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Demand for oil Of course, all of this doom and gloom has had a negative impact on petroleum demand, which is down roughly eight percent from last year. The markets have taken their cues from both the economic slowdown and this rapid stock-build, with light sweet crude prices touching levels last seen in the spring of 2007. At the moment, the US$147 a barrel high seems just a distant memory. Clearly this is a turbulent time for the petroleum industry as a whole, given the widespread economic uncertainty and destruction of demand that we are currently witnessing. But what do these developments mean for Saudi Aramco, and in particular, for the various megaprojects which we are developing? When it comes to our new crude oil increments and gas expansion projects, the impact of the present economic turmoil will be minimal. By and large, our upstream projects are self-financing, or ‘corporate financed’, meaning that we are not reliant on the banks or credit institutions to finance our expansion programmes. However, the need to bring in additional volumes of oil in a contracting market will be examined carefully. Of course, we already possess substantial spare crude oil production capabilities, in keeping with the Kingdom’s longstanding commitment to maintain 1.5 to two million barrels per day in spare capacity. Coupled with today’s softening demand picture, this capacity gives us an additional cushion when it comes to project timetables and commissioning activities, and contributes to our operational flexibility in the area of crude oil production. When it comes to our downstream joint ventures, including our export-oriented refineries and our integrated refining and petrochemical projects, I can tell you that our partners are still highly committed and anxious to see these projects move forward. I think it is realistic to say that financing these megaprojects through borrowing in a tight credit market will be a challenge. However, because of the uncertain nature of the global financial crisis, it is really too early to tell what sort of fallout there will be for the funding of these projects. In addition, any such impact will be a function of the generally tight global credit market and the internal lending considerations of banks and financial institutions themselves, rather than a reflection of the long-term economic viability of these projects, which remains positive.
“Clearly this is a turbulent time for the petroleum industry as a whole, given the widespread economic uncertainty and destruction of demand that we are currently witnessing”
whether either the banking sector or the stock markets have hit rock bottom. Even more worrying is the fact that, at present we are moving from a crisis in the financial markets to a slowdown in what people call the real economy: Main Street and the high street as opposed to Wall Street and the City. A number of major global economies appear to be on the edge of a recession, or already in one. Even rapidly developing and expanding economies like China and India are experiencing flatter growth rates: China’s GDP grew roughly 10 percent year-on-year for the first three quarters of 2008 – two and half percent less than last year, while India’s central bank recently cut its forecast of 20082009 GDP growth from eight to 7.5 percent. While those are still astounding rates of growth, consider that analysts estimate China must maintain annual GDP growth of eight percent simply to absorb new jobseekers. Then consider that as a result of the slowing global economy, the United Nations is now predicting that some 20 million people around the world will lose their jobs by the end of this year, and that the total number of unemployed men and women across the globe will top 200 million for the first time in history.
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