIA and OPEC) point to rising demand for OPEC crude from 2016-2020.
Gradually as production in high-cost non-OPEC producers starts to slow down in response to lower prices, Saudi Arabia will reap a larger share of a larger market by 2020."
Alturki added: Although oil prices are not likely to reach the $100 per barrel by the end of the decade, they will be higher than current levels, and the resulting larger crude output in a higher priced environment will ensure improved oil revenues."
Fawaz Alfawaz, a Riyadh-based consultant, told Arab News: "Saudi Arabia has expanded its productive capacity to be a dependable market supplier given the size of its oil reserves. Hence, Saudi Arabia is probably the only country with excess capacity so it can maintain oil oil exports but not the revenues."
London-based James Reeve, deputy chief economist and assistant general manager at Samba Financial Group, said: "Saudi Arabia is still the swing producer, potentially, because of its spare capacity. But for the foreseeable future it will keep production high."
Asim Bukhtiar, head of research and investment advisory, Saudi Fransi Capital, commented: "The resilience of non-OPEC oil has surprised the markets and it may take longer than 12 months to balance supply-demand."
Bukhtiar said: "At least over the next six months, any changes in Saudi strategy appear unlikely however persistent supply glut will force some hard thinking across the industry. Saudi exports can be maintained at current levels through 2016 since domestic consumption is not presently challenging exports. What remains to be seen is will demand hold up to absorb potential additional supply from OPEC."
At various international forums, meanwhile, top executives have always stressed that Saudi oil industry cares about, and gives priority to, the environment and climate change.
For example, the Kingdom is a pioneer when it comes to climate change technology, such as re-injecting carbon dioxide in old oil fields.
Saudi Arabia focuses on sustainable development with its economic, social and environmental elements.
Due to global demographic growth and rising standards of living in the developing world, total oil demand is forecast to increase by about a quarter over the next 25 years.
During the same period, crude oil is expected to constitute a full third of all energy consumption -- with most of it going downstream to the transportation sectors and petrochemicals.
This reinforces the important role petroleum products will play in meeting the needs of people
around the world for the foreseeable future.
"Based on our belief in the long-term sustainability of oil demand, we are determined to maintain our capital investment plans in our global downstream system," said a recent report released by Saudi Aramco.
Both consumers and producers have a common interest in working collectively to achieve a more stable market; this is essential for sustaining much-needed investment and for ensuring a stable, secure, and sustainable energy system to the benefit of all.
Despite the associated challenges with the recent oil price volatility, the forecast for the petrochemicals remains positive, due to attractive investment environments, government commitment and future demand, say industry experts.
"Forty years ago, we (in the Arabian Gulf) were in a very different place. Though the region was already one of the leading oil producers in the world, the industry had no method of capturing the associated gas by-product that would eventually be used in the basic chemicals we produce today," said Abdullatif Ahmad Al-Othman, governor and chairman the board of directors, SAGIA (Saudi Arabian General Investment Authority).
He was speaking at the 10th Annual Forum, organized by the Gulf Petrochemicals and Chemicals Association (GPCA).
"In Saudi Arabia, we created the master gas system to capture, treat, and process the gas through a very large and sophisticated gas network system of more than 4000 km in length, with production capacity of 9 billion standard cubic feet every day. This transformed our industry and economy to include petrochemicals, resulting in a revolution over the past four decades."
According to GPCA estimates, the GCC petrochemicals industry manufactures 136.2 million tons of products as of 2014, earning $87.4 billion in revenues.
"Today, we contribute 13 percent of the world's petrochemical output by volume," he said.
Al-Othman outlined Saudi Arabia's ambitious development strategy, which includes goals to double employment, investment and economic growth in the next 10 years.
The downstream sector is expected to play a major role in this vision, with the potential to create 200,000 direct jobs in this period and investment potential of more than $150 billion, according to SAGIA estimates.
"Saudi Arabia is expected to be home to over 50 million people in the next decade. We have the raw materials, an emerging logistics and transport hub and some of the most progressive investment laws in the world," said Al-Othman.
"We have a strong business case for investors as we have the right market, right economy and right investment climate."
From a global perspective, the GCC's petrochemicals industry is also developing a reputation.
