VIENNA: Petroleum and Mineral Resources Minister Ali Al-Naimi warned of a possible “catastrophic” energy supply crunch without prompt investment.
“In years to come, if traditional energy supplies should prove inadequate because capital expenditure was curtailed due to unsustainable prices, unreliable indication of future demand or hopes for a substitute that oil cannot deliver, such a supply crunch would be catastrophic,” he told a conference of energy leaders here yesterday.
“The painful result would be felt sooner rather than later. It would effectively take the wheels off an already derailed economy.”
The world risked disaster by placing too much hope on untested alternative energy sources, he said.
“We frankly court disaster if these supplemental resources on which such high hopes for energy security and sustainability are pinned do not fulfill their high expectations,” he said.
Al-Naimi said the world should not use low oil prices as a reason not to invest in the sources of future production. “To do so would only guarantee further shortages and soaring prices,” he said.
The Organization of the Petroleum Exporting Countries (OPEC), with Saudi Arabia taking a lead role, has made its biggest output cuts ever to haul oil prices back from a $100 drop.
“I have often described unsustainably low oil prices as carrying the seeds of future price spikes and volatility,” Al-Naimi said.
“In a low price environment, the trend is often to focus on survival instead of expansion,” he said. “If we place a low priority on preparing for the future, that lack of action can come back to haunt us through supply shortages and another round of high prices.”
Al-Naimi spoke out on “rhetoric” against the future of oil as an energy source and calls among leading energy consuming nations for greater independence from imports.
“The situation is also complicated by other factors, such as political rhetoric calling for reduced dependence on oil for perceived reasons of environmental sustainability, or seeking independence from a particular region,” he said.
He pledged that Saudi Arabia will sustain long-term investment to ensure supplies despite the global economic problems.
“Despite the current economic situation and other challenges to the energy sector, Saudi Arabia will stay the course with our long-term capital investments for oil and gas expansion and related programs to enhance world energy supplies,” he said.
According to Al-Naimi, OPEC’s cuts had steadied the market. “I think OPEC has succeeded in stabilizing prices,” he said. “The next thing is to hope for a gradual improvement in prices over time.”
OPEC needs to remove about 800,000 barrels per day (bpd) from the market to comply fully with its 4.2 million bpd of pledged curbs. Some analysts also expect oil to rise this year as the curbs erode high stockpiles.
“One of the reasons why OPEC felt able to roll over quotas was that they do appear to have set a floor for prices,” said Mike Wittner of Societe Generale.
He forecasts Brent crude will average $60 in the last three months of 2009, up from about $47 now. “According to a lot of the balances including ours, if you have OPEC holding steady or cutting a bit more, you get a big, counter-seasonal stock draw in the third quarter,” he said.
