Saudi Arabia's oil minister said Tuesday that world oil reserves are more than enough to meet rising future demand but that without new refineries prices will remain high and markets volatile.
"These are turbulent times for oil markets. Prices are under pressure because the petroleum industries infrastructure is stretched thin," Ali Naimi told the 18th World Petroleum Congress in Johannesburg. "Most of the spare capacity of the 1980s and 1990s has disappeared, resulting in a system that has a much smaller margin for error."
Naimi said the havoc and disruptions caused recently by hurricanes Katrina and Rita in the Gulf of Mexico offered visible examples of the fragility of the energy delivery system.
Concerns about refining capacity, heightened by the hurricanes, have pushed the price of oil beyond US$60 a barrel.
During periods of low prices, Naimi said low cost fuel encourages consumption but causes investors to turn to other industries that offer greater returns. If prices are too high, global growth suffers and the petroleum industry suffers from reduced demand.
"The current price level is providing the returns needed to attract adequate investment," said Naimi. "We believe spare crude oil production capacity will grow sufficiently in the next 3-4 years to restore some margin of safety to world crude markets."
However, he said higher prices were not enough to assure the necessary investment. He said environmental impact issues and contentious planning regulations will make it more difficult to overcome the bottlenecks in the current energy delivery system. He said an uncoordinated proliferation of regulations was complicating investment decisions and clouding the future.
Rex Tillerson, president of Exxon Mobil Corp., said the damage from hurricane Rita was still being assessed but that hurricane Katrina had destroyed 40 oil platforms in the Gulf of Mexico and damaged others. It also briefly knocked out 95 percent of the oil production in the Gulf of Mexico and 90 percent of natural gas production there.
"There was a rapid, market-driven recovery. Within two weeks, all but 15 percent of oil and 6 percent of gas production was restored.
The hurricanes, he said, underscored the global interdependence of the oil industry and made it clear that no country can be truly energy independent.
Tillerson said global energy demands would increase by 50 percent in the next 25 years and about 80 percent of that increase will come from the developing world.