Minister Al-Naimi Address at the German-Arab Friendship Association in Berlin
Minister Al-Naimi Address at the German-Arab Friendship Association in Berlin
His Excellency Ali I Al-Naimi
Minister of Petroleum and Mineral Resources, Saudi Arabia
Address to the German-Arab Friendship Association
Excellenzen, Damen und Herren, guten morgen.
It is a pleasure to be here in Berlin speaking at the German-Arab Friendship Association.
I first visited Germany as a student in 1960, when I spent a summer traveling around the country, visiting Bonn, Frankfurt, Heidelberg, Stuttgart and Munich. It is a time I recall fondly and I have returned many times since. I was here last August, enjoying a holiday in your beautiful Black Forrest. So when I talk about the friendship between Germany and the Arab world, I have personal experience of your nation’s kindness and hospitality.
Ladies and gentlemen. I have been asked to talk to you about Saudi Arabia’s role as an energy-exporting country in the 21st century. I believe that our role, as the pre-eminent, reliable and stable supplier of oil is well known. So I will instead address three specific areas of interest. First, I will discuss events that have taken place in the global oil market over the past eight months.
Second, I will outline Saudi Arabia’s policy position and, thirdly, I will look to the future. Finally, and briefly, I will talk about some of the areas where I see opportunities for increasing bilateral trade and investment between our two nations.
So first, the events of the past eight months.
Oil remains a vital component of modern life, powering economic growth and improving the prospects of millions of people around the world. Oil is a complex global industry and a necessary part of the 21st century energy mix yet, in some ways, the oil business is quite simple: it’s about supply and demand. The oil price, however, is not quite so clear cut. Supply and demand are key aspects, of course, but it also takes into account a range of other factors. These include speculation, conjecture – informed or otherwise – and perception about what the future holds. Also, oil is increasingly used as an asset class and this also impacts the price.
When prices are rising, or at an historic high, as they have been over the past few years, the global oil industry tends to increase investment. So we have seen higher production from oil fields that are more costly to develop or operate, such as in the arctic, deep offshore, heavy oils in Canada and Venezuela, and shale oil deposits in the US. Ultimately, this additional production has come during a period when the global economy is recovering from a deep recession.
Oil demand growth, particularly in Europe, has been impacted. These factors combined have led to an over-supply. If you add into this speculation about a future oil glut and potential falling demand, you get falling prices. This is how the oil market operates. We have seen this pattern repeated time and again over many decades. It’s happened again.
During periods of rapid price movement, up or down, there is often a frenzy of commentary ascribing various bizarre theories and motives – about collusion or conspiracy – to OPEC and to major producers, most notably Saudi Arabia. With the recent price drop, OPEC and Saudi Arabia have yet again been maliciously – and unfairly – criticized for what is, in reality, a market reaction. Some speak of OPEC’s “war on shale”, others claim “OPEC is dead.” Theories abound. They are all wrong.
It has always been the aim of OPEC nations to work together to do what they can to stabilize prices, ensure fair returns for producers and steady supplies for consumers. In November, I believe OPEC made an historic decision. It did not intervene in the market.
Many commentators have recently seen the sense in this approach. And I think history will prove that this was the correct path forward. From my perspective, demand is gradually rising, global economic growth seems more robust and the oil price is stabilizing. Saudi Arabia’s quest for market share is simply an effort to satisfy rising customer demand. We seek calm markets, because this benefits everyone.
Ladies and gentlemen. This brings me to my second point: Saudi Arabia’s oil policy. Seeking well-balanced markets remains the central pillar of Saudi Arabia’s oil policy.
We have invested vast sums to maintain spare production capacity, and consistently invest for the long-term. We believe our policies have contributed to market stability and our partners across the world recognize this. When significant supply disruptions have occurred we have risen to the challenge and the Kingdom has repeatedly made additional volumes available. This has helped blunt some of the negative impacts on the global economy. Saudi Arabia takes this role seriously and remains committed to being a reliable supplier to our customers around the world.
We have a long-term view. We try to avoid knee-jerk reactions to short-term market movements.
