Saudi Aramco CEO: Oil industry ‘needs timely investments’

The president and chief executive officer of Saudi Aramco, the world’s biggest oil producer, said that rising oil-sector costs and global turmoil could lead to a lack of oil supplies down the line, if companies fail to make sufficient investments.
Speaking at the Offshore Northern Seas Conference in Stavanger, Norway, on Monday, Khalid A. Al-Falih said: “We must put our money where our mouth is, by making prudent and timely investments; balancing long-term objectives and short-term interests; and meeting the energy needs of the future while providing attractive investment options and delivering value to shareholders.
“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. This will ensure that we efficiently meet the Kingdom’s rising energy demand with gas for power and industry and refined products for transport, while also meeting the global call on our crude oil.”
He rising costs and cost overruns were dragging many projects. “At Saudi Aramco, project costs have roughly doubled over the last decade despite deploying cutting-edge technologies and applying our robust project management systems to mitigate cost escalation. These project challenges are driven in part by shortages and bottlenecks in our supply chain, including drilling contractors, shipyards, EPC firms, and materials and equipment suppliers, which have led to growing quality, schedule and cost pressures.”
Al-Falih said the industry was experiencing critical manpower shortages. “Finding and attracting competent engineers, rig personnel and geoscientists to run ever more complex and expensive operations has become an acute challenge,” he said.
According to Al-Falih, continued global economic weakness is hindering short-term growth in oil demand, while turmoil in oil producing regions such as Africa, the Middle East and the former Soviet Union is further clouding the outlook.
“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.
He said: “At Saudi Aramco, we are convinced that innovation and cutting-edge technology are the key strategic enablers of our current success and future competitiveness, which is why we are tripling our R&D manpower and increasing our R&D funding fivefold. Our research agenda is targeting a leadership position in about a dozen technology domains. They include multiple technologies that will help us achieve our goal of increasing our oil recovery to 70 percent and allow us to add more than a hundred billion of barrels of oil resources to our already large portfolio. In addition, we are targeting major advancements in drilling, which constitutes 60 percent of our upstream budget and is vital to realizing our significant unconventional gas potential.”
He said companies which have the strength, resilience and vision to deal with uncertainty and volatility, and which are both innovative and adaptable to changing conditions, will be the ones to turn significant challenges into promising opportunities— and thus to thrive and prosper.
“Given the nature of our industry’s challenges, and knowing that the achievement of our targets would stretch even the best organizations, I must stress that collaboration within the industry — and indeed with other industries where appropriate — is essential,” he said.
“So rather than storm clouds, I look forward to even brighter days ahead, confident that the kind of technological know-how and innovative capability represented in this conference will play an important role in achieving those better days,” Al-Falih added.