Oil & Gas:

Saudi petroleum minister discusses U.S. push for energy independence

How will developing unconventional energy resources in the United States affect international energy markets? During today's E&ETV Event Coverage of a Center for Strategic and International Studies event, Ali Al-Naimi, minister of petroleum and mineral resources for Saudi Arabia, discusses the changing dynamics of world energy markets. Al-Naimi gives his views on North America's growing unconventional resources and the United States' calls for energy independence.

Transcript

H.E. Ali al-Naimi: Excellencies, distinguished guests, ladies and gentlemen, I would like to thank the SIS for inviting me to speak here in Washington, D.C. today. I first came to the U.S. in 1959 to study at Lehigh University, just up the road in Pennsylvania. There was a hip, young Democrat on the scene, a great orator. The Middle East was going through a heady period of political upheaval. It was a time of simmering tensions between the U.S. and a country in Southeast Asia. How times have changed.

Ladies and gentlemen, I am here today to talk about the one constant in all our lives: energy. Fossil fuels are our most enduring energy source. They are the driving force of economic development in the U.S., Saudi Arabia, and for much of the developed and developing world. The global oil business creates jobs, supports manufacturing, powers transportation, fuels innovation, and boosts economic progress. It has helped the U.S. become the leading global power, and it enables Saudi Arabia to become one of the G20 nations.

It's helping nations such as China offer their citizens unprecedented economic opportunities, and it's helping boost standards of living in Africa, Asia, and Latin America.

Now fossil fuels are the energy source that have truly endured. They have the capacity to sustain us well into the future, and I am pleased to see that here in the U.S. there is a renewed faith in their longevity. Wind and other relatively expensive alternatives will also be part of the mix, but in terms of cost, reliability, and effectiveness, fossil fuels stand alone.

The final step, of course, will be devising a way of diminishing the negative side effects that burning fossil fuels have on the environment, and I know how sensitive the subject of the environment is here. I remain confident that if enough resources and brain power are invested, even this can be overcome.

Ladies and gentlemen, today I will discuss two broad themes which relate to the enduring legacy of oil. First, I will look at the implication of the current U.S. energy renaissance. I will then share with you my thoughts on energy and economic development in Saudi Arabia.

Let me begin by addressing the changing U.S. energy scene. Just a few years ago, a vocal body of expert opinion was categorical that the world was running out of oil, and I remember that in 19, no, in 2009 I was here, when peak oil was really at the peak. Peak oil is here, they said. The age of oil is over, they said. I haven't heard much from them lately.

Now in the blink of an eye, the scarcity scaremongers have been replaced by the apostles of plenty, but this time at least the prophets are backed up by evidence. I have seen it with my own eyes, and nowhere is this bounty more evidence than right here in the U.S. The U.S. energy scene is witnessing a remarkable evolution. Newly commercial reserves of shale oil or tight oil are transforming the energy industry in America, and that's great news. It is helping to sustain the U.S. economy and create jobs at a difficult time.

I would like to put on the record here today that I welcome these new supplies into the global oil market. I hope these additional resources will add depth and bring increased stability to global oil markets. I believe these reserves will lead the U.S. into a much deeper engagement in world energy markets, and this is good news.

Of course, these shale developments are also leading some to hope that it spells the end of America's so-called reliance on foreign and particularly Middle Eastern oil, and all that is associated with it. On that, I have a few brief points.

First, I note Middle East oil exports to America, especially from Saudi Arabia, were higher in 2012 than at, than any time since the U.S. tight oil production began starting in 2009. The United States is and will remain a major energy consumer. It will continue to meet domestic demand by utilizing a range of different sources, including from the Middle East. This is simply sound economics.

Second, I believe this talk of ending reliance is a naive, a rather simplistic view. It seems to conflate, on the one hand, U.S. foreign policy, and on the other, U.S. energy policy. Talk of energy independence fails to recognize the interconnected nature of global oil, global energy markets. If you take crude and all liquid products together, the U.S. is the third-largest exporter in the world, after Saudi Arabia and Russia. And I was really surprised to know that.