"The concept of a global petrochemicals market was born here in the Middle East more than 40 years ago," said Neil Chapman, president, ExxonMobil Chemical.
"Today, the Middle East accounts for 80 percent of the world's inter-regional chemical exports."
JEDDAH: Saudi Arabia's huge oil and gas reserves make it an important international power.
Saudi Arabia's petroleum policy seeks to strike a balance between the present and the future.
It aims to boost national income and preserve Saudi Arabia's share of the oil market. And it seeks to continue in its role as a major supplier of energy to the world.
The Kingdom has huge oil and gas resources.
With today's technology, its proven recoverable reserves stand at 267 billion barrels. Its proven natural gas reserves are 300 trillion cubic feet. Annual production is compensated with new discoveries.
Upstream technology is advancing, and Saudi Aramco is a leader in this area.
Saudi Arabia is also also one of the most active countries in terms of exploring for shale oil and gas and detecting their reservoirs and volumes. It has huge volumes in several places.
Saudi Armco is also building advanced refineries which can treat heavy crude oil.
Increasingly, these plants can produce petroleum and petrochemical products that rank highest in terms of price, demand and added-value realization.
Saudi Arabia has close relationships and ongoing cooperation with all major oil producing and consuming nations.
It is a dominant force in the Organization of Petroleum Exporting Countries. Saudi Arabia plays a proactive role in stabilizing oil market conditions by building on its close relationship and ongoing cooperation with both producers and consumers, and through its effective and constructive engagement in OPEC.
Demand for OPEC crude in 2015 is estimated to stand at 29.4 million barrels per day, an increase of 0.4 million barrels per day over last year and representing a downward revision of 0.2 million barrels per day compared to the previous report. In 2016, demand for OPEC crude is forecast at 30.8 million barrels per day, an increase of 1.5 million barrels per day over the current year and unchanged from the previous assessment.
Akber R. Naqvi, executive director, Al-Masah Capital Management Limited, commented on the OPEC talks: "The recently held OPEC meeting in which nothing was decided when it came to production cuts or limits means that Saudi Arabia is still dictating the market."
Naqvi added: "It also widely believed that the true impact of flooding the oil market with oversupply to eliminate high cost producers will only start to show mid to late 2016; hence at this stage there is no real pressure on Saudi to rethink its strategy."
He also said: "At this stage Saudi's main role is to keep the market sufficiently supplied so that it drives out shale at lower oil prices. With oil rig counts declining and non-OPEC production levels starting to reverse, Saudi Arabia will continue to produce at current levels."
Naqvi said: "Saudi Arabia has enough capacity to supply at these levels well into 2016. The key then becomes Saudi becoming even more aggressive in price cutting and gaining even more market share especially in Asia and China; maintaining or adding current market share for Saudi means maintaining current export levels."
Commenting on output estimates, Fahad Alturki, chief economist and head of research, Jadwa Investment, said: Saudi Arabian crude production is expected to average 10.2 million barrels per day in 2015, slightly above our forecasted 10.1 million barrels per day."
The economist added: "We do not see Saudi Arabian policy cutting production in order to support upward movement in prices which has been spelled out by the minister of petroleum and mineral resources on a number of occasions."
Alturki said: "So far, the Saudi policy of market share has worked with lower prices undercutting both OPEC and non-OPEC competitors in key markets. In the US, China and Europe, Saudi Arabia has faced intense competition from producers such as Russia, Iraq and Nigeria, to name a few, who all face acute financial situations domestically."
He said: "Furthermore, this competition will only intensify as Iran comes back on-line, which has explicitly stated that it will aim to regain lost market share prior to sanctions. Again, Iran represents another producer that is desperate to increase oil sales in order to boost government revenue."
Alturki said: "Although Saudi Arabia's current strategy of maintaining market share will result in lower levels of oil revenues in the short-term, it will ultimately benefit the Kingdom in a few years' time. All major oil forecasters, (IEA, EIA and OPEC) point to rising demand for OPEC crude from 2016-2020.
Gradually as production in high-cost non-OPEC producers starts to slow down in response to lower prices, Saudi Arabia will reap a larger share of a larger market by 2020."
