Oil Minister remarks at the International Oil Summit in Paris

April 10, 2008

Minister of Petroleum and Mineral Affairs Ali Al-Naimi address titled “Energy and the Environment: Opportunities and Challenges” at the International Oil Summit in Paris, April 10, 2008

Your Excellencies, distinguished guests, ladies and gentlemen:

It is a great pleasure to be back in Paris, and to participate in one of the world’s most prestigious energy conferences, the International Oil Summit. I would like first to express my appreciation to Dr. Olivier Appert, President of the Institut Français du Pétrole, for inviting me to talk with you today, and to thank all of the organizers of this distinguished event.

Today I would like to address a subject which is of major concern to all of us, and which will continue to be an issue for the generations which will follow ours: the direct relationships between energy, the natural environment, and economic growth and human prosperity.

The natural environment is a common trust and a God-given patrimony for which we all must care. Protecting it requires sincere commitment and effort – locally, regionally and internationally, in all places and at all times. Environmental issues include keeping our neighborhoods, cities, rivers, deserts, mountains and forests pristine and minimizing pollution in our air, water and soil. They require us to conserve precious natural resources and address climate change while better understanding its causes and effects.

Therefore, to tackle these issues and to safeguard our precious natural environment, one of our foremost goals must be to reduce all harmful emissions. At the same time, we must continue to improve the living standards of our fellow men and women and ensure they have the prospect of more prosperous lives. This is especially true within the developing societies and emerging economies that account for so much of the world’s population.

Ladies and gentlemen:

I believe that these two goals – protecting the natural environment and promoting human prosperity – go hand in hand. They influence each other to a tremendous extent, and therefore we must pursue them simultaneously and in a balanced fashion. Of course, those of us in the energy sector, and particularly in the petroleum industry, have a particularly important role to play in addressing these challenges, given the close relationship of our work to both the natural environment and economic development and social progress.

Ladies and gentlemen:

To better understand these major challenges and the ways in which they can be tackled, I would like to discuss three important points today.

First, the future of energy resources; second, the optimal way to balance concerns over energy and the environment; and finally, to look at the objectives, policies and initiatives we are pursuing in Saudi Arabia to address these pressing issues.

Let us begin with a look at the future of energy. As we all know, energy – whether in its simplest forms or in more sophisticated varieties – is the indispensable driver of human activity, social development, economic growth, and individual and institutional prosperity. Before the advent of the industrial revolution, man produced and consumed energy primarily harnessed from animals, water or the wind, the combustion of wood and animal waste, or even his own muscular activity. The 18th and 19th centuries witnessed an energy revolution as the world moved from these simple sources of energy to more complex ones. Technology quickly progressed from the wood-fired steam engine to coal and then to petroleum – the internal combustion engine that even today dominates the transportation sector worldwide.

Of course, all of the pre-industrial revolution energy sources are still with us, and indeed their use is expanding as the world’s population grows. If one visits some of our planet’s poorest societies, you can see just how important these basic (and often environmentally unsound) forms of energy are to daily life. In fact, the United Nations Development Program estimates that some 2.5 billion people still rely on traditional biomass for cooking and heating, and another 1.6 billion people lack access to electricity. I would simply note that any discussion of our global energy future must take account of this lingering poverty of energy, and not focus simply on energy use in industrialized nations.

And yet in the future, there is no doubt that the world will witness yet another stage of energy evolution, which will move us from the fossil fuels that account for nearly 90 percent of today’s energy consumption to a more advanced source of energy. To take its place in the future energy mix, such a new source should be more environmentally friendly than current forms of energy. At the same time it should be economically competitive, abundant and readily available to the majority of the world’s inhabitants.

Identifying and developing such a source will not be easy, nor will it happen overnight. In fact, between moving from our current sources of energy, primarily fossil fuels, to a dominant new source will require at least a half-century, and perhaps more given the various challenges associated with such a broad-based conversion. Furthermore, if this transition is to happen smoothly and effectively, we must adopt a scientific, logical, and transparent approach. We must not pursue political or ideological interests by favoring this or that energy source without regard for its viability or the balance between its costs and its benefits.

