2005 Speech

Aramco CEO's lecture on energy at Rice University, Texas
President and Chief Executive Officer of Saudi Aramco Abdallah S. Jum'ah gave a lecture entitled 'Saudi Arabia and the United States: Partners in Prosperity - The Energy Dimension' at the James Baker III Institute for Public Policy in Rice University, Houston, Texas, on May 16, 2005.

Mr. Ambassador, distinguished guests, ladies and gentlemen: good evening. It's a pleasure to be with you here today, and to have an opportunity once again to visit my friends at the James Baker III Institute for Public Policy, and indeed throughout Rice University. The Institute is doing outstanding work on energy issues, and I applaud their efforts just as I thank them for their warm hospitality. And as always, it's good to be back in the Lone Star State-or as many of my Texan friends insist on referring to it, the "center of the known universe."

The petroleum industry, of course, has deep roots in Houston, and many of my colleagues in Saudi Aramco have lived, worked and studied here in Texas over the years. The Baker Institute itself is dedicated to the study and thoughtful analysis of the key issues facing policymakers around the world, and I believe that energy ranks among the most important of those concerns. So, when it comes to my topic-the diverse, mutually dependent and mutually beneficial ties that bind Saudi Aramco and Saudi Arabia to the United States-there may be no better forum for discussion than today's venue.

Our two countries have been doing important business together for some seven decades, and that relationship stands as a paragon of partnership. The strength of that relationship was confirmed, and indeed our firm bonds made even stronger, by last month's meeting between President George W. Bush and His Royal Highness Crown Prince 'Abd Allah, just up the road in Crawford.

I am proud to say that Saudi Aramco has been at the center of this relationship, ever since the day in 1933 when the Kingdom of Saudi Arabia and Standard Oil of California-predecessor to Chevron-signed a concession agreement which paved the way for the discovery of oil in the Kingdom and the subsequent development of our nation's petroleum industry. For many decades thereafter, Aramco was a partnership among four major American oil companies, which worked closely with the Saudi government to achieve and maintain the Kingdom's leadership position in petroleum production. Those companies, and the tens of thousands of Americans who have worked at Aramco, made tremendous contributions to our country and its prosperity.

Of course, the partnership between our two nations extends well beyond oil, into other vital areas such as commercial trade, international diplomacy, defense cooperation, and higher education. Perhaps most important are the people-to-people friendships that have developed over the years. This multifaceted relationship has withstood the test of time, as well as the tragic events of 9/11 and their aftermath. Over the decades, this partnership has served to benefit both our countries and societies.

Indeed, these trade, investment and people-to-people contacts are so important that I would like to take a few moments to examine these aspects of our relationship before moving on to our discussion of oil.

Saudi Arabia remains one of America's largest trading partners in the Middle East, and US brands are well-established and well-respected in the Kingdom. Aside from consumer goods, high tech tools and heavy equipment, the Kingdom values the work of the many American engineering, construction, financial and consulting firms active in Saudi Arabia, as well as the benefits these companies have provided through the transfer of technology. Today, some 35,000 US citizens live and work in the Kingdom-one of the largest overseas communities of Americans anywhere in the world. To put things in perspective, that's roughly the population of Texarkana. They are only the latest in a long line of American men and women to make their homes in the Kingdom, and whether they are earth scientists or research scientists, doctors or drillers, teachers or technicians, we appreciate the contributions of these men and women.

Even given the long history of engagement of American firms in the Kingdom's economy, I think the best days of our economic partnership still lie ahead of us. There are a wide range of profitable investment opportunities in the Kingdom available to American companies, whether Fortune 500 firms or small- and medium-sized enterprises. Over the next two decades, our country's infrastructure investments alone are estimated at some $700 billion, including major projects in the fields of telecommunications, power generation and water desalination.

There are further opportunities on offer in refining, petrochemical and natural gas, in addition to the engineering, construction and service industries supporting those sectors. As the Kingdom's economy continues to develop and diversify, there will be even larger and more lucrative opportunities available to US firms, and I believe that American companies have a major role to play in that ongoing economic expansion, just as they have for the last seventy years.

Closer to home, there is another set of organizations whose influence on Saudis and Saudi Arabia has been every bit as intense as the oil majors or the big engineering and project management firms. I speak, of course, of universities and other institutions of higher learning. Many Saudis who now occupy senior positions in either the public or the private sector earned their degrees from American universities, as have many of our nation's leading professionals. At Saudi Aramco alone, we have over 3,500 Saudi employees who hold at least one degree from an American university, and many have been awarded both bachelor's and postgraduate diplomas from American colleges. Here, on the grounds of one of your country's most distinguished and most beautiful universities, I need hardly tell you what a broad-ranging positive effect such an education has on individuals, their families, their companies and their communities. Multiply that effect over the tens of thousands of Saudi graduates of US universities, and I believe you will begin to understand the high value which we continue to place on these educational opportunities.

But just as the Kingdom depended on the experience and expertise of American companies, institutions and individuals for the development of its oil sector and other industries, the United States has come to rely on the Kingdom for much of its energy-the lifeblood of the US economy which contributes to the American way of life. There are some observers who have decried this dependence, and questioned first the continued need for the strategic reliance on Saudi petroleum, and secondly the reliability of that supply.

