Variability is an essential feature of the global oil industry, whether in technology, the balance of supply and demand, the competition with sustainable and alternative sources of energy, and the completion between conventional and unconventional oil. This is not to mention shifts in geostrategic dynamics, which after remaining quiet for a long time, may erupt with the advent of political leaders trying to change the status quo in their favor. Oil companies try to cope with the variables together, viewing them as part of the risks facing the industry. Companies that prepare well to deal and adapt with these variables are the most likely to achieve success in their field. Last week, Khalid al-Falih, President and CEO of Saudi Aramco, gave an overview of the basic variables influencing the oil industry, in a speech he gave in Houston, Texas, during the annual conference of the Cambridge Energy Research Associates (CERA). His address reflects the perceptions of one of the most important oil industry leaders in the world, and was delivered at one of the most important oil meetings worldwide – where many senior oil officials in national and international companies, as well as technical services companies, gather each year. Falih identified four variables facing the global energy industry, detailing them as follows: First: There is moderate growth in the global demand for energy in general and oil in particular. This new situation is different from forecasts preceding the global financial crisis of 2008, which spoke of high demand growth, while some forecasts even predicted that demand growth would overtake available supply. But the situation now is different because of the global economic contraction, increased energy efficiency due to the changing pattern of demographic growth, international efforts to better protect the environment, and changes in energy policies themselves. While the data available points to a moderate increase in demand for crude oil, boosting confidence regarding investments by oil companies, the growth in demand does not indicate an increase imbalance in the market, or pressure on the oil industry that may lead to lapses in its performance. The fact of the matter is that the existence of a moderate increase in demand for oil is a healthy trend for the oil industry. Second: Exaggerated fears about shortages of, disruptions in, or threats to supplies have receded, after the media worldwide carried many news stories and comments over the past years about the near end of the global oil industry, and the possibility of the world reaching “peak oil" – that is, the point when oil reserves can no longer meet growing demand for oil in the future. By contrast, the media worldwide speaks today of surplus reserves of crude oil and natural gas, with the spectacular success of international oil companies during the past few years in securing necessary supplies despite interruptions here and there. This change in thinking reflects the success of the oil companies in their multiple and continuing discoveries, which include extraction of unconventional oil that increases the challenges of exploration and highlights the need for acquiring new advanced technology, in addition to strictly preserving the environment. The aim of all this is to maintain balance in the global oil market in terms of supply and demand, as well as to demonstrate the vitality of the global oil industry and its willingness to shoulder its responsibilities. Third: Global financial crises have compelled decision-makers around the world to reconsider their priorities and how to invest the funds available to their countries. It has become clear, because of economic and financial crises, that continuing to spend money without limit is no longer possible, which has stressed the need to make difficult decisions in relation to cutting and streamlining expenditure. It has also become clear to decision-makers that some energy policies and regulations may be harmful to a country's economy and its ability to compete with other countries. Likewise, it has become obvious that improving economic factors is essential, not only for the benefit of the countries' economies, but also for the benefit of consumers. This economic reality will remain with us for a very long time. Fourth: Based on the financial and economic crises, economies of various countries are being reassessed, as well as the role of sustainable energy and environmental policies in them. To be sure, austerity policies pursued by some countries may push governments to reconsider their programs on sustainable energies, in terms of subsidies offered to ensure the success of these resources. Lower natural gas prices have also impacted other sources of energy that were used to generate electricity (coal, nuclear energy, solar energy, and wind power). For one thing, the information available to us points to the need to reconsider alternatives to oil and gas, something that requires the formulation of more realistic policies about the feasibility of these alternative sources. The important thing is the price of each energy source, and the possibility of it rivaling other available alternative energies. If it becomes possible to obtain reasonable prices for these alternative energies, then investing in them should be considered. Falih expressed his belief that “an important role for sustainable alternative energies will emerge in the long term," and added, “we are committed to investing in them." As for the environment, austerity policies have led to reduced attention by the governments to investing in this area. Meanwhile, the focus on improving competitiveness has led the governments concerned to give more importance to the wishes of consumers, as well as to cut costs and commitments imposed on the private sector through the easement of environmental laws and taxes – all this in order to improve competitiveness. Yet this does not mean that states or oil companies are ignoring the environment. Here, Falih said “Our goal is to find the best balance between the environment and economic objectives," which he said was not only a sensible policy, but also necessary, to secure cost-effective and competitive energy supplies in the future. The issues and challenges raised by Falih highlight important junctures in the global energy industry at present and in the coming years. These are matters of great importance, especially for the Arab oil industry and the regional economy. * Mr. Khadduri is a consultant for MEES Oil & Gas (MeesEnergy)
