Saudi Arabia’s state energy company said on Monday that its dominant role in world oil supply had been altered by large new reserves in North America, sapping the urgency to develop the kingdom’s own reserves.
The speech by Saudi Aramco’s chief executive officer was the first from the globe’s top oil exporter to acknowledge that unconventional oil was set to shift the energy balance of power and cut U.S. dependence on Middle East crude.
“The abundance of resources and the more ‘balanced’ geographical distribution of unconventionals have reduced the much-hyped concerns over ‘energy security’ which once served as the undercurrent driving energy policies and dominated the global energy debate,” Khalid al-Falih said.
For years oil markets, nervously watching pressure on limited spare production capacity, have obsessed over Saudi Arabia’s supply cushion as the last defence against prices spiralling higher.
“A few years ago, much of the global energy debate was based on the premise of acute resource scarcity and its economic and political ramifications,” Mr. al-Falih said.
“Rather than supply scarcity, oil supplies remain at comfortable levels, even given rising demand from fast-growing nations like China and India,” he added.
Saudi Arabian Oil Minister Ali al-Naimi said on Sunday that he saw oil markets as balanced ahead of OPEC’s Dec. 14 meeting.
Mr. al-Falih said in early October that he saw no reason for Aramco to significantly increase its oil production capacity in the mid-term because of rising conventional output from countries like Brazil and Iraq.
Weak U.S. economic data, mounting euro zone sovereign debt and concern about the exposure of major banks to it raised “the spectre of a double-dip global recession,” he told the conference in the Saudi capital on Monday.
“All that makes spending on aggressive energy programs unlikely,” he said, adding that abundant affordable hydrocarbon supplies challenged investment in renewable technologies.
As a result, Saudi Aramco had no plans to increase its oil production capacity to 15 million barrels a day, Mr. al-Falih said.
“Saudi Aramco has more spare capacity than the kingdom is obligated to or has committed to,” he told reporters. “So it wouldn’t make sense.”
OPEC expects global output of non-conventional oil to rise 3.4 million b/d by 2015, still dominated by oil sands, to 5.8 million by 2025 and to 8.4 million by 2035 when tight oil would be playing a much bigger role.
In 2035, the United States and Canada is expected to be dominating unconventional oil production with 6.6 million b/d, but China could be producing 1.1 million of its own unconventional oil by then.
A technology-led surge in North American shale gas production has created a global glut over the past few years which has reduced U.S. reliance on Middle Eastern gas imports, forced exporters to look for new buyers and cut their revenues.
With competition for crude sales rising and its own gas needs intensifying, Aramco is now focusing on tapping enough of its own gas reserves to meet the kingdom’s growing appetite for power generation and industry.
“We are drilling this year a number of (unconventional gas) wells, just to test the geology... and do some preliminary economics. We will continue that in 2012,” Mr. al-Falih told the conference.
“In the long term, we will be doing some significant pilots as we feel the economics are favourable. Short to medium term is relying on growing our conventional gas reserves,” he said.
He said it is still too early to estimate Saudi Arabia’s own unconventional hydrocarbon resources.
“Abundance isn’t limited to gas reserves, but is also the new headline when it comes to oil,” Mr. al-Falih said.