The end of an era

By Abdallah S. Jum'ah of Aramco

After 14 years as head of the world’s biggest oil company, Abdallah S. Jum’ah has handed over the reins to his successor, Khalid Al-Falih. Here he reflects on his time in charge and his predictions for the future of Saudi Aramco and the world energy sector.

“For me, petroleum is still primarily about people: the dedicated men and women who plan, build, operate and maintain that massive infrastructure”
-Abdallah S. Jum'ah, CEO, Aramco

These past few weeks have been a time for me to reflect on the past, to take stock of the present, and to consider the future prospects for my company, for my industry, and indeed for the world around me. I would like to share some of my thoughts and perspectives on oil and energy and their linkage with future economic prosperity.

These are issues that are of significance not only to people within our industry. Rather, petroleum matters to everyone on the planet, because it is present in every facet of our societies and our economies. It allows us to transport people and materials, it helps us grow our food, heal the sick, manufacture goods, and make our surroundings safer, more vibrant and more comfortable.

Energy and economic activity are inextricably linked, and because petroleum empowers just about every other industry on Earth, it fuels the growth and development of our economies, powers the prosperity of our societies, and helps raise the living standards of billions of our fellow human beings. In today’s world, there is very little that doesn’t work, function or move without petroleum, and oil is truly the lifeblood of our modern civilisation.

That’s one reason why it is vital to remember that for all the talk about the rise of alternative fuels and the much-heralded “end of oil,” the International Energy Agency predicts that fossil fuels will continue to meet four-fifths of the world’s total energy needs in 2030. The IEA also forecasts an average 1% annual increase in demand for oil over the next twenty-odd years, with total global oil consumption growing from roughly 85 million barrels per day (bpd) last year to 106 million bpd in 2030. It’s worth noting that the OECD’s share of petroleum demand will decrease significantly over that period, from 57 to 43%, largely as a result of strong demand growth in emerging markets rather than a decrease in consumption in developed economies.

Most of the talk about peak oil has died down in the wake of the prevailing financial and economic crisis and the oil prices falling by over two-thirds from the peak of nearly US$150 a barrel not too long ago. Suddenly, instead of oil resource and supply shortages, we hear the talk of a glut; such is the cyclical nature of the oil industry.  However, I think we’ve all heard quite enough about the current global economic downturn, so I want to focus on the long-term trends in the oil and gas industry rather than the short-term doom and gloom.

Oil is here to stay. But far from preserving the status quo or resting on our laurels as an industry, growth in oil demand over the long-term coupled with depletion of fields already in production – especially in non-OPEC countries – will require substantial and sustained investments in the years and decades ahead. In fact, it is estimated that the oil industry will require some six trillion dollars of investment between now and 2030 in order to meet forecast demand.

Fully 80% of that US$6 trillion total will need to go to the upstream exploration and production sector, with the IEA estimating that a total of 64 million bpd of capacity will need to be developed by 2030 to meet demand growth while offsetting declines in existing fields. I would note that the issue of the sizable investments essential to offset the natural decline in oil fields through new production capacity usually receives scant attention, as it is demand growth which attracts greater interest, but in reality both these aspects are equally important.

The current shift toward national oil companies as upstream powerhouses will continue, with NOCs supplying four out of every five additional barrels of oil the global economy will require, in keeping with their larger reserve portfolios and their younger fields. At the same time, non-conventional oil and natural gas liquids will make increasingly large contributions to the world’s total supply of oil – a trend which is set to continue and which I believe will both allay fears of shortages and further consolidate oil’s place in the global energy mix. Of course, there is also a need for timely and focused investments elsewhere along the petroleum value chain, particularly in the areas of refining, shipping and transportation.

Unfortunately, it looks like the swings between boom and bust and over-capacity usually followed by under-investment in certain sectors of the oil industry that we’ve seen in the past will also be present in the future, resulting in continued cyclicality.The need for financial outlays is pretty obvious, and in some ways they are relatively straightforward – notwithstanding the extreme price volatility we’ve witnessed this year, the current level of uncertainty in the global economy, and the demand destruction in some major markets. However, we must not forget the need for sustained investment in three other equally important areas, which are essential success drivers for our business, and without which our industry’s ability to remain the foremost suppliers of energy to the wider world would be jeopardised.

The first area requiring investment is research and technology development. I believe that technological advancements in upstream applications and operations will enable us to find and produce more oil more efficiently, and to effectively prolong the productive life of our reservoirs even as they open up new frontiers for exploration and development. However, technology also has enormous potential to boost other aspects of our companies’ activities, whether in the midstream and downstream segments of the business, or in enhancing our reliability through the more effective monitoring and maintenance of plants and equipment. Such technological advances—whether revolutionary step-changes or incremental improvements—are hard-won and require continued efforts.

