Ali al Naimi, the minister of petroleum for Saudi Arabia, is one of the driving forces inside OPEC. Here he talks about the challenges facing OPEC, how Saudi Arabia manages its oil reserves and what he considers is a fair price for crude.
Q What challenges do you see for OPEC during the next 50 years?
A The purpose of OPEC is to defend and protect the interests of its members. Secondly, to ensure stability in international markets by assuring supply to meet demand and in that process, when events happen like 2008 and 2009, bring balance to the market as soon as it can. We hope that all producers - whether they are countries, international oil companies - invest in making supply available to the world. As far as managing the price, that is no longer in the hands of the producers. The price is market driven and will continue to be so in the future.
How does Saudi Arabia support OPEC?
We have invested a large amount of money to increase production capacity. We can export 12 million barrels per day and today we produce 8 million. You can see we have a cushion of 4 billion to 4.5 million. This cushion is part of our policy to keep about 2 million in reserve to face any fluctuations in the market regarding natural events or political disputes.
How does Saudi Arabia manage oil as a finite resource when the market is driven by short-term issues?
First of all you know that fossil fuels, whether carbon, oil or gas, are going to be with us for the next 30 to 50 years or longer, whether we like it or not. We just don't have a choice. What we need to do is to make these sources of energy climate friendly and that is possible with technology today and with what can be developed in the future. As far as the quantity of reserves, that is a changing target because technology has allowed producers to improve recovery with time. Because oil in place is a very big number, the challenge for all producers is how to manage these oil-in-place reserves and convert them to reserves we can produce. When a field is discovered, the engineers will say they think we can recover 17 per cent because they don't have any experience producing that field. As time goes by and they drill wells and produce and see the reaction of the reservoir, they say we can recover 35 per cent. Finally, the average the industry believes can be done is about 50 per cent. However, there are experiences in different areas, and Saudi Arabia is one of them, where some fields we have produced around 70 per cent of oil in place. So you can imagine if we go to 71 or 72 per cent, that adds billions of barrels. So the world's oil reserves are plentiful and when I say it is going to be good for 30 to 50 years, it will do that. But more importantly we should really work on bringing any source of energy to the world. There are people today who don't have electricity. I think the number is 1.4 or 1.6 billion people. There are 2.4 billion using biomass, so there is a need for a lot of energy.
What is a reasonable price for oil?
Unreasonable prices are not in the interest of the consumer and not even in the interest of the producer. Unreasonable prices affect demand and this is not to the advantage of producing countries. But a reasonable and moderate price is satisfactory to consumers and producers and more importantly to the investor, who wants a return. When we met in Cancun, there was satisfaction and agreement that the price of $70 to $80 a barrel was equitable and justifiable but the global markets determine the price. What affects the price is supply, demand, stocks and speculation because petroleum has become a tool in markets. Another factor that made all countries agree that $70 to $80 is in the interests of consuming countries is that they are trying to develop alternatives, which are costly, such as heavy oil in Canada. These developments are costly and not feasible at $30 to $40 and this is a factor which puts a minimum price on oil.
