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2014-08-27 18:30:00

SAUDI ARAMCO WARNS

SAUDI ARAMCO WARNS

The chief executive officer of Saudi Aramco, the world's biggest oil producer, said Monday that worries such as rising oil-sector costs and global turmoil could lead to a lack of oil supplies down the line, if oil companies fail to make sufficient investments.

"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," Khalid A. Al-Falih said at the Offshore Northern Seas energy conference.

The factors that could threaten global oil supply include rising costs and cost overruns on oil mega projects, Mr. Al-Falih said. He also pointed to manpower shortages, climate change issues, low oil demand growth amid global economic weakness in the short term, and turmoil in oil-producing regions such as Africa, the Middle East and the former Soviet Union.

"For now, however, the market is shrugging them off, and prompt prices are reflective of weaker demand," said Mr. Al-Falih.

Despite unrest in Iraq and Libya and geopolitical tensions in Russia over Ukraine, oil prices have dropped to $102 per barrel from this year's peak in June at $115 per barrel. The International Energy Agency reduced earlier this month its 2014 demand growth estimates amid slow global growth.

Mr. Al-Falih said the oil sector's long-term growth outlook was 'fairly healthy,' as global primary energy demand is set to grow by more than a third from the current level by the mid-2030s. However, oil companies are squeezed between rising costs and shareholder demands, he said.

"Industry profitability is plateauing after a banner decade," said Mr. Al-Falih. "We are seeing project cancellations and a general capital curtailment."

Mr. Al-Falih said his company had launched a program to reduce its capital cost by 20%, as "even at Saudi Aramco, project costs have roughly doubled over the last decade."

The world's oil fields are in decline, so the world needs to replace close to 40 million barrels a day of new capacity within the next two decades, Mr. Al-Falih said. A lot of those resources will be complex and expensive, such as shale oil and gas and heavy oil projects.

"So, to tap these increasingly expensive oil resources, oil prices will need to be healthy enough to attract needed investments," said Mr. Al-Falih.

wsj.com

 

 

Tags: SAUDI, ARAMCO, OIL