I don't think it will surprise anyone in the room to learn that I wholeheartedly disagree with those views. Instead, I believe that the safest and strongest guarantee of America's energy future lies in Saudi Arabia's unmatched reserve base and Saudi Aramco's extensive petroleum production, processing and distribution infrastructure. To demonstrate that my conviction is well-grounded in fact rather than emotion, let me pose a few questions. First, where is demand for oil in this country headed? According to the US Department of Energy's Energy Information Administration-the EIA-US demand for oil will grow from about 20.6 million barrels per day last year to almost 28 million barrels per day in 2025. During the same twenty-year period, domestic crude oil production in the States will decline by nearly one million barrels per day.

This, of course, prompts the next question: where will the US turn in order to compensate for this increasing energy deficit? Once again, let's look at the US government's analysis. The EIA predicts that in the next twenty years, Saudi oil production capacity will need to grow from its present level of roughly 11 million barrels per day to over 23 million barrels a day, in order to meet growing demand in the US and elsewhere around the globe.

Frankly, at this point it is difficult to say with any certainty whether this forecast call on Saudi Arabian crude oil will actually materialize. Nevertheless, the Kingdom is uniquely positioned because of its reserves and resources to consider raising its production by such a margin.

Nevertheless, some commentators have argued that diversification is a feasible substitute for Saudi oil, and that increased production from a range of other countries could significantly reduce the United States' dependence on oil from the Arabian Gulf. It is true that the potential exists for considerable expansion in future oil production capacity in regions like the Middle East, North and South America, and the various states of the former Soviet Union, including Russia. However, upon closer inspection, it's clear that each of these potential suppliers faces one or more serious challenges or constraints in significantly boosting its crude oil production level. For some it's a question of political stability or the investment climate; others face problems related to infrastructure and logistics; while still others possess relatively limited conventional oil reserves, thus constraining their ability to rapidly expand production. Even assuming that such issues could be overcome, the combined potential of the world's major producers is not expected to match the future production potential of Saudi Arabia alone. Therefore, diversification represents at best a complement to Saudi oil supplies, rather than a feasible substitute for them.

Then perhaps we should be looking "beyond petroleum," to borrow the catchphrase of one of my industry colleagues. With the significant efforts and programs being made to advance alternative energy, can alternatives meet a larger percentage of energy needs in the coming decades?

The EIA forecasts that the proportion of fossil fuels in the global energy mix will actually rise from 85.5 percent in 2001 to 87 percent by 2025. At the same time, the share of nuclear and other sources, including renewables, is forecast to fall from 14.5 percent to 13 percent.

While the promise of alternatives is immense, so are the technical, economic and logistical hurdles they face. As a result, the National Academy of Sciences here in the US has concluded that, and I quote, "In the best case scenario, the transition to a hydrogen economy would take many decades, and any reductions in oil imports are likely to be minor during the next 25 years," end of quote. Therefore, realistically speaking, hydrocarbons will continue to remain America's primary energy source for the foreseeable future. Alternatives will be needed in the future and one day they will eventually make a more substantial contribution to the global energy mix. But that day lies many decades from now.

In the meantime, we should work to improve the energy efficiency and environmental performance of mainstream gasoline and diesel engines and expand the use of hybrids and other "bridge" technologies, even as research on hydrogen fuel cells continues. Such an approach has the twin merits of being both responsible and realistic, and offers greater benefits in terms of environmental protection.

Therefore, we find ourselves once again reliant upon Saudi oil. Now let me pose another question, of the $64,000 variety: can Saudi Arabia and Saudi Aramco step up and deliver? It's a fair question, given what's at stake, and a question I can easily answer with an emphatic "yes."

The first key to our ability to provide energy to the world lies with our massive reserves of crude oil, which we divide into three broad categories. The first is proven reserves: some 260 billion barrels, accounting for a quarter of the entire world's proven oil reserves. The second category includes our probable and possible reserves, which are conservatively estimated at another 100 billion barrels. In fact, by continuing to turn probable reserves into proven barrels, we have been able to replace our production for many years, despite being one of the world's largest producers of crude oil. Lastly, there are the yet to be discovered resources. We estimate their in-place volume at some 200 billion barrels. These resources are likely to be located in the vast areas of the Kingdom that have yet to be adequately explored. To find and prove these reserves, we are currently pursuing an aggressive exploration program.

Second are the activities that bring those barrels from underground to the market. We have adopted a long-range view in our reservoir management strategies in order to maximize the ultimate recovery from our fields. In fact, our reservoir management teams aren't looking at what we will produce over the next decade or two, but rather at our production strategies 50 years from now. We view ourselves as stewards of these precious resources, not only for the good of the Kingdom but for the benefit of countries, communities and consumers around the world, now and in the future. To bring those barrels to the market, we operate one of the most sophisticated and reliable petroleum production, processing and transportation infrastructures on the planet. We are working diligently to expand Saudi Aramco's production capacity to 12 million barrels per day-with scenarios to bolster this to even 15 million barrels per day-consistent with the growth in world oil demand, the increase in the call on our production in the years to come, and the Kingdom's commitment to maintain a surplus production capacity of 1.5 to two million barrels a day.

