The oil market is ignoring the fact that spare oil production capacity is very low right now, Saudi Aramco’s chief executive Amin Nasser said on Tuesday.
“[The market] is focusing on what will happen to demand if recession happens in different parts of the world, they are not focusing on supply fundamentals,” the top executive at the world’s largest oil firm and single largest crude oil exporter, said at the Energy Intelligence Forum in London today.
During an event last month, Nasser said that oil inventories are low, “and effective global spare capacity is now about one and a half percent of global demand.”
In September, Aramco’s CEO warned the markets that policymakers need to look beyond this winter and stop vilifying the oil and gas industry if they want to prevent the next energy crisis.
The ongoing energy crisis, while intensified by the Russian invasion of Ukraine, didn’t start with the war, according to Aramco’s top executive. Years of underinvestment, a lack of a backup plan, and alternatives not ready to step up and replace conventional energy are the real causes of this state of energy insecurity today, Nasser said at the Schlumberger Digital Forum last month.
At the London forum today, he reiterated his view that underinvestment would come back to haunt the markets.
According to Nasser, upstream underinvestment continues due to pressure from investors and policymakers. Short-cycle projects are coming on - not long-term projects that will anchor and sustain production.
“We need to build up some spare capacity in oil, gas and LNG otherwise any outages or increased demand will seriously stretch producers and could cause more turmoil in markets,” Aramco’s CEO noted.
“Oil demand will continue to grow until 2030,” Nasser added, reaffirming the Saudi view that the world needs adequate oil and gas supply before moving away from fossil fuels.
“Alternatives are not ready yet. We need to decarbonize oil and gas and develop CCS but we must do this with adequate oil and gas supply,” the Saudi executive said.