Saudi Arabia pivots east
Asia will remain the driving force behind global energy demand growth, and the kingdom is poised to meet the region's needs
Asian economies are increasingly strategically important to global oil and gas markets, Saudi Arabia's energy minister Khalid Al-Falih told
AOGC 2017 in the conference's opening address on 8 May.
"We are excited about prospects for partnership which enhances
Saudi Aramco's position as a leading supplier of energy to Malaysia and the Asean (Association of Southeast Asian Nations) region, which we see as the most important market in the world," he said.
The last 30 years have revealed Asia-Pacific as the world's fastest-growing region for energy demand. That, Al-Falih asserted, would continue because of expectations of robust economic growth and demographic trends. "In 2050, half of the top 20 global economies will be Asian," he said, citing
research from PWC, a consultancy. Vietnam and the Philippines will enter the top 20 global economies.
That robust growth scenario will have decisive implications for global energy demand, said Al-Falih. Almost all expected oil demand growth in the next 25 years is likely to originate in Asia, he said, while the region will account for almost two-thirds of global natural gas demand increases as well.
In a pointer to the importance placed on Asia, Al-Falih highlighted the extended regional tour that King Salman Bin Abdulaziz undertook in February and March of this year, with Malaysia serving the first stop on that tour.
He noted the "deep historic bonds" with Asia-Pacific that span diplomatic, security, economic and energy relations, and which are rooted in "very long-standing cultural and spiritual ties".
That ultimately means more Saudi investments across the energy value chain. "We are determined to play a bigger role in satisfying Asia's expanding energy needs," he said. "As the participation in the Rapid refinery project in Malaysia demonstrates, the best way to realise this goal is by cultivating key relations with stakeholders and leading institutions across the region that know the markets and whose strengths and capabilities complement our own."
Petronas "fits the bill" in this respect, Al-Falih said as he highlighted Saudi Aramco's operations in China, Korea, Japan and Indonesia. The upgrade of a refinery in Indonesia, in conjunction with state oil company Pertamina, would see the project going to the construction stage in the second half of 2017.
Investments between Saudi Arabia and Asia go both ways, he added. The kingdom's
Vision 2030 blueprint envisages major new business opportunities for strategic investors, many of which would be of interest to Asean investors, said Al-Falih. Renewables warning bell
But he also sounded a warning to AOGC delegates. Despite the potential for the expansion of alternative energy sources to fossil fuels, there would remain significant challenges hindering their speedy uptake.
Renewables were starting from a low base, he said, and future growth will be slower than many casual observers imagine. "Affordability is likely to remain an issue and renewables still require subsidies," Al Falih told the conference. "They are high cost compared to conventional energy projects."
The global transition away from fossil fuels to lower carbon energy sources would be long and complex, he added.
"I'm concerned that the slowdown in oil and gas investments-driven by short-term oversupply and unrealistic expectations of alternatives' rapid development
—could lead to energy shortages," Al Falih said. "Therefore don't imagine that oil demand will peak any time soon."
In that context, Saudi Arabia would strive to diversify its portfolio of energy sources, giving renewables the time and space needed to shoulder a larger burden of demand needs, he said.
In the short-term, Al-Falih added that he was optimistic that oil markets would rebalance, despite persistently bloated stocks weighing on prices.
"Markets have been impacted by low seasonal demand and refinery maintenance," Al Faih said. "There's also been some growth in non-Opec supply, especially in the US, and then there's the actions of financial players in the markets
—all of which have slowed the impact of recent production cuts exercised by 24 countries on Dec 10th 2016."
But he added that the worst was behind us and both cuts to upstream capital spending and natural well declines would bring the market back into balance.
Referring to large legacy projects, the kingdom's energy minister said estimates show that some 20m b/d of global oil demand growth would need to be offset in the next five years due to natural declines in oil and gas wells. "No matter how fast shale grows, it won't make a dent on that," he predicted.
In the meantime, Al-Falih said he was pleased with oil producers' discipline and adherence to the cuts made in December. "I'm confident that the agreement will be extended to the second half of 2017 and possibly beyond," said Al-Falih. "I'm equally optimistic about long-term energy trends as wise and timely investment decisions are made to ensure that global demand will be met."
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