I would like first to welcome you to Saudi Arabia; I hope your visit so far has been enjoyable and will continue to be rewarding.
As you all know, the relationship between Saudi Arabia and the United States stretches back more than 80 years. During that period, it has stood the test of time and remained strong.
This bond has many dimensions, of course, and petroleum is one of the cornerstones of that relationship. Over the years, the US has played an important and greatly appreciated role in the development of the Saudi oil industry. However, some people mistakenly think that the US-Saudi petroleum equation is determined by how much oil the United States imports from Saudi Arabia.
In fact, these are purely commercial transactions and are a function of market fundamentals rather than policy directives. Quite simply, American oil companies import Saudi oil based on their normal business needs, either because it is suitable for their refineries and enables them to achieve a better supply source; or as a result of competitive pricing among oil suppliers in the world oil market. The same dynamic applies to Saudi Aramco, our national oil company, which sells crude oil and products to roughly a dozen US petroleum companies on a purely commercial basis.
Globalization has contributed to a free and open world petroleum market, where US oil companies can buy their oil from wherever they want according to their commercial interests, while Saudi Aramco can also market its production wherever it wants in order to best achieve its commercial objectives.
Ladies and Gentlemen:
However, having said that, the petroleum relationship between the United States and Saudi Arabia goes far beyond imports and exports of crude oil – though those are, of course, vital – and involves many areas of common interest and mutual benefit. These include, for example, investments in major petroleum projects and infrastructure developments in both countries.
Through its Motiva partnership, Saudi Aramco has a major investment in refining and distribution in the US, and Motiva’s Port Arthur Refinery in Texas is now embarking on a major expansion which will more than double its capacity and make it the largest refining complex in the United States, and represents the biggest expansion decision among the US refineries. At the same time, American oil companies are investing in the Saudi downstream sector, and in fact have been engaged in the Kingdom’s refining sector for many, many years. As a matter of fact, Exxon-Mobil is the largest foreign investor in Saudi Arabia.
Besides petroleum investments in both countries, there are other areas of common interest, such as American contracting companies which are engaged in important work on major oil and gas projects throughout Saudi Arabia. As you know, Saudi Aramco is undertaking major expansion programs both upstream and downstream, in oil and gas, as well as petrochemicals, with a total investment of more than 90 billion dollars over the next five years. The relationship also involves American oilfield service companies and US manufacturers of a wide array of equipment and material used throughout the petroleum sector. Currently there are more than 300 contracts between Saudi Aramco and US companies, with a total value of about US $11 billion. Moreover, the value of Saudi Aramco annual material procurement from more than 4,000 US companies is around $1 billion.
Besides these purely commercial relationships, however, there are other areas of cooperation between our two countries, which, include sending Saudi petroleum personnel to study and train in the United States and hiring American experts to work in the Saudi oil industry, both inside and outside the Kingdom. Aside from the professional benefits which accrue from these exchanges, they also provide an opportunity for ordinary Americans and Saudis to interact with one another, and to learn more about each other's country and culture.
The petroleum relationship also includes a continuing exchange of ideas and information, technical, bilateral committee visits and meetings, and policy coordination – especially during times of crisis, as was the case during the Iraqi invasion of Kuwait in 1990, the US military intervention in Iraq in 2003, the supply interruption of oil production from the Gulf of Mexico and the damage to oil refineries in 2005 as a result of Hurricanes Katrina and Rita, and more recently the loss of Alaskan production as a result of pipeline damage.
Because of close coordination between our two countries, we together have been able to avoid a major petroleum shock, and perhaps have even averted an economic crisis. Our cooperation also extends to tackling important scientific and environmental issues, which are of concern to all of us. For example, Saudi Arabia is working closely with the US government, American oil companies and US-based research centers to study ways and means to reduce greenhouse gas emissions, including groundbreaking work on carbon capture and storage technologies – as will be apparent at the upcoming Carbon Sequestration Leadership Forum, which Saudi Arabia will be hosting at the end of this month.