This excess capacity plays a critical role in maintaining the stability of international oil markets, and enhancing the energy security of the United States and other global economies. Maintaining that surplus capacity is neither cheap nor easy, but it is vital. Unfortunately, the crucial role played by our spare production capability is neither clearly understood nor acknowledged by many. But in times of trouble or turbulence in the petroleum markets, or when production from other sources is impacted by unrest or upheaval, it is primarily Saudi Aramco's ability to tap its surplus capacity that makes the difference between global economic prosperity and economic peril.

While the size and scope of our petroleum infrastructure is vital in ensuring security of supply, the flexibility of that system is just as important. Our individual facilities are designed with numerous backup systems, and the network as a whole is also configured with multiple redundancies. For example, we can export oil not only from the Gulf but also the Red Sea, thanks to our dedicated export terminals on both coasts and the East-West Pipelines System.

We also maintain one of the largest fleets of supertankers, to enhance our ability to meet our customers' delivery requirements and to maintain our hard-won reputation for reliability. We have always paid tremendous attention to the safety and security of our people and our plants, and will continue to safeguard all of our assets and operations. To further bolster our reliability, we utilize advanced technology in all aspects of our operations. These tools range from an exploration and petroleum engineering computer center that stores four times as much data as NASA handles and a centralized real-time operations control center, to integrated SAP business applications and advanced parallel processing computer systems used to model our giant oil and gas reservoirs. Last but by no means least, we also invest in our people. We want to ensure that they can handle not only today's sophisticated technology, but have the knowledge, technical know-how and spirit of innovation needed to invent, adopt and adapt tomorrow's technological breakthroughs.

The bottom line? In our nearly seven decades of existence, Saudi Aramco has never once failed to meet a supply commitment to one of its customers for operational reasons. Not once. We're proud of that fact, but we also realize that we must maintain that record of reliability in the future. Indeed, given the increased demand for our petroleum and its growing share in the world's total oil supplies, the relationship between Saudi Aramco's operational reliability and the stability and security of the world's energy supply has never been more pronounced. That's a responsibility we acknowledge, and a challenge which we are eager to meet-not simply for your benefit or ours, but for the benefit of all.

This is an important concept to grasp, especially since the traditional view of energy security envisaged countries competing for energy resources, with an ever-present potential for conflict. This traditional understanding also equated energy and oil imports with dependence and vulnerability. However, I see a growing consensus that such a view is both outdated and unnecessarily pessimistic, and that-as is the case with other commodities and products-international trade in energy can in fact serve as a unifying factor by creating interdependence between producers and consumers. While consumers need energy to sustain and hopefully raise their standards of living, producers also need markets for their petroleum and depend on export revenues to maintain and enhance the prosperity of their own societies.

Candidly speaking, we need you every bit as much as you need us. Far from being a source of vulnerability and dependence, our energy relationship represents a mutual opportunity based on shared interests, which is consistent with the long history of cooperation between the United States and Saudi Arabia.

Our two countries, and our two peoples, have shared a great deal over the decades. We have stood shoulder to shoulder in times of war and peace, have remained steadfast allies in good times and bad, and have come to depend deeply upon one another. You have helped in the development of our nation and its people even as we have helped to fuel your economy and provided the energy that has partly contributed to your domestic prosperity. The impact of these ties has been profound, and neither of our societies would be quite the same had our relationship not been so strong, or endured for so long.

Diplomatic relations are based on national interests, economic ties are built on commercial considerations, and energy relationships must be grounded in the basic law of supply and demand and shaped by the forces of the market. These fundamental rules certainly apply to the Saudi-US relationship, but it would be a mistake to imagine that cold-eyed calculation provides a true measure of that bond. Rather, we must always keep in mind the human aspect of our friendship, and the people-to-people contacts that make our relationship so rich and rewarding.

We should think of the retired American engineer living in the desert Southwest, his house decorated with the cherished Bedouin rugs and jewelry he and his wife collected during their years with Saudi Aramco, who remembers just how dazzling the stars are on a night spent camping in the dunes of Saudi Arabia's Empty Quarter. We have to consider the Saudi refinery manager who wakes up at three in the morning his time to tune into his alma mater's bowl game, and to recall the sights and sounds of Saturday afternoons in the Midwest watching college football. And we must recall the generations of Americans who have worked and raised their families in the Kingdom, the tens of thousands of Saudis who have lived and learned here in the United States, and the unique moments that each treasures from his or her experience abroad. Those memories continue to be made today among a new generation, and the relationship between our two peoples will be stronger for them.

So when it comes to the Saudi-American relationship, by all means let's examine issues of diplomacy and energy and trade. I hope from our discussion today that you will agree that this is an important story to tell, and a good story to boot. But let us also celebrate the human dimension of our relationship, and remember that we have all been enriched by our interaction, one with the other, partners in prosperity.

Thank you.