We are all part of a global market, and no country is truly energy independent. So just as I didn't buy into the peak oil theories, I do not go along with the opinion that increasing U.S. liquid production means the United States could and should detach itself from international affairs. I don't believe that is in anyone's best interests, and I don't think it will happen. In fact, perhaps the question is not how the U.S. can achieve energy independence, but to what degree it will in the future be prepared to export its oil and gas supplies.

Third, I believe that history shows, U.S. energy experts understand, that in times of stress, Saudi Arabia has repeatedly acted to make up for any supply shortfalls. This was true after Hurricane Katrina, following labor disputes in Venezuela, and in the wake of the uprising in Libya. Since 2009, Saudi Arabia has carried the spare capacity of between 2.5 and 3.5 million barrels. These investment decisions on this scale would not usually have been taken, particularly when set against the challenging global economic situation, but it was necessary and it proved wise. Only Saudi Arabia has the capacity and the ability to take steps such as these, and we have never failed in our commitment to global energy market stability.

Saudi Arabia's sensible oil policy does not stop at simply turning on the taps when the U.S. or others need more supplies. In 2012, I came out and called for lower oil prices. That's right. I stressed to the media and others, the supply fears were unfounded, and that the current prices were not a true reflection of supply/demand fundamentals. Through this effort and other factors, prices did come down.

Our number one interest is a well-balanced oil market, which leads to a healthy global economy. The objective of Saudi Arabia's oil policy is not high prices at any cost.

Lastly, the rhetoric on reliance fails to properly recognize the importance of the partnerships between the U.S. and Saudi Arabia. We have a shared history and close bonds which began with oil, but they go far deeper than a simple consumer/producer relationship. We are allies in more than just oil. U.S. companies helped, and I'm happy that some of them are here, U.S. companies helped form the basis of what's today Saudi Aramco, one of the world's finest oil companies. Many thousands of U.S. citizens continue to work in Saudi Arabia. U.S. and Saudi firms are partners in a range of industries, and U.S. universities continue to help educate some of our young people.

Ladies and gentlemen, this brings me to the second part of my talk here today, the current energy and economic outlook in Saudi Arabia. During my lifetime, Saudi Arabia has witnessed a remarkable transformation. I am a living proof of this. I was a nomad, by the way. In just 100 years, it has changed from a region stricken by poverty and famine to a nation that now provides a burgeoning number of schools, universities, hospitals, and infrastructure for its people. This past decade in particular has seen Saudi Arabia put its oil revenues to maximum use.

Since 2002, capital investment in the kingdom has doubled to almost $140 billion. Over the same period, foreign direct investment has increased by 36 times to more than $16 billion. We are seeing a wave of industrialization. We are developing are petrochemical sector. We are boosting our downstream capability. Saudi Arabia is, for example, the world's leading exporter of fertilizer. We are increasingly building manufacturing expertise, and we are developing new mineral industries.

Of course, Saudi Arabia will continue to make the most of the competitive advantage presented by our abundant hydrocarbon reserves, but our ultimate aim is to diversify away from our overreliance on oil revenues. In this regard, we are making clear progress. In 1973, the contribution of oil to Saudi Arabia's GDP was 65 percent. Last year, it was under 30 percent. We are creating sustainable economic growth for the long term. We are generating job opportunities for our young people, encouraging enterprise and providing the right environment for renovation and progress. It's not easy, and it will not happen overnight, but it is happening.

Part of the strategy entails increasing usage of natural gas and developing other renewable resources, where we also have an advantage, not least solar, where we have the silica, sunshine, and the acreage. We hope solar energy will help meet a growing share of our electricity needs, and even help us create a thriving solar industry and expertise in the kingdom.

We are also conscious of the need to mitigate inefficient energy use in the kingdom. Being so blessed with natural resources has unsurprisingly corresponded with a boom in the domestic consumption, but I would say that Saudi Arabia has recognized the need to tackle the situation, and we are taking vital measures to address this demand via efficiency efforts and by investing in renewables. We are aware that our increasing domestic energy usage is not favorable in general, although we do believe usage which creates real economic value is positive.

We are also using energy revenues to invest in our most important asset: our people. We are investing in schools and universities. We are trying to give our young people the skills they will need to compete in the 21st century. Again, it will not happen overnight, but again, we are making progress.

