Saudi Oil Minister Ali Naimi has called on oil consuming countries to match producers’ capacity expansion plans with their own roadmap of future oil demand as part of efforts to boost producer/consumer dialogue. MEES Editor-In-Chief Gerald Butt reports from Riyadh on the official opening of the Secretariat of the International Energy Forum (IEF) on 19 November.
Under unsettled wintry skies, King 'Abd Allah ibn 'Abd al-'Aziz rose from his seat and walked to the podium outside the IEF’s new permanent secretariat building in Riyadh’s Diplomatic Quarter. In his brief address to the assembled world dignitaries, he summarized Saudi Arabia’s vision of the broad agenda for producer/consumer dialogue – the raison d’être of the IEF – pointing to particular steps that he felt consumer governments should take. And he later launched the Joint Oil Date Initiative (JODI) World Database.
The establishment of a permanent base for the IEF in Riyadh arose from a proposal made by King 'Abd Allah himself, when he was crown prince, at a meeting of the forum in the Saudi capital five years ago (MEES, 27 November 2000). The overall goal of dialogue, the Saudi king said at the IEF inauguration ceremony on 19 November, was “to protect the global economy from turmoil.” He then explained the kingdom’s role in trying to achieve this goal: “Our oil policy is clear, and is characterized by honesty and transparency. It is based on our firm belief that we are part of the world we live in, and that we share our world’s fortunes as well as misfortunes, and that our national interest does not conflict with the interests of the international community. This policy is based on two objectives: the first is to realize fair and reasonable prices for oil, and the second is to provide adequate oil supplies to all consumers.”
In order to realize these objectives, the king said, Saudi Arabia had increased production capacity to a level that did not jeopardize the interests of future generations or damage oilfields. “We have adopted moderate positions, within and outside of OPEC, with regard to production and pricing. We have increased production whenever there were shortfalls in supply, and we have adopted a policy of consultation and coordination with both consumers and producers.”
Consumers’ Responsibilities
But, King 'Abd Allah continued, “all the efforts exerted by producing countries are fruitful only when they are met with a positive attitude by the major consuming countries, in the form of limiting speculation in the oil markets and refuting rumors and misleading information which cloud the realities of the market. It is also incumbent upon these countries to reduce the burdens on their citizens by reducing taxes on petroleum products when oil prices rise.”
Senior officials present during the inauguration ceremony, aside from ministers from leading oil producing states and international oil company executives, included US Energy Secretary Sam Bodman (who had been on a tour of Gulf states), and the UK and French Finance Ministers, Gordon Brown and Thierry Breton. The latter two used to occasion, in private talks with senior Saudi and other producing state officials, to drive home the call from the G7 group of industrialized nations to get more oil onto the markets. “We need to invest more in production capacity and invest more also in refining,” Mr Breton told reporters, adding that prices remained too high despite recent falls. “Oil [prices] almost doubled in 2005 and of course it has affected a lot the world economy,” he said.
Two Roadmaps
In a press conference later on 19 November, Saudi Oil Minister Ali Naimi responded to the G7 call and reiterated King 'Abd Allah’s insistence that consuming countries, too, had responsibilities to bear. “What the Europeans and others want is to learn more about the roadmap showing plans for the expansion of oil facilities in the future,” Mr Naimi said. “Everyone knows that OPEC has set out positions explaining its roadmap for all future projects. But what we need to know is the roadmap for demand in the producing countries. As producers, we do not want to build facilities that will not be met by demand.” The minister said producers were looking for alternative sources of power, introducing conservation measures and seeking to increase vehicle efficiency. “These are good objectives,” he continued, “but we need to know what influence they will have on demand and on our plans for expanding oil production facilities.”
Mr Naimi recalled that in the 1970s Saudi Arabia had thought it needed to expand production capacity to as high a level as possible, but prices collapsed and by the end of the decade “we were only producing 3mn b/d. We had an overhang of 7mn b/d as a burden on the Saudi economy. That was one experience. The second came in the 1990s. We were told that the world needed more oil after the Iraqi invasion of Kuwait, and we increased production back to 10mn b/d. Then came 1998, and prices collapsed again. So the reason we ask for a roadmap is to try and minimize this mismatch between what producers do and consumers want.”
