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The President of state-owned Saudi Aramco says prices are too low, but it’s not Saudi’s responsibility to bolster them

Khalid al-Falih, President and CEO of state-owned Saudi Aramco, said that while prices are “too low for everybody,” it is not the sole responsibility of Saudi Arabia to cut production in order to shore up the price. “Supply and demand and the rules of economics will govern. It will take time for the current glut to be removed,” he said at a conference in Riyadh.

While al-Falih agreed that low prices are a detriment to everyone, he echoed the official OPEC stance, saying that cuts from Saudi Arabia would only result in lost market share for the country, and do little to help prices recover, reports Bloomberg. He also acknowledged that continued low prices would damage future investment, however.

Falling prices have hurt investment worldwide, al-Falih said. His company plans to cut spending this year below its initial target, joining the growing number of oil producers who are cutting costs in order to weather the low price environment. Saudi Aramco plans to invest $30 to $40 billion per year to maintain crude output, transform itself into the world’s largest refiner and expand its trading and chemical businesses, al-Falih said.

“To do that we need a price that is very, very healthy,” he said. “It’s not a matter of recovering what we spent. It’s a matter of fueling an investment plan.” Aramco’s president said that producing a barrel of oil costs the company less than $10. “Whether the price is $40 or $100, we’re not only covering our costs. We’re recovering the capital we invested.”

Low investment now could mean high prices down the road 

Many, including OPEC’s Secretary General Abdulla al-Badri, are warning that low investment in today’s market could mean oil prices up to $200 per barrel in the future. The International Energy Agency (IEA) has also said that low investment could lead to demand outstripping supply in the long-term.  IEA Executive Director Maria Van Der Hoeven said last week that producers must invest more to satisfy a forecast need of 14 MMBOPD of additional crude by 2040.

Saudi Aramco plans to more than double investment in unconventional sources of natural gas, al-Falih said. Aramco has invested $3 billion to develop unconventional gas and plans to spend an additional $7 billion, without specifying dates for the actual or planned spending, reports Bloomberg.

Even as al-Falih and Saudi Aramco work to maintain future growth, there are experts who think that Saudi Arabia may not want prices up around $100 per barrel again. Samira Kawar, Middle East Editor for Argus Media, that it may not be in the best interest of Saudi Arabia or OPEC to see prices above $100 per barrel again.

According to Kawar, prices that high allow for unconventional producers to operate profitable, cutting into the market share of OPEC countries. “I don’t believe they will want prices to rise to $100 again,” she said. Keeping prices below that mark would allow OPEC producers to take any lost market share from higher-cost unconventional producers.

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Important disclosures: The information provided herein is believed to be reliable; however, EnerCom, Inc. makes no representation or warranty as to its completeness or accuracy. EnerCom’s conclusions are based upon information gathered from sources deemed to be reliable. This note is not intended as an offer or solicitation for the purchase or sale of any security or financial instrument of any company mentioned in this note. This note was prepared for general circulation and does not provide investment recommendations specific to individual investors. All readers of the note must make their own investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Investors should consider a company’s entire financial and operational structure in making any investment decisions. Past performance of any company discussed in this note should not be taken as an indication or guarantee of future results. EnerCom is a multi-disciplined management consulting services firm that regularly intends to seek business, or currently may be undertaking business, with companies covered on Oil & Gas 360®, and thereby seeks to receive compensation from these companies for its services. In addition, EnerCom, or its principals or employees, may have an economic interest in any of these companies. As a result, readers of EnerCom’s Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this note. EnerCom, or its principals or employees, may have an economic interest in any of the companies covered in this report or on Oil & Gas 360®. As a result, readers of EnerCom’s reports or Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.