When I came here in 1959, there were a mere handful of Saudi students at the U.S. universities. Today, 10 percent of Saudi Arabia's budget is spent on higher education. The King Abdullah Scholarship Program sponsors around 150,000 students worldwide to gain qualifications, and nearly half of them are here in the U.S. That's a huge number, which will have a profound impact on the future of Saudi Arabia, and it underlies how important our two countries are to one another.

Ladies and gentlemen, my message is fundamentally this: that the US/Saudi relationship remains vital, that it is one of partnership and trust, and that like oil itself, it is enduring. I am pleased the U.S. energy industry is witnessing a renaissance. I believe we are two nations united by many things. We are both blessed with great energy assets. We have both put our energy assets to great use: economic growth and creating jobs for our people. Into the future, it's important we continue to work together to ensure oil market stability and prosperous future for all. Thank you very much.

[Applause]

Frank Verrastro: So thank you, Mr. Minister, and thank you all for coming this morning. I'm particularly pleased and honored that General Scowcroft and Dr. Schlessinger are here as well, and I would just like to say that between the three of these gentlemen, there's been a lot of energy and national security policy over the last several decades, and it's just been astounding to me to watch, and have been enamored with the outcome. So Mr. Minister, welcome, and thank you for returning to CSIS.

As Sarah indicated earlier, we've asked for questions. I've already got a couple of them here. And so if that's okay, we'll read them this way. One of the prerequisites, of course, was to write legibly, because if we can't read them, we can't ask them, which is always helpful. And then the minister has already told me that he will invoke the prerogative of if he doesn't like the question, we may not get a full answer, and that's certainly his prerogative.

[Laughter]

Frank Verrastro: And the first one I have to start with, we talked about your long career upstairs and all that you've seen in terms of oil markets, the decline in 1986, how prices dropped in the nineties. For most of the nineties, we saw $20 to $30 oil, and then as demand picked up, and I recall when I was in the kingdom with you in 2004, we talked about the rise of China and the demand numbers, and then the volatility that we've seen forward. So I know you spent a lot of time in your remarks looking forward, but if you could just look back for a second, because you've had an extremely unique perspective, and long-term perspective.

When you look at what's happening in the world now and you compare it to what you've seen, how would you characterize the changes going on?

H.E. Ali al-Naimi: Well, that's a very puzzling question. I can tell you that the changes I have seen throughout the past have been phenomenal. But the one thing about them is when people work together to solve some of the issues that developed during these cycles, they were successful in resolving many of the issues that arose. And I can tell you that one of the hardest things for me was in 1998, how can we bring the producers and consumers together to stabilize the market? The prices were plummeting down almost to $9 a barrel, and I'm sure neither consumers nor the producers were happy, particularly the oil companies, because their profits also dwindled.

So there was a lot of effort to bring, especially the consumers, and that's how, although people were talking about the south and north, and there was a lot of dialogue between producers and consumers, there was really not much coming out of it.

I remember my first debut on the international energy market was in 1995. It was just two months after I was appointed Minister of Petroleum and Mineral Resources of Saudi Arabia. And I went to Venezuela for the so-called Producer-Consumer Dialogue. I noticed that everybody got up, spoke, and sat down. There was no dialogue. It was duologue.

[Laughter]

H.E. Ali al-Naimi: So when we met in 1998, there was a minister, a lady minister from Norway. We put our efforts together. I told her, you know, "This is no way this consumer-producer dialogue is going to work unless we change the format." And we did, and now we have a forum, an international energy forum, with 99 nations participating. And, well, I think I have answered that whole question.

Frank Verrastro: Yeah. Absolutely. You've talked about two things consistently. One has been demand certainty, and then the other is the role of technology that you already touched on. When you look out at demand growth, with all the supply increments that potentially can come on, do you see strong growth in the oil and gas sector going forward? And if so, from where? Predominantly Asia, but also Saudi Arabia. I mean, the internal ...

H.E. Ali al-Naimi: You are asking an oil man. Yes.

[Laughter]

Frank Verrastro: It's a softball question, we call it.