Perhaps the best example of weak economic and scientific logic at work on this issue is the recent attempt to push for biofuels and ethanol as alternative energy sources which can protect the environment and enhance national energy security in certain markets. Proponents of these energy sources may believe they can be useful in achieving other objectives, but when it comes to these specific environmental and energy security goals, biofuels appear to fall well short of the mark. In fact, the utilization of these types of energy sources to date is proving to be rather unfriendly to both the environment and the economy. This is particularly true when one considers the vast amounts of energy, water and arable land required for their production and processing, let alone the reduction of food supplies and the increase of crop prices worldwide.

My friends, I would like to be very clear on this issue: We in Saudi Arabia, and I believe within the majority of oil producing and exporting countries, have no prejudice against such types of energy. Nor do we feel threatened by such sources. Indeed, the opposite is true, and as the global economy continues to expand and as men and women work to achieve higher standards of living, the world will need more and more energy, and utilize all of the viable sources at its disposal.

But when it comes to ethanol and biofuels, we also believe it is essential to be realistic and to objectively approach these energy sources according to their merits. In this regard, we have to take into account a number of points.

First, the interrelation between energy and food products has to be examined carefully. As we all know, an adequate food supply is the first priority of human beings. Moreover, energy sources should be used to increase the food supply and lower the cost of food production, and yet what we see today is the opposite. Staple food crops such as soybeans, sugar and corn are being produced not to feed humans but to fuel cars, trucks and now even airplanes. As a result the price of food has been soaring; for example, corn prices went from under $2 per bushel in 2005 to $6 in 2008 and rising. But despite the ethanol boom, petroleum prices remain high and energy consumers are no more secure than they were before.

My second point is that biofuel production is not contributing positively to environmental protection, nor is it reducing global emissions of greenhouse gases as anticipated. In fact, the opposite might be the case. Forests in many parts of the world, which play a major role in reducing CO2 by acting as carbon sinks, are being cleared to produce biofuel crops which have a far smaller capacity to absorb carbon. As a result and according to the latest scientific studies, global carbon emissions are likely to increase, not to decrease, as a result of increasing biofuel production.

Third, we should avoid any disruption of free market mechanisms. In the long term, no product can last as a viable option if it runs counter to free market rules. The rise in biofuel use stems not from cost-competitiveness or enhanced performance, but rather is largely due to government subsidies, high import taxes, and financial favoritism of these sources vis-à-vis others. Also, some governments have enforced the adoption of biofuels by demanding that a certain percentage of automotive fuels come from ethanol.

Fourth, many analysts expect ethanol and biofuel production to reach an equivalent of five million barrels per day of oil by the year 2010, or about six percent of total global petroleum consumption. This is a small percentage, yet it makes ethanol, a marginal product with high production costs, the de facto artificial floor for global petroleum prices, and by extension the worldwide energy market as a whole.

Ladies and gentlemen:

Let us be realistic. Currently, ethanol and other biofuels will not contribute to the protection of the global environment by reducing emissions, they will not increase energy security, nor will they reduce contemporary civilization’s dependency on fossil fuels to any appreciable degree. In short, current biofuels are not the solution, though they might herald a move to a higher level of renewable fuels, which does not damage the environment nor negatively impact food markets.

That is why we have to look beyond biofuels as a solution, and concentrate instead on two major issues: Increasing the use of truly renewable sources of energy, while reducing emissions from fossil fuels. Personally, I believe that putting ethanol and similar biofuels in the category of renewables is highly misleading, since these types of fuels create scarcities of arable land, precious water, and with time, staple food products.

