During CERAWeek 2009 in Houston last week, Saudi oil minister Ali Al-Naimi was the keynote at a dinner for nearly 1,000 attendees, who of course were eager to hear from him. It's a rare opportunity for all of us who cannot go to Vienna every time OPEC meets. The man seems charming, a gentleman, articulate. He spoke with self-deprecating humor. But I can see that he, and by extension all of OPEC, is caught in the cross-currents of the day. After the global economy rights itself--whenever that is, in 2010 or beyond--global oil demand will surge once again, and with it, oil prices. But until then, OPEC has, since last September, struggled to get control of the oil markets. It has vowed to cut production by more than 4 million barrels a day. Yet at the same time, Saudi Aramco has been increasing its capital spending and drilling activity over the past two years. Now in mid-year, its megaproject called Khurais Field will come on stream at the rate of 1.2 million barrels a day. That will bring the Saudi's spare capacity to 4.5 million a day, well above their stated policy of maintaining 1.5- to 2 million a day in spare capacity at all times. And this is happening during a time of reduced global oil demand, when some 80 million barrels are floating offshore in tankers, as marketers wait for demand or prices to turn back up. At the same time that Al-Naimi called for oil market stability at CERA, and hopes for a price high enough to create a return, yet low enough to sustain world demand, he also acknowledged the need for nuclear power and renewables. He even vowed that one day, the Kingdom will export the same BTU equivalent in electricty from solar, as it now exports in crude! "All BTUs are welcome and needed--whether they come from renewable energy, nuclear power or fossil fuels," he said. "While the push for alternatives is important, a prudent approach demands that we recognize the massive scale of the global energy industry, which makes rapid change costly and impractical. "We must be mindful that efforts to rapidly promote alternatives could have a 'chilling effect' on investment in the oil sector. A nightmare scenario would be created if alternative supplies fail to meet overly optimistic expectations, while traditional energy suppliers scale back investment due to expectations of declining demand for their products." He also said global cooperation, more research, and government policies to promote increased energy efficiency and conservation are needed. "Over time, the world will likely transition away from the current fossil-fuel-based energy economy," he said. For more detail on the world oil situation, see the upcoming March cover story in Oil and Gas Investor magazine, or go to OilandGasInvestor.com. --Leslie Haines, Editor-in-chief, Oil and Gas Investor
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