[Laughter]

Frank Verrastro: And I also got a note here to remind you all that we were never peak oil people, which I'm actually pleased to talk about. Can you speak a little bit about Manifa, and talk about, it's just a phenomenal project, as we were discussing upstairs. John and I were out there in February. It's 26 artificial islands with production coming on as early as the middle of this year. But what's the forecast for that?

H.E. Ali al-Naimi: I am looking for if there's anybody from our upstream ... here.

[Laughter]

H.E. Ali al-Naimi: Well, you know, Manifa is a great example of what technology can do. You know, Manifa was discovered a long time ago, and I remember when I was superintendent of production of the so-called Northern Area, we were producing Manifa at around 50,000 barrels per day. Lousy crude then, we thought, and nobody really cared for it, so we shut it down. It's a huge field. So we closed it.

And as now, I think it was April that the field was brought on. I think they will reach 500,000 by June or July. They are producing now around 200,000. And by midyear next year, they will be at 900,000 barrels per day. But this is an example of what technology can do.

The field is not in very deep water. It's in very shallow water. So a decision had to be made, how are we going to develop this field? Should we use jackups, or should we use just normal drilling rigs? So they build these nice islands, and they made big wells. Actually, I think the production string is something like seven inches, instead of the normal three and a half tubing. So, I mean, that's the beauty of ...

Frank Verrastro: Big flow rates.

H.E. Ali al-Naimi: ... faith in technology. Have your faith in technology. This oil and gas business will be with us for many, many years. Manifa is an example of what the Aramco can do and will do by emphasizing high tech, doing a lot of research, both upstream and downstream, but mainly upstream. That's, we will see a lot of developments like that.

Frank Verrastro: Thank you. And staying on the technology piece, shale gas in the kingdom.

H.E. Ali al-Naimi: Well, we know we have shale gas. I think every geologist realizes that most of the oils trapped in reservoirs came from shale, so all the carboniferous stuff in the shales, and it didn't all come out. Some stayed in tight zones. And so when you crack it, you get like what you are doing here.

We believe we have tremendous volumes of shale oil. What we need to figure out is how to develop it. You know, each area, each place is unique, it's geologic structure, the way it is, you are very lucky. You have many good areas you tapped in. And again, that is again a faith in technology. You have developed great technology. You have great infrastructure.

I visited, I think it was last Wednesday, Chesapeake in Fort Worth. They were I believe cracking, what do you call it?

Frank Verrastro: Was it the Barnett?

H.E. Ali al-Naimi: Barnett Shale. And I was impressed by the infrastructure there. So it's, you may have the shale, but you need all of the infrastructure to be able to develop that shale. And you are very well advanced. I hope we will get there one of these days.

Frank Verrastro: Excellent.

H.E. Ali al-Naimi: I think we are going to try to crack seven wells or so this year.

Frank Verrastro: There's no question that Saudi Arabia has source rock. We know that.

H.E. Ali al-Naimi: Oh, the source rock is there.

[Laughter]

Frank Verrastro: There's a number of questions on nuclear and solar. Can you address those ...

H.E. Ali al-Naimi: Yes.

Frank Verrastro: ... in the context?

H.E. Ali al-Naimi: As you heard in my speech, I didn't mention nuclear. I mentioned solar.

Frank Verrastro: Right.

H.E. Ali al-Naimi: I am in favor of solar, and I believe Saudi Arabia is positioned, we have the sun every day. We have great acreage. And we have an effort ongoing today in the area of research to make solar energy economic one of these days. It's not yet, but it will be. We are dabbling, like everybody else. We have solar power here and there, but that's very, like 10 megawatts here, 5 megawatts there. These are small units.

But maybe I will repeat what I said earlier in our private discussions. When we were building King Abdullah University of Science and Technology, of course, we established a great solar energy center, and when I met the director, I gave him a challenge for the future. I told him, Saudi Arabia is exporting about seven million barrels per day. Please convert that into Btus, and I want to see Saudi Arabia producing that much Btus from solar, and exporting solar energy. So he has a challenge. He's ...

Frank Verrastro: Ambitious target.

H.E. Ali al-Naimi: Ambitious target. That will stretch him a little bit.

