US calls Saudi Arabia a moderating force in oil trade
Regional-USA, Economics, 5/18/2005

Tight oil supplies and high oil prices constitute a global challenge that requires a global solution, U.S. Energy Secretary Samuel Bodman says.

As demand for oil continues to grow, particularly in emerging Asian economies, developed and developing countries must take part in addressing this challenge, he said at a May 17 conference in Washington.

Producing and consuming nations must work together to ensure reliable supplies of affordable energy, he added.

"High oil prices are affecting consumers across the board," Bodman said. "Tight energy markets are revealing, perhaps more urgently than ever, the need to expand the global oil and gas supply infrastructure at all levels."

The U.S. energy secretary acknowledged that high petroleum prices might dampen U.S. and global economic growth. At the same time, however, he said higher prices might provide the impetus for necessary infrastructure and technology improvements by the U.S. refining industry. They also might encourage U.S. consumers to care more about the efficient use of energy that eventually could bring down demand for oil, he said.

The United States is the largest consumer of oil in the world.

The conference brought together policy-makers, energy-industry representatives and experts from the United States and Saudi Arabia. It was organized by the Washington-based Center for Strategic and International Studies, a policy research organization.

Bodman said that with 85 percent of the world's spare oil-production capacity located in Saudi Arabia, that country's willingness to use this capacity to respond to major supply disruptions and to stabilize energy markets makes it a "moderating force" in the global oil trade.

He said that "uncertainty and volatility of the market is making oil producers and potential investors skittish" about engaging in major capacity-expansion projects despite high prices. Bodman said he nevertheless believes that the necessary investment will come, although it might take some time before petroleum and natural gas from new fields flow to global markets.

The lag time between oil discovery and actual production is between 7 years and 10 years, according to industry experts.

"I am optimistic that we can see our way through the current crisis," Bodman said.

Ali Ibrahim Naimi, Saudi Arabia's minister of petroleum and mineral resources, said at the conference that his country has undertaken a major oil-capacity expansion program aimed at increasing its production capacity to 12 million barrels per day by 2010 and to 15 million barrels per day by 2015 from the current 9.5 million.

Naimi said that some other oil-producing countries could boost their capacity, too. The reason existing global energy supply infrastructure is inadequate to meet future demand, he said, is that two decades of oil oversupply and low prices have made investors uninterested in building-supply capacity.

Naimi said that oil prices must be sustained at a level that ensures not only continued expansion of the world economy but also adequate incentives to the oil industry.

But ensuring the availability of oil supplies requires more than simply increasing production capacity for crude oil, he said. Producing and consuming nations must together pursue policies allowing the oil industry to deliver the products consumers demand, he said.

Naimi cited regulatory complexity and constraints, infrastructure bottlenecks, the proliferation of product specifications and a lack of accurate and timely data needed to improve market transparency as major obstacles to development of efficient energy markets.

These impediments have "tended to reduce flexibility in the system creating situations where isolated regional supply/demand imbalances become magnified, affecting world price levels," he said.

Naimi said insufficient oil-refining capacity worldwide has created a perception of a tight oil market and contributed to upward price pressure in recent years.

"I believe, however, that additions to both production and refinery capacity worldwide over the next several years should help to ease the current anxiety," he said.

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