No Deadlines
Asked whether the producing countries had put a timescale on their demands to receive a roadmap from the consumers, the Saudi minister replied: “When we were asked for a roadmap for upstream facilities, nobody said, ‘Deliver it today.’ And neither will we. All we are saying is that we will exchange views so we know that eventually supply and demand, as best as the planners can determine, will be in balance. Our objective is to
have less volatility in international oil markets. We want moderate prices, we want to diminish volatility – we know we cannot eliminate it – we know there are many, many influences in the world market on price. And let me also correct a mis-notion about Saudi Arabia. Saudi Arabia does not determine the oil price worldwide. If anyone believes this, then it is a complete mis-notion. The international oil price is determined in the international oil market, and all we do is use the marker crudes and offset against them.”
But Mr Naimi stressed that producers’ desire to know more about consumers’ intentions would have “no impact whatsoever” on Saudi Arabia’s plan to increase output capacity from 11mn b/d to 12.5mn b/d by end-2009. “That is a commitment that has been made,” he went on. “Money has been budgeted and money is being spent. Teams are working all over the world. So the desire to see a consumers’ roadmap has no bearing whatsoever on that result.”
IEF Needs More Support
In his speech at the inauguration ceremony, Mr Naimi said the success of the IEF depended on the moral and financial support that it received from participating nations. While support was continuing to grow, “financial assistance is still less than had been anticipated.” Saudi Arabia was grateful for the assistance provided so far by the 40 countries that had pledged to help, but more was needed. He also hoped that the oil industry as a whole would make contributions to set up an independent fund that would enable the IEF to broaden its activities and play a more active role in global energy affairs.
At present, IEF Secretary-General Arne Walther told MEES, the participating countries have agreed “to contribute on a voluntary basis on the basis of each country’s share of total global oil and gas trade. As a new organization, we sent out requests for this share to be paid. But it takes time for countries to get this into their system.” A number of countries, including some major producers, have yet to come forward with their contributions. Saudi Arabia, as well as donating the headquarters building to the IEF, is contributing about 8% of the total. The IEF’s hope is that its annual budget can be increased in the years ahead, with contributions from participating countries rising accordingly.
The 10th IEF Ministerial and 2nd International Energy Business Forum will take place in Doha on 22-24 April 2006. Ministers of more than 60 countries have been invited. “The task of the IEF Secretariat,” Mr Walther said, “is to support the host country and co-hosting countries in preparing for and implementing the biannual IEF Ministerials and subsequently to follow up the ministerial discussions.”
As for the role of the IEF in the coming years, Mr Walther was asked how political and other external factors influencing the global oil market would impact on the declared aim of producers and consumers to work through the forum for stability. “There are concerns worldwide about prices and energy security,” he said. “Energy is a vital issue that affects politics. And politics affects energy prices. There is a growing awareness of a joint interest to reduce volatility and achieve a price that is responsible to everyone. There is no simple solution, but the idea is to bring everything to the fore and involve not just energy ministers, but foreign ministers, environment ministers and others in the discussions.”
JODI Launched
During the IEF Secretariat ceremonies, King 'Abd Allah launched JODI, the database that has the support of APEC, Eurostat, IEA, OLADE, OPEC and UNSD. According to Mr Walther, “more than 90 countries, representing 95% of global supply and demand, are now submitting data on oil production, demand and stock (MEES, 7 February). Other international and regional organizations have since also echoed their support.” The central aim, he continued, “is to facilitate and enhance the exchange of energy data and information. International cooperation to bring forth better data is crucial for efforts to reduce market volatility and enhance energy security.” The database (www.jodidata.org) consists of:
Seven product categories: crude oil, LPG, gasoline, kerosene, diesel oil, fuel oil and total oil.
Four flows: production, demand, closing stock levels and stock change.
Data in three different units: barrels, tons and liters.
Data for participating countries.
Data from January 2002 to one month old.
While IEF energy experts review the data they receive, their job is not to verify it. “We expect the data to be accurate,” said IEF Analyst Bruno Castellano. “We rely on the organizations relaying it to us.” Mr Castellano also warned against excessive expectations from JODI: “This is not a magic solution. But it provides additional information to refine analysis and to offer supplementary information to the market.”
