The Kingdom and the New World Order
January 25 2011 by Robert Lawrence Kuhn
I write from Riyadh, the capital of Saudi Arabia, a dynamic and sprawling city in the great Arabian Desert, and from Dhahran on the Arabian Gulf, the headquarters of Saudi Aramco, the world’s largest energy company. If a “new world order” is in tectonic formation, here is an epicenter. International relations have become more complex— “multipolar” as some say—especially after the financial crisis—and emerging nations, particularly China and India, are playing larger roles in global affairs.
True alignments in this new world order are among the forces of stability, those who seek harmony and prosperity, and real confrontations are with those who seek disruption and use violence. As such, Saudi Arabia and America are allied. (A recent Saudi $60 billion purchase of U.S. F-15 aircraft and helicopters deepens the de facto alliance.) I know for a fact that the Saudis would like to do more business with American companies.
Officially known as The Kingdom of Saudi Arabia, the country is more than three times the size of Texas and has a population of more than 27,000,000 (8.5 million are foreigners), a couple of million more than Texas. It has no rivers or lakes. But what it does have, as everyone on the planet knows, is oil.
Saudi Arabia is the core of the global oil system, pumping more than eight million barrels a day into worldwide markets. About one-fifth of world-proven reserves are found here: roughly 260 billion barrels and possibly much more. The vast Ghawar field alone, extending 170 by 19 miles, produces more oil than any country other than Russia and America. Saudi production could rise by 50 percent or even double over the next decades, yet the kingdom has enough reserves to remain a stable source for 85 years or more.
Oil, Oil, Everywhere
About one in ten barrels of oil imported into the U.S. comes from the kingdom. This roughly mirrors its share of total global production— about one-tenth. So while Saudi Arabia has about one-fifth of world oil reserves, it generates only about one-tenth of world oil production, meaning that production will continue for many years to come, even as other supplies may be depleted.
Saudi Arabia produces five grades of crude oil, from high-quality light sweet crude, as it’s called, to heavy sour crudes. Different refineries process different grades, so that Saudi Arabia can supply a wide range of export markets. Saudi oil is the cheapest to extract from the ground (about $2 a barrel), and exports of petroleum and petroleum products produce more than $160 billion annually, yielding a trade surplus of almost $100 billion.
Saudi Aramco is Saudi Arabia’s national petroleum company. Founded by American oil companies holding a concession from Saudi Arabia—(it was originally called Arabian American Oil Company, thus Aramco)—it is now owned entirely by the kingdom. Aramco’s oil operations in Saudi Arabia, including territorial waters in the Arabian Gulf and the Red Sea, constitute an area larger than Texas, California, Oklahoma and Utah combined, or that of France, Spain and Germany.
Under the leadership of its president and CEO, Khalid Al-Falih, Saudi Aramco manages the world’s largest proven oil reserves; it is the world’s largest exporter of crude oil, a major natural gas producer and a leading global refiner. A fleet of supertankers delivers crude oil and refined products to customers worldwide.
Al-Falih speaks of “three essential and interrelated imperatives that our industry must meet if we are to fulfill our responsibilities as energy providers to the world”: 1) adequacy of oil; 2) affordability of oil (in that oil should act as a spur to growth, not as a brake on development); and 3) acceptability of oil as an energy source (respecting the environment).
He says that global oil demand is anticipated to rise from the current 86 million barrels a day to between 105 and 110 million barrels a day by 2030, and that in preparation, Aramco has augmented its upstream production capacity to 12 million barrels a day, with a spare capacity of roughly 4 million barrels daily. This spare capacity alone, he notes, equals the exports of two typical large oil-producing countries, and helps assure oil-market stability during unforeseen circumstances. Volatility in oil prices make such long-term investments challenging—within the past two years oil prices shot toward $150 a barrel, then fell below $35 as the financial crisis hit, and then recovered to exceed $80.
President Al-Falih, a Texas A&M alumnus, is a consummate professional, a three-decade veteran of Saudi Aramco. Warm and gracious, he is a good listener. He cares deeply about oil “shaping the lives of real human beings.” He stresses that “some two billion people have no access to modern forms of energy, while another two billion only enjoy limited access.” Extending prosperity to these disadvantaged individuals, along with population growth of roughly another two billion people by mid-century, means that the global demand for energy will expand steadily.
Accessing Affordable Energy
“How do we best address the challenge of ready access to affordable energy in a responsible manner?” Al- Falih asks. “The short answer is that the world will continue to rely on traditional fossil fuels for most of its energy needs for the coming decades. At the same time, alternative sources of energy, renewables, should grow— and indeed must grow. However, the growth is likely to be slow and uneven due to a range of daunting technological, economic, environmental, infrastructure and consumer acceptance issues, and given that the scalability of these energy sources remains a major challenge. This means that even as we pursue promising new alternatives—as we should—we must continue to invest in efforts to both increase access to hydrocarbons and improve their performance.”
“There are significant opportunities to make petroleum more environmentally friendly,” he continues, “including cleaner-burning fuel formulations, carbon capture and sequestration, and a host of other advanced technologies that are still in their infancy—and it is incumbent on our industry to do its utmost to realize those enhancements.”
Saudi Aramco’s official language is English and it leads the country in modernization. Women, whose rights are restricted in the conservative kingdom, constitute some 25 percent of Aramco’s R&D staff and 40 percent of its students studying abroad.
At the direction of Saudi Arabia’s King Abdullah ibn Abdulaziz al Saud, Saudi Aramco constructed King Abdullah University of Science and Technology, a new international, graduate-level research university situated north of Jeddah on the Red Sea. The state-of-the-art, 14-square-mile campus exemplifies the kingdom’s plans to transform itself into a global scientific hub, and build, over time, a knowledge-based economy. The new university promises scientific freedom and does not require women to wear veils, and they are able to drive cars and mix freely with men.
Al-Falih is proud that Saudi Aramco is creating the King Abdulaziz Center for World Culture, which will catalyze the country’s cultural evolution and spark transition to a knowledge society (exemplifying Aramco’s vision and values). With its daring architecture and innovative programs, the center will nurture a passion for learning, discovery and creativity, particularly among the country’s youth, who constitute some 70 percent of the kingdom’s population. Global partnerships to promote tolerance and understanding are being built.
Personally, I focus on relations between Saudi Arabia and China, a building block of the new world order. Speaking in China, President Al-Falih said that “while the issue of energy security is near the top of many national agendas, it is often overlooked that for consuming nations to enjoy security of supply, producers must also have security of demand, given their need to make massive and costly infrastructure investments all along the petroleum value chain, which require increasingly longer lead times to implement.”
He called for “interdependence through cross-investments, open trade and cultural exchange” as “the cornerstones of stronger global cooperation in the realm of energy.” At Saudi Aramco, he said, “we don’t consider ourselves as just sellers of oil to China, but rather as strategic partners whose many and multifaceted relationships in China are founded on mutual respect, mutual dependence and mutual benefit.”
Reflecting the growing bonds between Saudi Arabia and China, the Saudi pavilion at Expo 2010 Shanghai was striking; it featured Arabic calligraphy, classic poetry and contemporary art, and it housed the largest immersive motion picture screen in the world, introducing Saudi Arabia to the Chinese. According to custom, when Expo is over, all pavilions are dismantled. But the Saudi and China pavilions, each magnificent, will remain. Is this the new world order?