Alturki added: Although oil prices are not likely to reach the $100 per barrel by the end of the decade, they will be higher than current levels, and the resulting larger crude output in a higher priced environment will ensure improved oil revenues."
Fawaz Alfawaz, a Riyadh-based consultant, told Arab News: "Saudi Arabia has expanded its productive capacity to be a dependable market supplier given the size of its oil reserves. Hence, Saudi Arabia is probably the only country with excess capacity so it can maintain oil oil exports but not the revenues."
London-based James Reeve, deputy chief economist and assistant general manager at Samba Financial Group, said: "Saudi Arabia is still the swing producer, potentially, because of its spare capacity. But for the foreseeable future it will keep production high."
Asim Bukhtiar, head of research and investment advisory, Saudi Fransi Capital, commented: "The resilience of non-OPEC oil has surprised the markets and it may take longer than 12 months to balance supply-demand."
Bukhtiar said: "At least over the next six months, any changes in Saudi strategy appear unlikely however persistent supply glut will force some hard thinking across the industry. Saudi exports can be maintained at current levels through 2016 since domestic consumption is not presently challenging exports. What remains to be seen is will demand hold up to absorb potential additional supply from OPEC."
At various international forums, meanwhile, top executives have always stressed that Saudi oil industry cares about, and gives priority to, the environment and climate change.
For example, the Kingdom is a pioneer when it comes to climate change technology, such as re-injecting carbon dioxide in old oil fields.
Saudi Arabia focuses on sustainable development with its economic, social and environmental elements.
Due to global demographic growth and rising standards of living in the developing world, total oil demand is forecast to increase by about a quarter over the next 25 years.
During the same period, crude oil is expected to constitute a full third of all energy consumption -- with most of it going downstream to the transportation sectors and petrochemicals.
This reinforces the important role petroleum products will play in meeting the needs of people
around the world for the foreseeable future.
"Based on our belief in the long-term sustainability of oil demand, we are determined to maintain our capital investment plans in our global downstream system," said a recent report released by Saudi Aramco.
Both consumers and producers have a common interest in working collectively to achieve a more stable market; this is essential for sustaining much-needed investment and for ensuring a stable, secure, and sustainable energy system to the benefit of all.
Despite the associated challenges with the recent oil price volatility, the forecast for the petrochemicals remains positive, due to attractive investment environments, government commitment and future demand, say industry experts.
"Forty years ago, we (in the Arabian Gulf) were in a very different place. Though the region was already one of the leading oil producers in the world, the industry had no method of capturing the associated gas by-product that would eventually be used in the basic chemicals we produce today," said Abdullatif Ahmad Al-Othman, governor and chairman the board of directors, SAGIA (Saudi Arabian General Investment Authority).
He was speaking at the 10th Annual Forum, organized by the Gulf Petrochemicals and Chemicals Association (GPCA).
"In Saudi Arabia, we created the master gas system to capture, treat, and process the gas through a very large and sophisticated gas network system of more than 4000 km in length, with production capacity of 9 billion standard cubic feet every day. This transformed our industry and economy to include petrochemicals, resulting in a revolution over the past four decades."
According to GPCA estimates, the GCC petrochemicals industry manufactures 136.2 million tons of products as of 2014, earning $87.4 billion in revenues.
"Today, we contribute 13 percent of the world's petrochemical output by volume," he said.
Al-Othman outlined Saudi Arabia's ambitious development strategy, which includes goals to double employment, investment and economic growth in the next 10 years.
The downstream sector is expected to play a major role in this vision, with the potential to create 200,000 direct jobs in this period and investment potential of more than $150 billion, according to SAGIA estimates.
"Saudi Arabia is expected to be home to over 50 million people in the next decade. We have the raw materials, an emerging logistics and transport hub and some of the most progressive investment laws in the world," said Al-Othman.
"We have a strong business case for investors as we have the right market, right economy and right investment climate."
From a global perspective, the GCC's petrochemicals industry is also developing a reputation.
"The concept of a global petrochemicals market was born here in the Middle East more than 40 years ago," said Neil Chapman, president, ExxonMobil Chemical.
"Today, the Middle East accounts for 80 percent of the world's inter-regional chemical exports."
© Arab News 2015
