RIYADH (Reuters) - Saudi Arabia’s state energy company said on Monday that its dominant role in world oil supply had been altered by large new reserves in North America, sapping the urgency to develop the kingdom’s own reserves.
The speech by Saudi Aramco’s chief executive was the first from the globe’s top oil exporter to acknowledge that unconventional oil was set to shift the energy balance of power and cut U.S. dependence on Middle East crude.
“The abundance of resources and the more ‘balanced’ geographical distribution of unconventionals have reduced the much-hyped concerns over ‘energy security’ which once served as the undercurrent driving energy policies and dominated the global energy debate,” Khalid al-Falih said.
For years oil markets, nervously watching pressure on limited spare production capacity, have obsessed over Saudi Arabia’s supply cushion as the last defense against prices spiraling higher.
“A few years ago, much of the global energy debate was based on the premise of acute resource scarcity and its economic and political ramifications,” Falih said.
“Rather than supply scarcity, oil supplies remain at comfortable levels, even given rising demand from fast-growing nations like China and India,” he added.
Saudi Arabian Oil Minister Ali al-Naimi said on Sunday that he saw oil markets as balanced ahead of OPEC’s Dec 14 meeting.
Unconventional oil developments are dominated by energy intensive oil sands in the United States and Canada with 2011 global production amounting to 2.3 million barrels per day (bpd) or equal to production of non-OPEC member Norway.
Falih said in early October he saw no reason for Aramco to significantly increase its oil production capacity in the mid-term because of rising conventional output from countries like Brazil and Iraq.
Weak U.S. economic data, mounting euro-zone sovereign debt and concern about the exposure of major banks to it raised “the specter of a double-dip global recession,” he told the conference in the Saudi capital on Monday.
“All that makes spending on aggressive energy programmes unlikely,” he said, adding that abundant affordable hydrocarbon supplies challenged investment in renewable technologies.
As a result, Saudi Aramco had no plans to increase its oil production capacity to 15 million barrels per day, Falih said.
“Saudi Aramco has more spare capacity than the kingdom is obligated to or has committed to,” he told reporters. “So it wouldn’t make sense.”
Tight oil is a form of light crude oil held in shale deep below the earth’s surface that is extracted with hydraulic fracturing, or “fracking,” using deep horizontal wells.
OPEC expects global output of non-conventional oil to rise 3.4 million bpd by 2015, still dominated by oil sands, to 5.8 million bpd by 2025 and to 8.4 million bpd by 2035 when tight oil would be playing a much bigger role.
In 2035, the group of conventional oil exporters expects the United States and Canada to still be dominating unconventional oil production with 6.6 million bpd, but China could be producing 1.1 million bpd of its own unconventional oil by then.
OPEC estimated in a recent report that global reserves of tight oil could be as high as 300 billion barrels, well above current estimates of Saudi Arabia’s conventional reserves of around 265 billion barrels.
A technology-led surge in North American shale gas production has created a global glut over the last few years which has reduced U.S. reliance on Middle Eastern gas imports, forced exporters to look for new buyers and cut their revenues.
With competition for crude sales rising and its own gas needs intensifying, Aramco is now focusing on tapping enough of its own gas reserves to meet the kingdom’s growing appetite for power generation and industry.
“We are drilling this year a number of (unconventional gas) wells, just to test the geology... and do some preliminary economics. We will continue that in 2012,” Falih told the conference.
“In the long term we will be doing some significant pilots as we feel the economics are favorable. Short to medium term is relying on growing our conventional gas reserves,” he said.
He said it was still too early to estimate Saudi Arabia’s own unconventional hydrocarbon resources.
“Abundance isn’t limited to gas reserves, but is also the new headline when it comes to oil,” Falih said.
Writing by Daniel Fineren, editing by William Hardy