However, I believe the wider world needs to understand the degree to which we are investing in R&D as an industry and its importance, because this aspect of our business may not be readily apparent.

Even more important are our investments in our people, whether cultivating a new generation of petroleum engineers and professionals, or ensuring that our existing workforces have the skills and knowledge to thrive in an increasingly complex operating and business environment. The popular image of the petroleum business is largely comprised of “big iron”: drilling rigs, pipelines, refineries, supertankers and the like, and they certainly are an important part of what we do.

But we as an industry, often prefer to stress the technological sophistication of our operations. For me, petroleum is still primarily about people: the dedicated men and women who plan, build, operate and maintain that massive infrastructure, who develop and deploy the high-tech tools, and whose talents and dedication are essential to providing energy to the world. Our industry is currently facing a number of human resource challenges, however, and many companies find themselves caught between a retirement bulge which will see the departure of many of their most experienced personnel and a very young workforce that is not yet sufficiently experienced.

This results in a critical shortage of people in the middle experience group, who have gained adequate know-how to get the job done and will be with us over the coming decades. Add in the need for employees who are technologically savvy, committed to self-development and life-long learning, and open to innovative ideas and rapid change, and the need for investments in our people is equally clear. The third area where we need to invest time, effort and resources is environmental stewardship and the protection of natural ecosystems wherever we operate. Efforts in this area can often be integrated with other investments: for example, conducting environmental impact assessments before building new facilities and designing those plants and installations to be environmentally sound, configuring new refining capacity to produce cleaner and greener petroleum products, and encouraging care and concern for the environment among our employees.

However, there are also important investments to be made in specific areas like the desulfurisation of whole crudes and products, cleaner burning fuels, and next-generation internal combustion engines, including new fuel formulations consistent with the needs of such new engine technologies – most of which we are pursuing at Saudi Aramco.
There is also a need to ensure that as an industry we have both the specialised equipment and trained personnel available to respond to any environmental incidents, including marine oil spills. Then there is the entire subject of climate change and what the oil industry can do to help in this regard. While there are numerous end-use areas of oil, transportation represents the largest and the one with the most growth. My view is that since oil-based transportation technologies will be with us for the foreseeable future, the most pragmatic strategy to address the climate change issue as applicable to this sector is to sharply focus our R&D efforts on minimising the carbon footprint of petroleum-based transportation technologies.
I believe the most practical path in this direction depends on more efficient and smaller engines and vehicles – including hybrids – that can quickly cut carbon dioxide emissions from transportation by half or more for the same number of miles driven. In short, because petroleum will continue to satisfy so much of the world’s demand for primary energy, it is critical that we minimise the environmental impact of both our operations and our products, and thereby fulfill our responsibilities to our planet and its people.

No country on earth – including Saudi Arabia – is now or will be ‘energy independent’ and it is important to recognise that we all function within the same interconnected worldwide energy system. Leaving aside the issues of cross-border investments and financing, technology transfer, and the sourcing of goods, equipment and expertise, crude oil itself is a fungible commodity traded in global markets – and as we have seen over the last year, petroleum price volatility and its economic impact respect no national boundaries. So producer or consumer, NOC (national oil company) or IOC (international oil company), small nation or large, developed economy or emerging market, we all sail in the same boat when it comes to our collective energy future.

Therefore it is essential that we tackle the petroleum challenges I’ve outlined by adopting a collaborative approach based on mutual benefit and the complementary use of our respective strengths. Based on my four decades in the petroleum business, the lessons I have learned at the helm of the world’s largest oil producer, and my interactions with industry leaders of all stripes, I have no doubt that encouraging cooperative efforts to ensure a reliable supply of petroleum is the surest route to long-term energy security.

Abdallah S. Jum’ah On Leadership

Words of wisdom on what it takes to be a great leader.
“Early in the years I became president, I was asked what I wanted to be known for at the time of my retirement, and my answer was, ‘I want to be known as the one who let the genie out of the bottle’. That meant encouraging and capturing the ideas and initiatives of our people, and then applying them to our work and our operations.”

“To my mind, principle in business comes down to simply this: Identify your responsibilities as an organisation or a company and make only those commitments that you are confident you can keep in an ethical manner. The issue of defining your organisation’s responsibilities is one that fascinates me and that has played an important role in my time as head of Saudi Aramco.”

“If innovation is the motor that keeps an organisation moving forward through both choppy seas and still, then insight is the ability to look all around and make sense of those waters, charting dangerous rocks and reefs and identifying where the passage will be smoothest.”