Ladies and gentlemen, I would like to thank the Center for Strategic and International Studies for organizing this timely conference. I would also like to express my gratitude to the sponsors, Chevron and Saudi Aramco for making this event possible.
It's good to be back in Washington, DC, especially this year, the 60th anniversary of the meeting between King Abdulaziz al-Saud and President Franklin D. Roosevelt aboard the USS Quincy. That historic summit solidified the relationship between our two great countries. While this meeting is often seen as the beginning of a special relationship, the close ties between our two countries actually go back to 1933 when King Abdulaziz granted a concession to Standard Oil of California to explore for oil in the Kingdom.
In the intervening 70 plus years, our two countries have worked together on all levels for regional and international peace and prosperity. The relationship, particularly in the fields of trade and investment, have expanded and diversified since the early days.
I am particularly pleased to participate once again in this annual conference and to appear with my counterpart from the United States: The Honorable Secretary of Energy Samuel Bodman. We had a productive meeting yesterday. I am sure it was the first of many. He truly has had a distinguished career in the financial sector and in the U.S. government. He brings an intelligence and energy to the job that will be an asset in the search for solutions to the energy challenges facing the United States and the world at large.
I believe this conference is timely as recent events have caused some to question our energy future. The talk of scarcity and economic dislocation should not distract us from our task.
Globalization offers the promise of raising the living standard of the world's people. Greater prosperity will require reliable and reasonably priced energy. We in the energy supply business face the challenge of producing the large quantities of new energy required to fuel the aspirations of the world's people.
I believe we are up to the challenge. This is not to imply that we won't face difficulties. The world's relative dependence on liquid hydrocarbons is unlikely to change much over the next 30 years. This means that the oil industry must be prepared to develop and bring to market significant new production capacity in the coming years.
The world's people not only want more energy, but they are demanding environmentally friendly energy. While the oil industry shares the desire for a clean environment, our task is complicated by increasing regulatory complexity. Multiple jurisdictions, the absence of coordination and the lack of a consensus have spawned a multitude of product specifications, which in turn, have divided natural geographical markets into submarkets. This has tended to reduce flexibility in the system creating situations where isolated regional supply/demand imbalances become magnified, affecting world price levels. Public opposition to the siting of refineries, power plants, pipelines, terminals and other facilities complicates the industry's ability to deliver products necessary to fuel the economy.
Finally, the period of low oil prices from the mid-1980s through the end of the 1990s caused investors to turn to other sectors that offered the prospect of better returns. The popular belief was that the long-term sustainable oil price was in the $10 to 15 range, a price that proved to be unattractive to ensure sufficient inflows of capital into the energy sector. The result is an energy supply infrastructure that is inadequate to meet the demands of the future.
Oil markets have undergone many changes over the past 20 years. Today, oil is bought and sold in a market that is truly global in scope, with a much greater number and diversity of participants than at any time in history. Oil is a fungible commodity and supply disruptions anywhere in the world will impact all consumers regardless of the sources of their own imports. Likewise, developments in any consuming country throughout the world affect all producers.
From the mid-1980s to the turn of the century, the oil industry operated in an environment of surplus upstream and downstream capacity. Overcapacity kept prices low, contributing to complacency about the adequacy of existing capacity and infrastructure to meet future requirements.
The previous era of overcapacity has ended. Spare production capacity outside of Saudi Arabia, is now basically minimal and upgrading capacity at refineries worldwide is out of step with crude quality at the margin. This has created a perception of a tight market and has contributed to upward price pressure. I believe, however, that additions to both production and refinery capacity worldwide over the next several years should help to ease the current anxiety.
I want to assure you here today that Saudi Arabia's reserves are plentiful and we stand ready to increase output as the market dictates. For the past 60 years we have built a reputation of reliability second to none.
Looking to the future, our mission is to remain the world's most reliable supplier of petroleum. As producers, we have seen the deleterious effects of low prices on capacity. We know that prices must provide an adequate return to the industry if supply is to keep pace with demand. We also know that if prices do not provide this incentive, it is not in the long-run interests of consumers.
