The Cutting Edge

Saudi Oil Minister Ali al-Naimi

This continuing coverage of America’s oil crisis arises from the The Plan: How to Save America When the Oil Stops—or the Day Before (Dialog Press). Buy it here.

Saudi oil minister Ali al-Naimi spoke in Vienna at a March 18 meeting of the Organization of the Petroleum Exporting Counties and warned of a coming “catatstrophic” shortfall in petroleum production. "In years to come, if traditional energy supplies should prove inadequate because capital expenditure was curtailed due to unsustainable prices, unreliable indication of future demand or hopes for a substitute that oil cannot deliver, such a supply crunch would be catastrophic."

"The painful result would be felt sooner rather than later. It would effectively take the wheels off an already derailed economy."

Naimi, who in 2008 declined to increase production after an appeal by then President George W. Bush, said that current low petroleum prices should not be used as a reason to shortchange investment in future production. Doing so, he averred, would only mean future shortages and price hikes.

The world risked disaster by placing too much hope on untested alternative energy sources, Naimi told an OPEC conference of energy leaders.

“We frankly court disaster if these supplemental resources on which such high hopes for energy security and sustainability are pinned do not fulfil their high expectations," he said.

OPEC and Saudi Arabia taking a lead role are making the biggest output cuts ever to retrieve oil prices back from a $100 drop. As a result of the Vienna meeting, oil production is expected to hold steady.

Naimi said that "40 USD is not enough; you need in between 60 and 75 USD to allow marginal producers to continue producing ethanol, heavy oil," adding "I would say that the ideal price for ability of the marginal producers to put more resources in the market is in between 60 and 75 US dollars a barrel".

The oil sheikh claimed "I have often described unsustainably low oil prices as carrying the seeds of future price spikes and volatility." He stated "In a low price environment, the trend is often to focus on survival instead of expansion," and "If we place a low priority on preparing for the future, that lack of action can come back to haunt us through supply shortages and another round of high prices."

Naimi denounced what he termed the "rhetoric" of environmentalist and security appeals that petroleum should be minimized, especially in the U.S., as a vehicle fuel source. Politicians and a growing public consensus in energy consuming nations is calling for greater independence from petroleum – especially imported oil. Said Naimi, "The situation is also complicated by other factors, such as political rhetoric calling for reduced dependence on oil for perceived reasons of environmental sustainability, or seeking independence from a particular region," he said.

He said that the Oil Kingdom will continue a course of long term investment to ensure supplies despite the global economic crisis, "... despite the current economic situation and other challenges to the energy sector, Saudi Arabia will stay the course with our long-term capital investments for oil and gas expansion and related programmes to enhance world energy supplies”.

But, appearing to hedge his bets, Naimi also announced that sunny Saudi Arabia is expected to become a leading supplier of solar power and extend its economic base beyond non-renewable energy sources. “The world's largest oil exporter also hopes to be the world's leading solar power provider someday.” Fossil fuels, said Naimi, will be vital for decades to come, however.

Author Edwin Black has warned in the book The Plan, that America has no plan for a sudden and protracted oil interruption and that Washington circles are not even discussing one. Such a plan, says Black, will include a require a complex program to include massive retrofitting, a surge in alt fuels, and sidelining fuel inefficient cars.