CEO challenges businesses at energy forum

CEO_Energy_Forum

In his keynote speech at the Second International Energy Forum (IEF) NOC-IOC Forum here April 7, President and CEO Khalid A. Al-Falih stressed the need for petroleum companies to "revisit our concept and philosophy of business."

He urged NOCs and IOCs to leave behind outdated modes of thinking and models of cooperation and go beyond "simply supplying energy," to realize true sustainability. Al-Falih said that concept required inclusion of a wide range of priorities, from energy, economy and society to technology, infrastructure and the environment.

"What is the larger public good that we serve as petroleum enterprises?" Al-Falih asked the audience before dividing the industry's response into three phases.

The "early mission" of oil companies, he said, was limited to finding and producing oil and getting the product to the consumer. That was adapted to encompass the growing importance of public health related to oil products, environmental safeguards and the safety of employees and operations.

Despite these initiatives, shortcomings in economic transformation and job creation have led to a third generation of societal expectations. Al-Falih said: "It is increasingly apparent that people are willing to grant the energy and oil industries ... a social license to operate only if our business activities have a wider and positive ripple effect in the markets and communities where they conduct their business."

He argued that true sustainability, which includes all three phases, is "very much in our self-interest as corporations."

He then set out three key imperatives to achieving those goals: the creation of a practically workable, optimum future energy mix that leverages local resources while addressing the issue of energy poverty; ensuring the adequacy, affordability and acceptability of energy supplies to meet rising demands while maintaining industry profitability; and striking a balance between natural resources, food, water, energy, economic growth and the environment.

Put simply, Al-Falih noted that energy companies are required to do far more than merely supply oil; popular expectations now include the promotion of development, and the production of progress and prosperity. "There are no more easy rides and no more free lunches to be had," he said.

Furthermore, petroleum companies will benefit by developing a clearer understanding of the future energy world. "Demand for petroleum will taper off in OECD countries over the next quarter-century," he said, "but incremental consumption growth in emerging markets and developing economies will more than compensate for those declines, heralding a fundamental redrawing of the global demand map."

While such a statement provided a relative assurance of the demand, the supply side was far from certain. Al-Falih noted that tremendous speculation surrounds the "exact nature of the future energy mix and the outlook for shifting source allocations." He pointed out that a balance needs to be struck between economic growth and development on the one hand and environmental stewardship on the other.

"Activities like local economic development, the creation of new employment and professional opportunities, and strengthening local communities are no longer 'nice-to-dos,' but instead have become 'must-haves' for successful and sustainable petroleum enterprises," he said.

Turning to NOC-IOC cooperation, Al-Falih cited several areas of partnership, such as human-resource development and cross-training, collaborative approaches to environmental issues, and joint research and technology projects. He referred to Saudi Aramco's pride in its joint ventures as an example of the company's belief in capitalizing on mutually beneficial opportunities.

He illustrated some of the ways the company has put sustainability into action. "We have long been focused on trying to leverage everything we do to promote the development of the Saudi economy and society, because such contributions are an integral part of our corporate mission."

He added that upstream focus was on the "careful, prudent stewardship of the Kingdom's hydrocarbon resources," before pointing out that Saudi Aramco's long-term ethos was "a key differentiating factor between (the company) and many operators ... as we emphasize the long-term management of our reservoirs alongside economic optimization."

By comparison, Al-Falih said, Saudi Aramco's downstream portfolio is aimed at adding value to the Kingdom's hydrocarbon resources "and driving the creation of new jobs." Each objective of the company's downstream strategy "is designed to contribute to the nation's prosperity in ways that are tangible, valuable and sustainable."

Investment in research and development involving upstream and downstream technologies, as well as a commitment to creating a knowledge-based economy in the country, reflects Saudi Aramco's recognition that the impact of its work and responsibilities to stakeholders "don't stop at the gates of our refineries, gas plants and petrochemical complexes or the perimeters of our producing fields."

He closed his address by urging energy companies to consider the hopes, aspirations and expectations of their stakeholders as "central elements in (their) business strategies," and to address the sustainability challenges of the social and economic development of their communities alongside business profitability and environmental protection.

With so many unknowns ahead, Al-Falih said one thing is certain: The oil business of the future will not resemble that of the past and neither will society's expectations.

Alain Charles Publishing, University House, 11-13 Lower Grosvenor Place, London, SW1W 0EX, UK
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