But we are also keenly aware that when prices become too high, the world's economy is negatively affected and when the world economy slows, we as producers suffer. Therefore, I can assure you that very high or unstable prices are not in the interest of producers. The conventional wisdom is that the interests of producers and consumers are diametrically opposed and the opportunities for consensus are limited. I reject this notion. Producers and consumers share a common interest in stable markets, and developments over the past several years serve as a reminder of the dangers of becoming complacent about energy supply and its reliability. It is essential that markets offer adequate incentives to the oil industry while at the same time protecting the world's economy. Ensuring the availability and reliability of sufficient supplies of energy to fuel the future growth of the world's economy requires more than simply increasing crude oil production capacity.
We must address other important issues that impact the ability of the oil industry to deliver the products consumers demand. Meeting the challenges of our shared energy future requires a multi-dimensional approach involving actions by both consumers and producers. The elements of such an approach require us to:
* First, increase global crude oil production capacity - Saudi Arabia is already taking aggressive steps to ensure a greater flow of oil into markets;
* Second, address downstream bottlenecks that reduce industry flexibility or constrain ability to deliver products that consumers demand;
* Third, upgrade our aging energy infrastructure to meet the demands of the future;
* Fourth, improve efficiency and conservation to ensure that we maximize the contribution from our energy resources;
* Fifth, increase cooperation among producers and consumers to improve transparency, thereby enhancing prospects for market stability and predictability - we have already made progress in this area with the establishment of the International Energy Forum Secretariat based in Riyadh and the Joint Oil Data Initiative which aims to improve information on oil supply and demand, particularly in developing countries;
* Sixth, expand human capital in the energy industry by recruiting and training the best and the brightest - Saudi Aramco, our national oil company, has a long and admirable history of training and developing its employees, which places it in a especially good position to meet the challenges of tomorrow;
* Finally, promote and implement new technologies. I am quite bullish on technology as the key to our energy future. My optimism springs from a confidence that technological innovation will allow us to find and extract more oil around the world while holding down costs. Technology will help us to improve the efficiency of our energy use, thus extending the useful life of our resources. It will also help us to accomplish this while offering greater protection to the environment. Ultimately, it will provide us with a stable transition to an eventual non-hydrocarbon-based economy, whenever that might occur.
Let me assure you that Saudi Arabia is responding to the challenges we face in today's oil market. Building on our long track record as the world's preeminent reliable supplier of energy, Saudi Arabia is in the forefront of efforts to stabilize markets and alleviate constraints. Our efforts include: meeting our customers' current needs by offering additional crude supplies as needed; expanding our production capacity to meet future demand and maintain spare capacity; building new refineries; expanding and upgrading our existing refineries at home and abroad; upgrading our tanker fleet; and investing in new technology across the spectrum of our business.
While Saudi Arabia is undertaking a massive program to meet the world's energy requirements, achieving stable oil prices and balanced markets requires a global effort. As producers and consumers, we face a variety of hurdles.
I want to emphasize that the problem is not a lack of resources. Remaining world oil reserves are abundant. Rather, the current impediments include, for example: the proliferation of product specifications, a myriad of regulations, infrastructure bottlenecks, and a lack of accurate and timely data needed to improve market transparency.
Saudi Arabia is working internationally to help address these issues and to improve transparency and cooperation among consumers and producers. I think dialogue, like the one we are having today, represents an important step on the road to a brighter energy future. I look forward to working with Secretary Bodman to achieve our shared interests.
In closing, I would like to emphasize that we hold the keys to mastering our energy future. To be successful we must learn from the past, while being prepared to depart from past practices when required. We must embrace new ideas and approaches, taking bold steps when necessary.
I would like to leave you with some words of wisdom from the past as we look to the future:
Abraham Lincoln, the 16th President of the United States, once said, "The dogmas of the quiet past are inadequate to the stormy present. The occasion is piled high with difficulty, and we must rise with the occasion. As our case is new, so we must think anew and act anew."
Thank you ladies and gentlemen.