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ONS 2014: Saudi Aramco warns of rocky road ahead

28th August 2014

Khalid A Al-Falih, president and chief executive officer of Saudi Aramco, has warned the oil and gas industry that it faces tricky times ahead

ONS 2014: Saudi Aramco warns of rocky road ahead
' Khalid A. Al-Falih, president and chief executive officer of Saudi Aramco, has warned the oil and gas industry that it faces tricky times ahead' - Al-Falih

“Many observers point to a cloudy outlook for our industry and predict even more stormy weather ahead,” he told the gathered conference at ONS 2014. “While I am as confident as ever of our long term future, I certainly acknowledge that our sector faces significant hurdles today.”

The hurdles that he highlighted were rising costs, manpower shortages, environmental concerns and the macro-economic climates

“Rising costs and cost overruns are dragging many projects – and no one knows this better than those of you in the offshore industry, with project price tags in the tens of billions of dollars, and with significant financial and technical risks,” he continued. “Even at Saudi Aramco, project costs have roughly doubled over the last decade despite deploying cutting edge technologies and applying our robust project management systems to mitigate cost escalation.

“These project challenges are driven in part by shortages and bottlenecks in our supply chain, including drilling contractors, shipyards, EPC firms, and materials and equipment suppliers, which have led to growing quality, schedule and cost pressures.

“Of course, larger investments and a shrinking number of easier and cheaper fields mean more expensive production, and so industry profitability is plateauing after a banner decade. As a result, investor expectations go unfulfilled, and amid this squeeze between higher costs and shareholder demands, we are seeing project cancellations and a general capital curtailment.”

He turned his attention to what he deemed critical manpower shortages in the industry, including the services sector. “As a generation of older veterans retires; enrolment in earth-science programs continues to stagnate; and our industry competes for talent with other sectors,” he explained. “Finding and attracting competent engineers, rig personnel and geoscientists to run ever more complex and expensive operations has become an acute challenge.

“Third, the industry continues to grapple with environmental concerns, especially climate change, as we should; and perennial issues like safety remain near the top of our industry’s agenda, as they must.

“Fourth, at the macro level, continued global economic weakness is hindering short-term growth in oil demand, while turmoil in oil producing regions such as Africa, the Middle East and the former Soviet Union is further clouding the outlook.”

But despite these challenges he still remained confident about the sector’s prospects.

“The factors I just highlighted are likely to put downward pressure on supplies over the longer term, if the industry fails to make prudent and timely investments. For now however, the market is shrugging them off and prompt prices are reflective of weaker demand.”

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