Schlumberger Digital Forum: Saudi Aramco’s Nasser reminds industry of realities
Luzern, Switzerland (WO) — In what appeared to be a very deliberate attempt to inject some reality into the headlong rush toward renewables, Saudi Aramco President and CEO Amin Nasser cautioned the energy industry about making bad choices. His keynote remarks were delivered to attendees at Schlumberger’s Digital Forum 2022 in Luzern, Switzerland, on Tuesday morning. In trying to correct what he thinks are some industry missteps, Nasser also outlined his own plan for an energy transition.
“This week, autumn begins, and the global energy crisis promises a colder, harder winter, particularly in Europe,” said Nasser. “Unfortunately, the response so far portrays a deep misunderstanding of how we got here in the first place and, therefore, little hope of ending the crisis any time soon. So, this morning, I would like to focus on the real causes, as they shine a bright light on a much more critical way forward.”
He said that when historians reflect on this crisis, they will see that the warning signs for global energy were visible for almost a decade. “Many of us have been insisting for years that investment in oil and gas would continue to fall,” observed Nasser. “Global supply growth would lag behind demand, impacting markets, the global economy and people's lives. In fact, oil and gas investment crashed by more than 50% between 2014 and last year from $700 billion to a little over $300 billion. The increases this year are too little, too late, too short.”
Flawed assumptions lead to a bad plan. Nasser said the energy transition plan has been undermined by analysts’ scenarios and flawed assumptions, because they have been mistakenly perceived as facts. For example, he explained, as Covid has abated, “one scenario that many of us assumed was that major oil use in sectors would switch to alternatives, almost overnight and, therefore, oil demand would never return to pre-Covid levels. In reality, once the global economy started to emerge from lockdowns, oil demand came surging back and so did gas. By contrast, solar and wind still only account for 10% of global power generation and less than 2% of the global primary energy supply. Even electric vehicles comprise less than 2% of the total vehicle population and now face high electricity prices. And perhaps most damaging of all was the idea that contingency planning could be safely ignored. Because when you shame oil and gas, investors, dismantle oil- and coal-fired power plants, fail to diversify energy supplies, avoid energy receiving fair analysis, and reject nuclear power, your transition plan had better be right.”
Debunking past thinking. Nasser detailed his disdain for conventional thinking on the energy transition further. “As this crisis has shown,” he said, “the plan was just a [collection] of sandcastles that the waves of reality have washed away.” Accordingly, the Aramco head man said that billions of people around the world now face energy access issues, and possibly consequences that are likely to be severe and prolonged. “These are very important on the stage of energy insecurity—underinvestment in oil and gas, alternatives are not ready, and no backup plan. But you would not know that from the response, so far. Freezing or capping energy bills might help consumers in the short term, but it does not address the root causes and is not the long-term solution. And taxing companies when you want them to increase production is clearly not helpful.”
Nasser said that as Europe aggressively promotes alternatives and renewable technologies to reduce one set of dependencies, it may simply be replacing them with the new ones. In a rebuke to some countries’ behavior, he opined, “As for conventional energy buyers, who expect producers to make huge investments just to satisfy their short-term needs, they should lose those expectations fast. And diverting attention from the real causes by questioning our industry's morality does nothing to solve the problem. That's why the world must be clear about various causes and face up to their consequences.”
Underinvestment aspects. The Aramco CEO believes that investment in, and discovery of, natural gas has been ignored and contingency planning disregarded. In contrast, “global consumption of coal is expected to rise this year to about 8 billion tonnes,” he noted. “This would take it back to the record level of nearly a decade ago. Meanwhile, oil inventories are low, and effective global spare capacity is now about 1.5% of global demand. Equally concerning is that oil reserves are declining on an average of about 6% each year and more than 20% in some older fields last year.”
At these levels, he continued, simply keeping production steady needs a lot of capital in its own right, while increasing capacity requires even more. “Yet incredibly, a fear factor is still causing significant oil and gas investment in large, long-term projects to shrink,” he lamented. “And this situation is not being helped by overly short-term demand factors dominating the debate. Even with strong economic headwinds, global oil demand is getting fairly healthy. But when the global economy recovers, we can expect demand to rebound further, eliminating the little spare oil production capacity out there. And by the time the world wakes up to these blind spots, it may be too late to change course.”
Nasser said this is why he is seriously concerned. “Let me be clear--we are not saying our global climate goals should change because of this crisis. All of us have a vested interest in climate protection. And investing in companies and other sources does not mean that alternative energy sources and technologies should be ignored. But the world deserves a much better response to this crisis.”
Nasser’s three-pillar plan. The CEO said this is the moment to increase oil and gas investment, especially capacity development, and he believes the crisis has finally convinced people that a more credible energy transition plan is needed. “In turn, I believe that requires a new global energy consensus built on three rock-solid and long-term strategic pillars: recognition by policymakers and other stakeholders that supplies of ample and affordable conventional energy are still required over the long term; further reduction in the carbon footprint of conventional energy, and greater efficiency of energy use, with technology enabling both; and lower-carbon energy steadily complementing proven conventional sources. At Aramco, we are addressing all three.”
He said the company is also growing its gas production, increasing it by more than half to 2030 with a mix of conventional and unconventional gas. At the same time, Aramco is working to lower its upstream carbon intensity. “We are also intensifying efforts to advance evolving technologies, particularly CCUS, which is mission-critical to a sustainable future. Importantly, we are steadily adding new lower-carbon energy.”
But transforming the existing worldwide energy system and delivering a secure, sustainable future for everyone will be a truly formidable task. He said that industry companies must partner to drive innovation and value on an unprecedented scale and speed to successfully deliver results across his three pillars. “Because the right digital investment now could help deliver a greater efficiency, lower costs, lower emissions, higher reliability and higher profits over decades.”
Digital platform collaboration. Toward the end of his remarks, Nasser announced that Aramco and Schlumberger are working on “a smart sustainability platform that could [expand] the number of digital solutions in the world.” He noted that the two firms have a shared history, which goes back to 1941. Nasser remarked on how this joint effort will dovetail nicely with his proposed three-pillar vision for “a much more credible” new transition plan.