High oil prices continue to be the focus of attention. At a recent conference in Bahrain, organized by a publishing house, some of the speakers felt that the current oil prices are still below the inflation adjusted prices prevailing in early 80s. Hence the consensus was that it was not yet derailing the global economic growth. Saudi Arabian Monetary Agency (SAMA) Governor Hamad Al-Sayari also says that top central bankers during a meeting in Basel also concurred that high oil prices aren’t impacting the global economic growth.
German chancellor who was visiting the region last week said that high oil prices and the transparency of oil markets would be a leading topic at the upcoming Group of Eight (G-8) nation’s summit.
However, very few at this stage seem to acknowledge the fact that the single product economies of most of the oil producers’ also need to flourish and prosper. The following argument has been an old one - yet still carries weight - that if the industrialized world likes to sustain handsome returns on its products, the single product economies of the oil producers also have similar rights even in this unipolar world. Market forces and not politics should dictate crude too in this era, where capitalism is reining supreme all around.
Let’s look around. Despite the fact that Saudi Aramco is not publicly listed and avoids debt and thus has no compulsion to divulge much to the financial markets, the company has opened up considerably over the last few years. This is so because, as per the Aramco CEO Abdallah S. Jum’ah, “with a quarter of global reserves, Aramco has a huge responsibility to the world. Saudi Arabia is definitely mindful of its global responsibilities.”
And many a times in recent history, Saudi Arabia has proved to be a responsible player on the scene. It has often come to the rescue of the world with extra oil, whenever there has been a supply disruption. It cranked up output dramatically after the invasion of Kuwait by Iraq in the early 90s. It continued to quench the global thirst during the recent Iraq war. In fact Aramco’s big buffer of spare capacity has caused it to be known as the “central bank of the oil.” Even Schroeder admitted it.
And now in view of the galloping global crude demand, Saudi Aramco is on move to increase its spare capacity again. It is now envisaging an output capacity of around 12.5 million barrels per day as against the current 10.5 million barrels a day. In case required, Saudi Arabia has indicated it would be ready to push its capacity up to 15 million barrels per day.
Saudi Aramco has already adopted a fast track approach on its program to develop the onshore Abu-Hadriyah, Fadhili and Khursaniyah oil fields in the eastern Province. The launch of this program follows the full commissioning of the Abu Safah/Qatif oil field development was inaugurated last December. This added an estimated 800,000 bpd of oil capacity.
Outside contractors are now reporting a surge in drilling activity in the Kingdom, with rig counts likely to rise from 35 to at least 70 by the end of the year. Some reports say it could even go up to 77 as well.
Further in contrast to past practice and in response to the accusations that Saudi wells are past their peak, Saudi Aramco is now openly discussing field data previously held secret. The company has put forward data that argues that it could easily raise its output to 15 million bpd or even more, if so required, for 50 years or so, even without new oil discoveries. It also emphasizes that it hopes to add at least another 200 billion barrels of oil to its currently proven reserves of 263 billion barrels. According to senior company executives, Aramco has released more data in 2004 than in the past 50 years. If this is not transparency what else could be? G-7 needs to spell it out!