Frank Verrastro: Saudi Arabia and China. We had a little discussion upstairs about the geopolitics, when you look at new demand centers, and they look at supply sources that are secure. The relationship going forward between particularly Saudi Arabia, but all of the Middle East, and Asia and India, China and India, how does that play?

H.E. Ali al-Naimi: Well, you know, I think consuming nations realize how reliable Saudi Arabia is as a supplier of fossil fuels, and so China is today a major consumer of Saudi oil. I believe we sell them around a million barrels. But about 70 percent today of our exports go to Asia, not only to China, but to India, Korea, Japan. And we have big interests in both China, Korea, and Japan. We are also supplying India, Indonesia, Thailand. Name it. In Asia, we are a major player. Remember, before, we were a major supplier to North America and Europe ...

Frank Verrastro: Right.

H.E. Ali al-Naimi: ... but things have changed, for different reasons. You are now blessed with a lot of shale oil and shale gas. Great. But as I said, we have supplied you in 2012 more than we did ...

Frank Verrastro: At the high volume ...

H.E. Ali al-Naimi: ... before that, so ...

Frank Verrastro: The next question is a two-parter. So you talked a little bit about the upstream, but this goes downstream in terms of investment and refining in petrochemicals, and what that means for the kingdom. And then also other minerals. When we were in Saudi Arabia, you spoke about aluminum, and a car industry, automobile industry. So can you talk a little bit about the vision and what diversification means?

H.E. Ali al-Naimi: Well, Saudi Arabia, besides oil and gas, is blessed with a lot of mineral resources. We have two world class deposits of phosphates and bauxite. We have built a mining city on the Gulf side called Ras al-Khair, and there, we are producing diamine phosphate as a fertilizer and exporting it, mainly India. Nd we have built also an aluminum industry. We are building a refinery to process bauxite. We have built the smelter and the rolling mill. The smelter and the rolling mill are working today, but we are importing alumina until our refinery is completed I think next year, and then we will be processing that. So we'll be integrated from the mine to the final product.

Now we are interested in adding value to what we do, so we will be taking what comes out of the rolling mill and making products that a secondary industry can take and produce consumer goods, aluminum. For instance ... cars and so forth. And I believe we are negotiating, I think it's Tata, where hopefully they will build a manufacturing car facility, I think it's Range Rover or one of these cars.

Now in the petrochemical area, now there is another project, which is, we are developing. It's about an $8 billion project in the north. It's called King Abdullah Promise for the North, and again, it takes phosphate and converts it to phosphoric acid, and then take the phosphoric acid and develop small industries there. So that's another area.

We are looking at silica. We have both quartzites and pure silica, about 99.9 silica, plenty of silica. I believe, and I have to convince investors, that we can build a totally integrated system by taking silica, making polysilicon, making these panels, and going, until we generate power. Now hopefully that will be totally integrated, from the mine to a power plant.

We have other minerals in the country, gold, copper, zinc, and so forth. That's being developed by the private sector. The whole purpose is to really diversify the economy. We need to reduce the government budget from reliance on oil.

Now that doesn't mean we are not going to exploit oil. We are going to exploit oil to the nth degree. But we want to take that revenue and not use it all for government. Hopefully, the government will have many sources of revenue besides oil. So we can take the income from oil and further diversify the economy.

Frank Verrastro: OK. So these questions are from the day traders in the audience.

[Laughter] Frank Verrastro:

And you can exercise that prerogative if you want. So the first one is what strategies and technologies are being used to prolong the life of Saudi oil? And the second is what is the sweet spot for oil prices that we can look forward to?

[Laughter]

H.E. Ali al-Naimi: How far is Las Vegas from here?

[Laughter]

H.E. Ali al-Naimi: No, you know, I don't think Saudi Arabia is really concerned too much about running out of oil. I think, as I said, our faith in technology, we are doing very interesting things, you know, like CCS, carbon capture and sequestration. We have a pilot. We are trying to inject about 50 million cubic feet per day of CO2. We are going, one of our major gas plants, we will collect the fumes from it and inject it in wells. Now for Saudi Arabia, that's economic, because we can enhance recovery by injecting CO2 and moving the oil toward the well bores and actually improving recovery.

Now I think in one field, our recovery in the ... field is close to 69 percent. Most of the industry looks at 50 percent as a good recovery percentage.

