Got a driller? Saudis Vow Action on Oil Demand
Riyadh to Double Spending
On Energy Development,
Will Ignore Output Caps
By BHUSHAN BAHREE
Staff Reporter of THE WALL STREET JOURNAL
April 22, 2005; Page A2
PARIS -- Saudi Arabia, facing mounting pressure from the U.S. and others to step up output of oil and gas amid a surge in prices, plans to more than double its investment in energy development to $50 billion in the next five years from the previous five-year period.
Ali Naimi, Saudi Arabia's oil minister, also said the kingdom had tossed aside its production cap set by the Organization of Petroleum Exporting Countries and is willing to sell its customers every barrel of oil they want, up to its current capacity of 11 million barrels a day. The planned increase in investment, Mr. Naimi said, would boost the kingdom's oil-pumping capacity to 12.5 million barrels a day by 2009, a target Mr. Naimi had previously disclosed. Saudi Arabia also has said it was studying longer-term plans for capacity increases to about 15 million barrels a day.
Ali Naimi, Saudi oil minister
Mr. Naimi's disclosures about increased investment appear to be part of a campaign by Saudi Arabia, the world's top exporter and OPEC's de facto leader, to blunt criticism that the cartel is behind the recent rise in energy prices. His remarks come just as Saudi Arabia's effective ruler, Crown Prince Abdullah, is set to meet President Bush Monday in Texas.
Mr. Bush this week said he will warn the Crown Prince that the high price of crude is harming the world economy. Asked by a CNBC interviewer whether the Saudis were doing all they could to meet world demand, Mr. Bush said: "Well, they're not yet. I don't think they're pumping flat out. I do think you're right, I think they're near capacity, and so we've just got, got to get a straight answer from the government as to what they think their excess capacity is."
Yesterday, Mr. Naimi retorted: The Saudis are doing their utmost to meet world demand for oil, both because doing so is in the kingdom's own interest and out of a long-term commitment to try to keep oil markets well supplied and stable. He said he would like to see a drop in oil prices from current levels and was eager to pump more oil if that is what is needed.
"I'd love to produce to capacity," he said, noting that Saudi Arabia had been producing 9.5 million barrels a day for some time now, because that is the volume of oil customers are demanding. If buyers wanted more, Saudi Arabia would pump more, Mr. Naimi said.
High energy prices have contributed to slower global economic growth, and they have been burdensome for sluggish economies such as Germany and Japan, though energy prices aren't high enough yet to cause recession. "We don't want any [oil] price that has a clear negative impact on economic growth, particularly in developing countries," Mr. Naimi said.
While declining to identify a single "right price" for oil, the Saudi energy czar said that "in today's world, $50 a barrel [for the U.S. benchmark crude] is too high a price, and $15 to $20 a barrel is too low." A fair price, he said, would be one that is neither so high it hurts demand for oil nor so low it discourages companies from investing in finding new sources of fossil fuel. Mr. Naimi noted that some experts have suggested that investors in oil production could get the returns they seek if crude fetched around $35 a barrel for a basket of oil types sold by OPEC. That would work out to about $40 for U.S. benchmark crude. He cautioned that he didn't endorse that figure.
U.S. benchmark oil prices averaged $50 a barrel in the first quarter of this year, nearly twice the 2002 average of $26.10. Yesterday, benchmark light, sweet crude closed at $54.20 a barrel on the New York Mercantile Exchange, up 17 cents. The Nymex benchmark closed at a record $58.28 on April 4.
The Bush administration has stepped up its rhetoric on the energy front of late. Beyond Mr. Bush's remarks on the need for Saudi Arabia to pump more oil, Secretary of State Condoleezza Rice this week urged Russia to open its oil sector to more foreign investment -- a bid to increase supply over the long term. Ms. Rice and others also have begun to express increasing concerns about an oil-supply crunch as China and India consume ever more fuel. Last week, Ms. Rice said the U.S. was pushing countries to adopt "a more aggressive diversification" of energy sources.
Mr. Naimi insisted the kingdom's new spending plans are meant to meet future energy needs and aren't a response to international pressure. "We are responding to what we believe [is a trend of] firmly rising demand," Mr. Naimi said.
A big factor behind the oil crunch has been years of underinvestment by OPEC countries and Western oil companies in new fields, refineries, pipelines and tankers. The International Energy Agency has warned that the world needs a vast increase in spending on new oil if the industry is to meet demand, projected to hit 120 million barrels a day in 2030, compared with 84 million barrels a day now.
The Saudi plans -- and steps to increase output by such players as Statoil ASA of Norway -- suggest high prices have begun luring extra money into energy production. In Paris for an oil-industry conference yesterday, the Saudi energy chief said Riyadh and others in OPEC now were intent on building up crude-oil pumping capacity.
As part of the $50 billion plan, a figure that is net of spending on maintaining Saudi facilities, Mr. Naimi listed a string of production-boosting projects that would not only offset the natural decline of oil flowing from the kingdom's existing fields, but also increase pumping capacity. He said Saudi Arabia also planned to add 800,000 barrels a day of refining capacity to the 3.3 million barrels a day it already has. The refining projects will involve expansion both overseas and at home. |
