It was King Abdullah’s first trip away from home since assuming the throne that oversees the world’s largest reserves of crude oil. It was telling that his first outing beyond the desert kingdom of Saudi Arabia brought him to the Middle Kingdom, widely expected to remain the world’s primary engine of demand growth for petroleum in the foreseeable future. In purely economic terms, it’s a marriage made in heaven: supplier and buyer holding hands, sharing tributes, and otherwise embracing each other’s press releases.
“Your excellency is the first Saudi King to visit China,” intoned Chinese President Hu Jintao on Monday in talks with the Saudi king, via CRI Online. “This is also your excellency’s first visit to another country since coming to the throne. And China is the first stop of your excellency’s tour. These three ‘firsts’ themselves demonstrate the importance you attach to Sino-Saudi relations.”
Supplier meets consumer…
Indeed, it would hard to underestimate the nascent but growing relationship. China is the world’s second-largest consumer of oil, having reached that position by displacing Japan, the former runner-up to the U.S. in crude consumption, in 2003, according to the Energy Information Administration (EIA). The primary challenge that comes with the elevation to second place is figuring out how to fill the gap between consumption and domestic production, the former having left the latter in the dust.
Energy salvation, as the United States has learned, invariably comes through imports. China pumped an estimated 3.49 million barrels a day of crude oil in 2004, according to EIA data. That was more than 3 million b/d below China’s consumption that year. Ten years ago, domestic production and consumption were roughly equal in China. Therein lies a bull market trend that’s present in more than few large energy consuming nations around the globe.
But the real challenge is yet to come. Again quoting EIA: China’s oil demand is projected to rise to 14.2 million b/d by 2025, with imports of 10.9 million b/d.
Let’s stop and do the math here. Chinese oil imports of 10.9 million b/d a day would represent a 275% jump over 2004 imports, which totaled 2.9 million b/d. Where might China find an additional 8 million b/d? Saudi Arabia, of course, or so wishful thinking counsels. But while the Saudi and Chinese leaders shake hands and toast one another’s plans for increased energy trade, the technicians are left to see that the happy talk turns into reality. Easier said than done, if only because chit-chat never lifted a drop of oil out of the ground.
“The global petroleum industry is facing unprecedented challenges given its responsibility to supply a worldwide market,” Salim S. Al-Aydh, senior vice president, engineering and operations services at Saudi Aramco, said yesterday via Emirates News Agency. He forecast that global oil demand will rise by more than 40% over the next 25 years. The main catalyst: growth in developing nations.
China, in short, is hardly alone in its growing thirst for oil that can’t be quenched at home. Who might be these other nations in search of higher crude imports? For an answer, just look at Abdullah’s current touring schedule.
The intrepid Saudi king visits New Delhi today, the first head of state from the desert kingdom to arrive on the subcontinent in 50 years. The talk is sure to begin and end with oil, which India imports to the tune of 70% of consumption. “Energy constitutes the core of [the India-Saudi] bilateral relationship,” Talmiz Ahmed, a senior Indian government official told AFP via The Financial Express. “It is the number one supplier of oil, meeting 26 per cent of our requirements, and is likely to remain so for several years to come.” Abdullah is only too happy to comply, explaining on an Indian newscast: “With regards to the export of crude oil to India, we would like to provide India’s requirement of energy in the future,” the monarch said in the interview broadcast yesterday.
India, like China, is growing, and that requires energy. Oil consumption in India continues rising, roughly doubling in the last 20 years to a recent 2.5 million b/d, according to the EIA. Since the country produces less than one million b/d, imports constitute the primary source of crude for India. And with overall consumption projected to rise to more than 3 million b/d, it’s no wonder why Abdullah has come to shake hands and break parantha in New Delhi.
The bigger question that overhangs Abdullah’s consumer-grooming excursion is whether Riyadh can deliver the goods in the years ahead. More than a little ink has been spilled in recent years questioning whether Saudi supply is up to the challenge in the years ahead. Indeed, it soon will be time to put up or shut up when it comes to issues of promising higher crude oil exports from the aging Saudi fields.
In the meantime, we can only wonder how the political scene in Washington will react, if at all, to Abdullah’s trip. The U.S. could hardly forge closer ties with Saudi Arabia, even if that comes as a shock to some (most?) Americans. Might King Abdullah be coming to the U.S. for another hand-holding event with President Bush? The imagery doesn’t do the White House any political favors. But the man in the SUV is happy for such couplings, whether or not he realizes the source of his fuel-induced contentment.
Nonetheless, the Saudis can fly around the world all they want. In the end, it’s the oil that China, India, and the U.S. want. If a little hand-holding does the job, so be it. But only Saudi Aramco technicians know for sure if a hearty handclasp on various continents will be in vain or not in the years ahead.
Alas, the Aramco boys aren’t talking details, at least not while they’re actively employed. But a few retirees drop a clue or two from time to time, albeit from a remote perch and by indirect reference. On that note, we reprise a CS piece from last August that quotes Sadad al-Husseini, the recently retired head of Saudi Aramco’s exploration and production division, courtesy of an article in the New York Times Magazine. The topic of discussion: the ever-rising global oil demand and the problem of quenching that thirst on a global scale, a challenge that inevitably puts Saudi oil fields front and center:
“The problem is that you go from [average worldwide oil consumption of] 79 million barrels a day in 2002 to 82.5 in 2003 to 84.5 in 2004. You’re leaping by two million to three million a year, and if you have to cover declines, that’s another four to five million.” In other words, if demand and depletion patterns continue, every year the world will need to open enough fields or wells to pump an additional six to eight million barrels a day–at least two million new barrels a day to meet the rising demand and at least four million to compensate for the declining production of existing fields. “That’s like a whole new Saudi Arabia every couple of years,” Husseini said. “It can’t be done indefinitely. It’s not sustainable.”