However, the picture is not all bleak when it comes to real renewables, and we have some useful energy sources which need more studies and research to make them competitive and available on a large scale. Perhaps the best source of energy which is abundant, free, and available to all is solar energy. There is a great chance to expand its uses to include all parts of the world, especially developing countries, and to all economic sectors and activities, including power generation, manufacturing, transportation, and so on.

What is needed to expand the uses of solar energy is to make the solar cells more effective in concentrating the sun rays, and to make the production and transmission of solar power more cost effective. I know that many universities and research institutes are working day and night toward this goal, and with such keen minds on the job, I am confident that they will succeed. For our part in Saudi Arabia, we are giving this source of energy special attention, a point which I would like to return to in a moment.

As I said, we should also work intensively to reduce emissions from fossil fuels, which include conventional oil, natural gas, coal, tar sands and oil shales, among others. Taken together, these sources are more than enough to meet the world’s growing energy demand for the rest of this century. And I am sure that fossil fuels can be and should be made environmentally-friendly sources of energy, particularly as they will continue to meet the lion’s share of energy needs for the foreseeable future. Moving forward, they should be supplemented with truly renewable energy sources in order to meet global energy needs, help to sustain economic growth while protecting the environment, and enhance prosperity, especially within developing societies and among disadvantaged people.

Therefore, the major challenge is to reduce emissions from fossil fuels while managing the cost of such reductions and their possible negative impact on economic growth and human prosperity. And that is a task not only for the fossil fuel industries but also national governments, universities, research institutions, and cross-border organizations.
From my perspective, I believe we can do this at a minimum cost and for a maximum benefit, but only if we work together as producers and consumers, engaging not only the energy industry but also other institutions and organizations.

One promising method of reducing greenhouse gas emissions is through the technology of carbon capture and storage – a technology which is gradually gaining in importance and significance. Besides other benefits, it is expected that this technology could lead to reductions in carbon emissions of at least 20 percent – a major achievement by any measure. But even though it is clear that carbon capture and sequestration is a major environmental tool, there has been some resistance to this technology, stemming largely from environmental lobbyists who assume that it is being promoted by the petroleum and coal industries. Pushback is also coming from other special interest groups, as well as some countries which are promoting other sources of energy such as nuclear.

This is very damaging, and in my view, extremely shortsighted. Rather than pursuing narrowly defined interests and parochial concerns, I believe we have to work together on the basis of an objective and holistic approach if we are to achieve four universal goals: a clean environment, sufficient supplies of clean energy, sustained economic growth, and an improvement in living standards for the Earth’s inhabitants. That’s a tall order, and one which we will only be able to fill through collective and collaborative effort.
At this point, ladies and gentlemen, I would like to talk about Saudi Arabia’s approach to these pressing challenges, and to the crucial relations between energy, economic growth, human prosperity and the environment.

Within this context, our focus in the Kingdom is on two important issues. First there is economic growth and human prosperity, both at home and internationally, and especially in developing societies. Different countries have different strengths and resources to contribute to economic growth, and of course our major source of contribution to the global economy is through our petroleum resources.

As you all know, Saudi Arabia has 264 billion barrels of crude oil reserves, with the potential to increase those resources by at least 200 billion barrels. As for natural gas, we have reserves of 258 trillion cubic feet, with a high likelihood of doubling that figure in the future. Currently our total petroleum production, including crude oil, liquids, and natural gas, exceeds 11 million barrels of oil equivalent daily. Equally important, we are increasing our petroleum production capacity year after year, in keeping with forecast future global needs. For this reason, the Kingdom is spending over $90 billion in the next five years to increase its production capacity in both the upstream and downstream segments of the industry.

As part of those efforts, Saudi Arabia’s crude oil production capacity will rise next year to 12.5 million barrels per day, which is enough to meet the expected call on Saudi oil for the foreseeable future, even as we maintain a spare production capacity of 1.5 to 2 million barrels per day, to be used if there is sudden disruption of supplies from other sources. On the downstream side, we will double our refining capacity at home and abroad from three to six million barrels per day, largely to meet the international demand for cleaner petroleum products.

