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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