Over the past eight months, though, with the market in surplus, it is Saudi Arabia that is called upon to make swift and dramatic cuts in production. This policy was tried in the 1980s and it was not a success. We will not make the same mistake again. Today, it is not the role of Saudi Arabia, or certain other OPEC nations, to subsidize higher cost producers by ceding market share. And the facts on the ground are very different anyway. Non-OPEC supplies are much larger than they were in the 1980s and a much more multi-national approach is required. Saudi Arabia remains committed to helping balance the market but circumstances require other non-OPEC nations to cooperate. Currently, they choose not to do so. They have their reasons. But I would like it to be known that Saudi Arabia continues to seek consensus.
I would also like to reiterate a point I have made several times before. This new oil supply growth – much of it coming from the US – is a welcome development for world oil markets and the global economy over the past several years. These new supplies, along with Saudi Arabia’s own efforts, have helped offset outages from other oil producing countries. Without them, a still vulnerable global economy could have faced much higher energy prices. Saudi Arabia has consistently welcomed new unconventional supplies, including shale. As I said, Saudi Arabia has a long-term view. And in the long term, additional demand will need to be met by all sources of energy, be they fossil fuel or renewables. So what does the future hold? This brings me to my third point.
Ladies and gentlemen. Over the long term, the facts are indisputable. The world’s population is increasing, the global middle class is expanding, and the demand for energy will rise accordingly. Access to reliable and stable energy supplies will help improve global living standards, increase educational levels and boost economies worldwide. In this, I believe all nations are in agreement. We have a shared responsibility to create the conditions that can make this happen.
In terms of oil, the global market is large and growing, albeit slowly at the moment. But I believe there is room for all producers. Of course, during periods when supply growth outpaces demand, the lowest-cost producers will inevitably have an edge over higher cost marginal producers. Saudi Arabia, blessed with a massive hydrocarbon resource base and some of the world’s largest conventional oilfields, enjoys very low production costs. And we are more efficient than other producers. It is an advantage which we will use, as any producer would, to help supply dependent global customers.
But while a down cycle causes oil industry pain, it brings benefits as well. A period of lower oil prices incentivizes companies to take a more disciplined approach and focus on implementing production efficiencies. This is certainly true for our national oil company, Saudi Aramco. More importantly, the greatest short-term benefit of lower oil prices is to the consumer and the global economy. The benefits of lower energy costs are timely for those countries currently facing economic headwinds – including many emerging markets.
Achieving market stability remains our goal. We will never be able to curb volatile oil market investment cycles, but perhaps we can work to moderate them for the benefit of all producers. It is vital that all producing countries – OPEC and non-OPEC – continue to focus on long-term common objectives of ensuring oil market stability and a sustainable future for both oil producers and consumers. Going forward, I hope and expect supply and demand to once again start to balance, and for prices to stabilize.
Ladies and gentlemen. While I am here today, I would also like to say a few words about Saudi-German bilateral trade and investment, and opportunities for the future. Saudi Arabia is in the midst of an unprecedented and historic effort to diversify and industrialize its economy. To achieve our aims, it is vital that Saudi Arabia partners with successful countries, such as Germany, and its companies.
Today, bilateral trade stands at around 11 billion euros and many German companies are contributing towards the Kingdom’s rapid development. Siemens, Linde, and tunneling company Herrenknecht are already involved in a range of projects in the Kingdom. Renewable energy and energy efficiency are two obvious areas where I see more room for partnerships.
Germany is a world leader in terms of solar – and Saudi Arabia has a lot of sun, and acreage. We intend to harness more and more of our domestic energy needs from solar power so there really is scope for greater cooperation.
Saudi Arabia is also striving to establish an industrial rubber industry, and I hope we can do this in partnership with German companies, which have substantial expertise. There is also potential for partnerships as we expand our downstream chemicals business, especially in terms of creating polymers from carbon, which will also help tackle harmful emissions. Finally, there are opportunities in healthcare, training – especially vocational training – logistics and transport. I hope they are grasped.
Damen under Herren. I would like to thank you all for listening today and hope that German-Arab Friendship continues to flourish and strengthen in the future.