Frank Verrastro: Or less.

H.E. Ali al-Naimi: We are aspiring to get up to 70 percent through improved upstream technology. So there is no concern. Our resource base is huge. We started one time with 700 billion. Our reserves today are 266 billion. And I think we have produced over 100 billion. So with improved recovery and with further exploration, I believe the resource base will grow to 900 billion, and our reserves will rise accordingly. So there is no concern that we are going to be running out of oil soon.

On the issue of price, that's market determined.

Frank Verrastro: Nicely done.

[Laughter]

Frank Verrastro: So by comparison, Bakken recovery rates here are less than 5 percent. A lot of barrels, but we're still working on it. We're still learning. Let me switch gears. On geo, so actually, this is a question on the education side. So what are the possibilities of doing oil and gas business in Saudi Arabia as a woman?

H.E. Ali al-Naimi: As a woman?

Frank Verrastro: Yeah. The ...

H.E. Ali al-Naimi: You mean working ...

Frank Verrastro: Yeah. The Aramco, we've been dealing with Sam's group this year, and the last four or five years. The middle managers, there's been a number of women, in a variety, I think, from finance to exploration and production to public affairs to health care. We're seeing more and more women being promoted within Aramco. Within the kingdom, do you see that as a, and I know KAUST is looking to turn out technology-based people, but what do opportunities look like?

H.E. Ali al-Naimi: Immense ...

Frank Verrastro: There you go.

H.E. Ali al-Naimi: ... opportunities for women. And I for one am one of the greatest proponents for promoting women.

Frank Verrastro: I know that.

H.E. Ali al-Naimi: Actually, they have a lot of talents that men don't have. They're ...

Frank Verrastro: OK. Be careful now.

[Laughter]

H.E. Ali al-Naimi: Really, in certain jobs, they have more endurance than men. They have better concentration than men. In certain jobs, I can tell you, if you go to a chemistry class or a chemistry lab, you will find who is head. It's not men. Now in KAUST, we have many women, both students and faculty, and in KAPSARC we have the same. But King Abdullah is a great promoter of women. They are now working almost everywhere. Of course, in education, they are all over the place. So the opportunity ...

Frank Verrastro: Is huge.

H.E. Ali al-Naimi: And by the way, those 70,000 students I mentioned in the U.S. are not all men. They are women also.

Frank Verrastro: Right.

H.E. Ali al-Naimi: Medicine, medical area, is loaded with doctors.

Frank Verrastro: So we have a question here from our esteemed Dr. Jurgen, and he starts it by referencing, you've spoken at CSIS before about security of energy infrastructure, so that way I'll ask the question. Nice going, Dan. When you talk about Al Aminas or you talk about even some of the threats to infrastructure and facilities and the importance, the length of pipelines, pumping stations, refineries, and facilities, how does Aramco deal with that, and what's your prognosis on the future? Will the infrastructure and security challenge become greater and a source of innovation to deal with that? Or we are going to deal with these kind of on a one off basis?

H.E. Ali al-Naimi: No, I think Saudi Arabia, as well, I think the U.S. and Saudi Arabia work together on this issue. And I can tell you that we have one of the best redundant security systems in our facilities. And if you, some of you have a chance to visit, you will see that very significantly.

Frank Verrastro: Up to you.

H.E. Ali al-Naimi: Yeah. I can answer that ...

Frank Verrastro: OK. So there's ...

[Laughter]

Frank Verrastro: I asked the minister what he was getting me for my birthday.

[Laughter]

Frank Verrastro: No, so the question was Prince Turki al Faisal yesterday I believe at Harvard made a comment about 15 million barrel a day Saudi capacity and production levels by 2020, and we had kind of an interesting discussion upstairs on that earlier. And Mr. Minister, I'll ask you to elaborate.

H.E. Ali al-Naimi: I don't know really what he means by 15 million. He may be thinking about our ability to do that. In other words, not that we are going to do it, but that Saudi Arabia is capable of doing it, building capacity to 15 million. Now based on what we see as projection and call on Saudi oil, we don't see anything like that, even 2030 or 2040. So the need to build facilities and drill wells to produce 50 million, or have the capability for 15 million, is not there. We will be lucky to go past nine by 2020.

