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Saudis warn of “catastrophic” oil supply crunch in near future

Thursday, March 19th 2009 - 16:22 UTC
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Saudi Arabia's oil minister Ali al-Naimi Saudi Arabia's oil minister Ali al-Naimi

Saudi Arabia's oil minister Ali al-Naimi warned Wednesday of a possible “catastrophic” energy supply crunch without prompt investment. The minister said the ideal price for oil lies between 60 and 75 US dollars a barrel.

“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” said Ali al-Naimi.

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

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.

Naimi said the world should not use low oil prices as a reason not to investment in the sources of future production, as to do so would only guarantee further shortages and soaring prices.

The Organization of the Petroleum Exporting Countries, with Saudi Arabia taking a lead role, has made its biggest output cuts ever to haul oil prices back from a $100 drop.

”I have often described unsustainably low oil prices as carrying the seeds of future price spikes and volatility,“ Naimi said.

”In a low price environment, the trend is often to focus on survival instead of expansion,“ he added. ”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 spoke out on ”rhetoric“ against the future of oil as an energy source and calls among leading energy consuming nations for greater independence from imports.

”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 pledged that the world's top oil exporter will sustain long term investment to ensure supplies despite the global economic problems.

”... 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”.

More specifically on prices 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.” He added that “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”.

Categories: Energy & Oil, International.

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