Geopolitics and the transnational operation of energy companies are of central importance in today's petroleum industry. So it is important to look at the various dynamics which transcend national borders and market boundaries and to recognise that these factors do not operate in isolation from one another but rather are interrelated in highly complex and therefore sometimes confusing ways.
First, there is the growing significance of international trade in crude oil and refined products. Cross-border trade in crude oil and refined products rose from roughly 55 per cent of global consumption ten years ago to 65 per cent of the whole in 2007. In other words, over the last decade the amount of oil making its way around the world has risen both in absolute terms - about 14 million more barrels per day - and as a per centage of total consumption.
As a result, global and regional political conditions have a greater potential to significantly impact the overall petroleum business than ever before, and can exert a powerful influence over supply-demand patterns and trends.
Second, we have to consider the increasing degree of interconnectivity within the international petroleum industry. Part of this interdependence stems from the rising level of petroleum exports and imports, but we also need to take into account the growing number of business partnerships and joint projects undertaken by corporations from different countries.
While this globe-spanning business model has always been important for the multinational majors, we are increasingly seeing leading national oil companies take on various projects and initiatives far beyond their own borders, in both the upstream and downstream segments of the business.
Third, there are a growing number of transnational issues which impact our business regardless of national borders. Most obvious are the volatile petroleum prices we have seen in recent months. No economy can be totally isolated from these wide price swings, given that crude oil is a fungible commodity and petroleum markets are global in nature. There is also growing global competition for the shrinking talent pool of experienced oil men and women, and the need to cultivate a new generation of petroleum professionals, particularly in critical core engineering disciplines.
urthermore, there are pressing transnational environmental issues related to both the production and the consumption of petroleum, including the need to limit greenhouse gas emissions and the prospects for new carbon management techniques and technologies. Again, no individual region or market is immune from these global factors.
Fourth, we are witnessing considerable political and economic turmoil in today's global arena. As the old saying goes, we are living in interesting times. These unfolding issues involve producing and consuming countries, developed and developing economies, and all regions of the world.
Furthermore, the repercussions of these various events touch upon national energy policies and developmental priorities, help to shape legislative and regulatory environments, and colour the overall climate for petroleum industry investments.
Finally, these factors are compounded and made more significant by the central role that energy plays in today's economies and societies. Energy - and in particular petroleum - is an indispensable input for sustained global economic growth, and with it the social development and relative prosperity of entire countries and communities.
That means that enhanced energy security, and the steps and strategies needed to achieve it, must be at the top of virtually every nation's political and economic agenda today.
Two ways to manage the risks
Once we recognise the global nature of the modern petroleum industry and understand that - like it or not - international political and economic developments have a very real impact on our ability to meet our commitments as institutions, it seems to me that there are only two options available to manage the risks posed by these transnational developments.
First, a company or a country can try to go it alone to the fullest extent possible - striving toward 'energy independence', as some politicians in some markets would say - and attempt to dial down its exposure to such events by minimising transnational operations as much as possible. Given the nature of today's petroleum business, I think such an approach is highly impractical, and would certainly result in operational and investment constraints, technological stagnation, and a substantial drag on the economy in question. That's why there is no country in the world - including Saudi Arabia - that is completely self-sufficient in terms of energy: we all look beyond our borders for customers and suppliers, for providers of goods and services, for investors and for new ideas, and even if we wish it were otherwise, the reality of interdependence remains.
Therefore, I think the second option is much richer in terms of opportunities and more realistic as a strategic direction, and that is to first embrace the notion of interdependence and then work to enhance the cooperative ties that bind us together. In other words, the best response to transnational industry challenges is not to retreat within our own shells, but to expand our cross-border dialogue and redouble our commitment to fruitful collaboration.
Such an approach begins with the recognition that we will all share the same energy future, and that it is therefore in our common interest to work together to achieve the brightest such future possible. As the English writer G K Chesterton once said: "We are all in the same boat in a stormy sea, and we owe each other a terrible loyalty." If we ignore that fact, then we condemn ourselves to approaching energy issues with an 'us versus them' mentality and to viewing our activities as a competitive zero-sum game rather than as opportunities to develop win-win solutions. If, on the other hand, we accept that we are indeed travelling together in the same vessel, then greater cooperation for the common good is the only sensible strategy to pursue.
But how is that co-operation to be realised? I would argue that just as the transnational challenges facing us are multidimensional, so are the avenues for co-operation and collaboration.
We can begin with building stronger bonds among suppliers and consumers, and enhancing the relationships that link sellers to buyers. Now at first glance the producer-consumer relationship might seem to be an adversarial stand-off at worst, or a marriage of necessity at best. But at Saudi Aramco, our experience has proven that strong, sustained relationships with our customers, based on mutual respect and a detailed understanding of their needs, is among the most important factors in our continued business success. To return to my earlier metaphor, producers and consumers may occupy different sides of the boat, but it's still the same boat and its future course is equally important to all of us.
In some cases, these transnational relationships develop into full-blown business partnerships, and here again I think that the benefits of cooperation far outweigh those of trying to go it alone. Indeed, by pooling the respective strengths of our individual corporations, by bringing together the best and brightest from within our respective organisations, and by working together to realise shared objectives and mutual benefits, we are able to achieve remarkable things.
Next, there is considerable scope within our industry for greater intellectual cooperation and collaboration on a whole host of pressing issues, including the development and deployment of new technologies, realising the full potential of our current industry workforce and recruiting and retaining the next generation of oil and gas professionals, and tackling important environmental issues. At the same time, we can do more to share best practices in various operational areas, as a more efficient and more effective global petroleum industry is, once again, in everyone's best interest.
A wider dialogue
But our commitment to dialogue and cooperation must extend beyond the narrow confines of our individual companies or even of our industry as a whole. Instead, we need to engage in constructive discussions with government institutions and regulatory agencies; with public and private sector research institutes and laboratories; with technology developers of all stripes; and of course with the end-users of our petroleum and petroleum products. Just as no company operates within a vacuum, the petroleum industry itself has multiple points of contact with other economic actors both large and small, and we need to work hard to develop and enhance those critical relationships.
Finally, I believe there is vital work to be done on what some people consider to be 'soft' issues related to petroleum, and in particular on creating a greater awareness of the oil industry, its current level of technological sophistication, and the indispensable role it plays in making prosperity possible for billions of our fellow human beings.
In many markets, petroleum rates as a 'least admired' industry, and as an economic sector, our business faces serious reputational challenges. In reality we are fuelling global economic development and diversification, and providing energy for transportation, power generation, manufacturing, agriculture and medicine.
In other words, we make a positive and profound difference in the lives of countless communities, families and individuals - and I believe that by working together, we can do a better job in telling that compelling story and underscoring our many contributions to modern life.
This is an edited version of Mohammed S Madi's presentation to the Third International Forum on China Energy Strategies. For more see www.saudiaramco.com.