Ladies and Gentlemen:
Now I would like to say few words about Saudi Arabia's oil policy. The Kingdom has always stood as a force for moderation in the petroleum markets, and that stance continues. We work very hard to make sure that the global oil market is well supplied and well balanced, and to that end we continue to maintain a spare production capacity of about 2 million barrels per day to be used when there is an unexpected need.
Maintaining that spare capacity requires considerable investment on our part, but in recent years the value of that cushion has been proven in the face of unforeseen supply disruptions, and I believe it has had a very beneficial impact on easing market volatility.
Within this context, I would like to focus on five key points in the Kingdom's international oil and gas policy.
First, Saudi Arabia works with all parties to achieve stability of the world oil market, to reduce market volatility, and to ensure that supply is sufficient to meet demand at all times.
Second, Saudi Arabia is committed to cooperation with energy consumers and producers, as well as with international organizations. While our bilateral relationship with a wide array of consuming countries are deeply rooted and highly valued, our goal is to go beyond this and to create a global movement for joint action on energy issues. In this regard, Saudi Arabia has played an important role in creating a fruitful dialogue between oil producers and consumers. We are gratified to see that this dialogue has led to the creation of the International Energy Forum, with biennial ministerial meetings, a secretariat for the forum which we host in Riyadh, and the Joint Oil Data Initiative which is helping to increase oil market transparency.
The third key point I would like to stress is Saudi Arabia’s strong relationship with the international oil industry, which is responsible for timely investments across the petroleum value chain, technological advances and innovation, and the development of the human resources which are at the heart of the oil business. Over the last century, the petroleum industry has been remarkably successful in its industrial and engineering endeavors, and has thus made oil and gas the fuels of choice for consumers around the world and brought greater prosperity to countless communities across the globe.
Given the importance of the global oil industry, Saudi Aramco is working closely with other major oil companies at many levels, including the exchange of information, expertise and knowledge-sharing. The company has trading relationship with more than 50 international petroleum enterprises, ten major petroleum joint ventures with international oil companies, and will be negotiating to create more such ventures over the next few years.
The fourth point concerns our belief that oil and gas will continue to meet much of the world’s energy needs for many decades to come. For over a century, petroleum has been the world's fuel of choice and engine of global economic growth, as well as spurring major advances in health and safety, mobility and transportation, and living standards and lifestyle. However, there have been many attempts over the last 35 years to create doubt about the long-term availability and attractiveness of oil as a major source of energy.
As a result of these misplaced fears, billions of dollars have been spent over the years to develop alternative fuels to replace oil, thus far with minimum success and high costs. These efforts are sustained not by economic forces but because of high governmental subsidies.
If we are to develop a realistic roadmap for our energy future – one which ensures we will be able to meet growing global demand for energy in the decades ahead – then we must recognize the central role that petroleum will continue to play and make our investment decisions accordingly.
Fifth, it is essential for the world and its people to have a clean environment and to reduce harmful emissions while at the same time sustaining economic growth and human health and prosperity. There is no doubt that fossil fuels will be a major source of energy for many decades to come, which means our challenge is how to make them cleaner and to lighten the environmental footprint of their production and their consumption.
We believe that technology can and should play an important role in meeting this challenge. In this regard, Saudi Arabia is very active at national and international levels, and on many fronts. For example, just two months ago the Custodian of the Two Holy Mosques King Abdullah announced an initiative to allocate $300 million to finance research in energy and environment especially climate change. In addition, one of the major focus areas for the Kingdom's newly created science and research university, the King Abdullah University for Science and Technology, is the development of new technologies related to energy and the environment. Furthermore, this year we will establish in Riyadh the Center for Petroleum Research and Studies, which also will deal with environmental issues.
Finally, we continue to cooperate with many international research institutions, energy companies, universities and governments on the related issues of technology, energy and environment. We believe that these efforts will bear fruit in the coming years in reducing harmful emissions, in protecting the global environment, and in ensuring continued human prosperity and well-being.
Thank you for your attention, and now I would be happy to entertain your questions.