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Al-Falih stresses need for maintaining investments to boost energy supplies

Armaco need for maintaining investments as rising costs

Share on Facebook August 27, 2014, Reporter : BigNewsNet, Reader : 438


STAVANGER, Norway - Khalid A. Al-Falih, chief executive of Saudi Arabia's state-owned national oil company Aramco, world's biggest oil producer, Monday stressed need for maintaining investments as rising costs and cost overruns were delaying projects which together with global turmoil could impact energy supplies

Speaking at the Offshore Northern Seas Conference in Stavanger, Al-Falih said: "The factors I just highlighted are likely to put downward pressure on supplies over the longer term, if the industry fails to make prudent and timely investments."

Despite the decline in global oil prices, which have hit its economy this year, Al-Falih said, "At Saudi Aramco, as we solidify our upstream leadership while also diversifying our business portfolio, our investments will exceed $40 billion a year during the next decade.

'Although our investments will span the value chain, the bulk will be in upstream, and increasingly from offshore, with the aim of maintaining our maximum sustained oil production capacity at 12 million bpd, while also doubling our gas production."

The objective is to meet the Kingdom's rising energy demand , particularly gas for power and industry and refined products for transport, "while also meeting the global call on our crude oil."

Al-Fahi told the conference that in Saudi Aramco, project costs have roughly doubled over the last decade despite deploying cutting-edge technologies and applying robust project management systems to mitigate cost escalation.

He warned the delegates that if global crude oil prices stay low it will discourage investments in areas where the production costs are more expensive.

Al Falih said: "To meet forecast demand growth and offset [global output] decline, our industry will need to add close to 40 million barrels per day of new capacity in the next two decades."

Saudi Arabia ranks fifth in the world in natural gas reserves, with 291 trillion cubic feet of proven reserves, and eighth in production, at about 3.6 billion cubic feet last year, according to the US energy information agency.

The declining oil price has put pressure on Saudi Arabia's economy. Analysts at Capital Economics estimate that the Saudi economy slowed to a growth rate of 4.3 per cent in the second quarter of this year, compared to 4.7 per cent in the first, mainly due to slowing oil sector the main culprit.

Nonetheless, Saudi Arabia and Aramco remain committed to a market-based approach.

Al-Falih said that neither Opec nor the International Energy Agency, a leading global energy think tank, should try to control oil prices.

Fundamental industry problems, such as rising costs, difficult technical challenges, and diminishing oil discoveries would support oil prices in coming years, he said.

"Over the next two decades, world primary energy demand is set to grow by more than a third from the current level," he said. "At the same time, we can take comfort that alternative energy sources despite facing multiple obstacles are beginning to grow their contributions, although slowly and starting from a small base."

According to Al-Falih, to meet forecast demand growth and offset this decline, the industry will need to add close to 40 million barrels per day of new capacity in the next two decades.

"To put that figure into perspective, that's equivalent to approximately 30 Norways or 15 times America's current unconventional oil production," he said.

On the US shale gas and oil challenge to its own dominant position , Al-Falih said to meet demand growth forecast globally, shale oil and gas is the best thing that has happened because it has kept prices within a band that allows consumers and producers to plan appropriately for investment and to meet rising energy demand," he said.

"Without that share, the world would have been in a tight spot given the interruptions that have taken place in some other producing areas," he said.

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