So you can see what's happening in the oil market. Supplies are coming from everywhere. And we are happy for that. It's coming from all over, the U.S., Iraq, the Caspian area, Brazil, now Africa. So from everywhere. And a lot of liquids are coming, besides oil. You know, when you produce a lot of gas, you also produce a lot of NGLs. So that also feeds into the refineries and satisfies the oil demand.

So we don't really see a need to build capacity to, beyond what we have today. We have 12.5 million barrel per day capacity. At the production level we are idling at today on 9 million, we have between 2.5 and 3.5 million barrels per day spare capacity. So we really don't need to even think about 15 million. But I believe he may have meant that Saudi Arabia, based on its reserves, are certainly capable of producing, if called upon one of these days, 15 million. But realistically, and based on all projections that I have seen, including ours, there is no call on us to go past 11, 11.5, by 2030 or 2040.

So the, I think it's, I don't think he means we are going to build capacity by 2020. I think he says, he means probably, and I normally don't comment on other people's statements, but I think because where he is and what he knows about the kingdom, and he has been in a very key position, I think what he means he's talking in the U.S., and he's trying to convince his audience that Saudi Arabia is capable of producing, if called upon, 15 million barrels per day. But we have no plans, nothing like that today, nor do I see it.

Frank Verrastro: When we look out at the future on the oil side, we've distinguished between it used to be natural gas and oil, and now we have this liquid, so we view it as kind of a continuum. The liquid situation in the United States is developing infrastructure on its own, and new demand markets in petrochemicals, and in some ways it helps refinery, and in some ways now it's being pulled back to compete directly with refineries as a fuel. This natural gas liquid, are we looking at a separate market for liquids, or continued integration?

H.E. Ali al-Naimi: You know, I see, when we look at the balances, we put NGLs as part of non-OPEC production.

Frank Verrastro: Right.

H.E. Ali al-Naimi: And it's about 6 million barrels per day, somewhere like that. And it is used as feed stock to the refineries. I think this will continue.

Frank Verrastro: OK.

H.E. Ali al-Naimi: Now some people spike their oil and sell it as crude oil, as light crude oil. They take heavy oil and spike it with NGL, and it becomes either medium or light crude oil.

Frank Verrastro: OK. This question says, there are many countries, Japan, Qatar, China, that are investing in plays in the United States. In addition to or besides the Motiva Refinery, will we see Saudi Aramco investing in the United States upstream?

H.E. Ali al-Naimi: Is there an opportunity? Is anybody offering us an opportunity?

[Laughter]

Frank Verrastro: I have some property in West Virginia that you might ...

[Laughter]

H.E. Ali al-Naimi: No, we're not in the real estate business. In the oil business, oil and gas business, yeah, we will be, you know, there was a time when I offered to build, I think it's in one of these councils, foreign council. I think I was in San Francisco. I challenged people, and I told them, we are ready to build two 500,000 barrel per day refineries.

Frank Verrastro: Refineries.

[Crosstalk]

H.E. Ali al-Naimi: Is there anybody willing to do that? Help us get the permit to do that? Nothing happened. Of course, today, I don't think it's that attractive.

Frank Verrastro: So our, refining in the United States has not been profitable for a long time because of distressed crudes now. There are actually people looking at the refining business, and because of some of our export restrictions, we're actually seeing, remember the old topping facilities that we used to have? We're dating ourselves here. Light oil topping facilities that you could export condensate under licenses. So they're building refineries for export, and then we use the rest of the crude for the system. So our market is changing. It's a dynamic market.

H.E. Ali al-Naimi: Frank, are you suggesting we should build topping refineries in the U.S.?

Frank Verrastro: No. No. We went through that in the '80s, and we rationalized and downsized, but, my goodness. Wow. So this is a great question. When you start looking at, we always talk about black swans and discontinuities. There are things like the shale gas revolution that we couldn't have foreseen. It was a combination of price and technology and access that allowed this to take off and happen so fast, accelerated change. Is there anything that you can see on the horizon, when we were in Saudi Arabia last time, they talked about reservoir robots, right? The technology is changing so much, that you see as a breakthrough technology, or a change that will impact the dynamics of this market?