I don’t believe there is any doubt that we are seeing considerable economic benefits from such investment decisions. But just as important as the rate of financial return, is the role these upstream and downstream investments play in ensuring the continued health of the international petroleum market, and with it the health of the wider global economy. Having spare production capacity of more than two million barrels per day, as is the case today, has cost billions of dollars. Increasing production capacity entails further expenditure, particularly in a time of demand uncertainty and against a backdrop of statements made under various pretexts by some consuming nations, which urge the rollback of petroleum use and a reduction of oil imports from the Middle East, which includes, of course, Saudi Arabia.

The same problem applies to our downstream initiatives. Even though refining margins are low – especially if they are geared for export – we are building new refineries and expanding some existing ones in order to meet the needs of some major consuming countries, which through restrictive permitting regimes are making it almost impossible to build new refineries in their own markets.

My friends, Saudi Arabia’s contribution to the availability of energy and the stability of global energy markets is considerable, and serves the wider interest of global economic growth and human prosperity. But now I would like to move to the second side of the important issues, which is stewardship of the natural environment.

Saudi Arabia is very active on this issue at both the national and international levels, especially in terms of reducing emissions from oil and gas. We have done a lot in this regard, including signing on to the Kyoto Protocol, part of the United Nations Framework Convention on Climate Change. Yet, our work concentrates on what we believe is the best way to deal with these issues over both the short and long terms, and that is developing scientific and technological methods to reduce emissions of greenhouse gases.

As I noted earlier, one of the best methods to reduce emissions is through carbon capture and storage technologies. For this reason, Saudi Arabia is a member of the Carbon Sequestration Leadership Forum, which involves nearly two dozen nations as well as the European Commission. This January, Saudi Arabia was proud to host a successful meeting of this organization, which focused in part on capacity building.

And last year, during the Third OPEC Summit, King Abdullah announced an initiative designed to protect the global environment through research into reducing fossil fuels emissions, and contributed $300 million to this cause. This initiative has received a great deal of international support, with Kuwait, the United Arab Emirates and Qatar contributing an additional $450 million for the same program. Other countries such as Nigeria, the United Kingdom, Norway and Japan, among others, have shown interest in getting involved in this initiative.

Furthermore, Saudi Arabia is currently building two major scientific establishments where energy and the environment will be at the top of the agenda.

The first is the King Abdullah University for Science and Technology, or KAUST, which will admit its opening class in September 2009. This university, where I have the privilege as serving as chairman of the Board of Trustees, will focus on scientific research at the graduate level. It has already begun attracting students and faculty, and has named a distinguished founding president, Professor Shih Choon Fong, formerly head of the National University of Singapore. Two of KAUST’s main areas of interest are alternative energy, especially the development of solar energy, and reducing carbon content in fossil fuel use.

The second project, the Center for Petroleum Research and Studies, will start operations before the end of the year. While this center will deal with a variety of subjects and topics, including energy economics and policies, its major area of interest will be the scientific side of petroleum and energy. Given such a mandate, environmental issues – and above all reducing carbon emissions – will be a focal point for the center. In order to ensure the quality and objectivity of King Abdullah’s environmental and energy initiative, it will be operated through this center, and will involve a high degree of international cooperation.

Distinguished guests, ladies and gentlemen:
We live in a complex and complicated world, where different issues and interests intersect and influence one another, and where the major challenges of our time cannot be addressed in isolation from their wider context. Nowhere is this truth more relevant than when it comes to energy and the environment. Here, international aspects converge with national interests. Economic growth, human prosperity and the welfare of the natural environment are all part of the same equation.

The challenges before us are great, and we must confront them with a commitment to collaboration, objectivity, and the welfare not only of our generation, but of the generations to follow. We in Saudi Arabia are eager to join with others in these efforts, and look forward to making a meaningful contribution to the solutions we must find, together. Thank you.