H.E. Ali al-Naimi: Well, the only thing I can say is technology will not stop evolving, and technology will pleasantly surprise us. So it's there. All we have to do is use it and develop it. And I think we'll be happy with it. But black swans are, they're, I read the book "Black Swan." I found it one of the hardest books to read.

Frank Verrastro: Wait for the movie.

H.E. Ali al-Naimi: And it's written by an Arab. So ...

Frank Verrastro: I'm going to take you totally off oil here just for a second. So your roles within the kingdom, whether it's KAUST or KAPSARC, there are many hats that you wear, both as minister and just because of your capability within the kingdom. What excites you outside of the oil and gas business?

H.E. Ali al-Naimi: Well, you know, when I remember in 2006, we were in a Council of Ministers' meeting. King Abdullah held my hand and said, "Ali, can you build a university?" I said, "Your Majesty, we have built, Saudi Aramco has built a lot of refineries, gas plants, pipelines, some housing, but universities, no. But we can, if you want." And we did.

Frank Verrastro: And you did.

H.E. Ali al-Naimi: Aramco, Saudi Aramco built a great university, structure-wise. Now he also asked me to be the chairman of the board of trustees. Again, I told him, "Your Majesty, I know nothing about academia. I only remember being a college student a long time ago. That's all I know about academia." So he said, "Yeah, you will do it." So OK.

[Laughter]

H.E. Ali al-Naimi: Here I am. I am now, one great thing happened to me is associating with all these presidents of universities. Our board of trustees has a number of presidents of universities, Alice Gast from Lehigh, Shirley Tilghman from Princeton, and who else? Anyway, they're either presidents or ex-presidents of, and so the vision of King Abdullah is, for that university is amazing.

The university is supposed to do three things. One, develop science. It's a teaching and research university. The second thing is do research, practical research. And then the third thing is take the product of this research and convert it into an industry. And that's happening today, and it's going to progress.

Now the students that enroll in that university are really very talented students. We select them worldwide. In Saudi Arabia, we go to high schools and pick the talent from there. We sponsor them in accordance with the King Abdullah Scholarship Program to universities that KAUST chooses, like MIT, Harvard, Stanford, Oxford, Cambridge, and so forth. And they go for four years or five years or however it takes them to finish their bachelor of science. And enroll in KAUST. Now for expatriates, we go worldwide and pick the best.

And one thing, I learned how tough it is to entice talent to come to your university, because the student that comes to do graduate work in KAUST has already three or four acceptances from the finest universities in the world, and that's tough. And the good thing is when they come there, we invite them to come and see the campus and see the resources, the labs, research labs and so forth. Then they really get interested and come.

It's a whole community. It's a beautiful facility, great faculty. We again hire the best, we just hire for presiden, our current president is retiring, and we were very lucky to get the president of Caltech, Jean-Lou, and he will be with us next July.

So everybody is wondering, what did we do to entice such a great president? Well, he came and saw the charter of the university, the objective of King Abdullah, and saw the facilities, and immediately developed the passion for it. So we got lucky. But we have great faculty at the university. They are small. We have about 120. We'd like to be at 220, and about 2,000 students. That's all. So no undergraduates. It's mainly graduate research university.

And KAPSARC is a policy research, with energy on one side and environment on the other, because we are involved heavily in environmental issues worldwide. We are a participant in all the dialogues. And we want to contribute to the betterment of the environment. That's why we are injecting CO2 testing. We hope the world will see a benefit in doing that, and we can do, so we can continue using fossil fuels and ...

Frank Verrastro: And still help the environment.

H.E. Ali al-Naimi: ... save the environment.

Frank Verrastro: That's what we call a two-fer. Mr. Minister, I had promised you that I'd, given your throat and situation, that I wouldn't belabor this beyond, this has been extraordinary, that you've given us this much time. Your career, your thoughtful and calming voice in oil markets has been astounding over many decades, and we appreciate all that you have done. We also appreciate the fact that you've been such a good and trusted friend for CSIS, and many of us personally. And if you'll all join me in thanking Mr. Naimi, and we welcome back here any time you can.

[Applause]

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