November 22, 2006 Saudi Aramco

JBIC Dubai Symposium
The symposium, entitled "Towards a New Business Partnership Between Japan and the GCC," was sponsored by the Japan Bank for International Cooperation (JBIC) to commemorate the opening of JBIC's Representative Office in Dubai.

GCC/Japan Partnerships: A Model of Four Dimensions
　　Abdulaziz F. Al-Khayyal
　　Senior Vice President, Refining, Marketing & International, Saudi Aramco


Your Excellencies, Ladies and Gentlemen: May I add my highest regards to each of you for joining in this landmark symposium. We are honored to witness the latest symbol of this region's remarkable growth, and congratulate the Japan Bank for International Cooperation on its beautiful new office here.

You must agree, that name itself speaks volumes: Japan - as a world leader in trade and innovation...Bank - as a force in economic prosperity... International - as a global player...and Cooperation - as a partner in progress. I believe no more descriptive - or proactive -- name could have been chosen.

Of course, JBIC is no stranger to our Gulf countries. You have already financed impressive projects from oil, gas and petrochemicals to the very foundation of our cities. These are helping link the GCC -- like a string of pearls -- to expand trade and promote tourism. So in light of what the future may hold, we offer you sincere congratulations upon the opening of your new office in Dubai.

In my remarks today, I would like to focus on the energy and economic perspectives of cooperation which are bringing tremendous benefits to Japan and the GCC. The limits to this partnership are only as wide as our imagination, and pose an array of opportunities. We need now only the will and determination to make it happen.

How so, you might ask, when doing business globally is becoming more and more competitive. By supporting our partners' business in fundamental ways, I believe the competitive edge can shift decidedly in our favor. And no ways are more fundamental than assuring a steady supply of energy and capital, with the resolve to use them wisely. Both represent essential resources to Japan and the Gulf countries.

This interdependence is not only healthy but desirable. JBIC clearly means business here in the Middle East, and our energy producers are eager to supply Japan. The economic benefits will thus accrue to all and help forge a long-term, world-scale relationship that is built on trust and tenacity.

We at Saudi Aramco highly value such relationships, because our business is based on them. We're also aware that the world's energy needs will continue to rise as national economies expand. A closer look at these global trends -- and Japan's in particular -- reveals some sobering challenges.

According to the Energy Information Administration, for example, world energy demand is expected to grow from the current equivalent of 225 million barrels of oil per day to 355 million barrels by the year 2030. That represents a jump of close to 60 percent. And three-fourths of that growth will come from countries outside the OECD.

In fact, demand by these non-OECD countries may surpass the developed world mid-way to 2030 - more evidence of their brisk demand for energy. I should note here that despite emerging alternative sources, oil and gas are likely to remain the dominant choice, making up about 60 percent of energy demand even in 2030.

And what about the trend in Japan? There we see a different picture. Japan's Institute of Energy Economics expects energy consumption in 2030 to actually decrease four percent from the level of 2004. That's based on a stable economic growth rate of 1.5 percent a year, and offset by energy efficiencies. Even if economic growth rates rise 0.5 percent annually, energy consumption will show only a slight increase.

That good news comes with a bit of caution, however. Japan is still expected to consume about 5.4 million barrels of oil per day by 2030, only slightly lower than it uses today. And consumption of natural gas is forecast to rise, from about 8.8 billion cubic feet per day now, to nearly 10.5 billion cubic feet in 2030. So, obviously oil and gas will remain central to Japan's economic prosperity.

That leads me to the subject of energy security and the role of the Middle East. Japan, like many nations, seeks diversity of supply. Diversity in itself does seem like good strategy. By importing oil from geographically scattered suppliers, there is less assumed risk and therefore more security. This strategy is challenged when the assumption equates to significantly reduced reliance on oil from the Middle East.

Why is this? Because, if oil resources were indeed more widely and evenly distributed around the Earth, true diversity of supply could exist. But in reality, global oil and gas reserves are concentrated in relatively few areas. Excluding heavy oil deposits in Canada -- which are difficult to rapidly convert -- almost two-thirds of the world's proven oil reserves lie the Middle East, with about 38 percent in the GCC states alone.

As the world's third-largest consumer of oil, Japan relies heavily on Gulf producers.

It is also the world's largest importer of liquefied natural gas, buying some 58 million tons from abroad last year alone. We believe Japan will be looking with more interest to the Middle East for gas, in addition to oil, as changes occur in the international market.

Further, proximity to the Gulf and established relationships certainly bode well for continued energy trade between Japan and the GCC. Even more positive are opportunities to substantially boost joint economic growth through cooperative ventures. By these I mean "leading by example" into a future that not only offers good prospects for people but real energy security for Japan.

We can observe this in a four-dimensional model, each dimension with distinct advantages. The model is energy-intensive but provides a broad horizon for new developments. In total, it represents an aggressive, achievable outlook for Japan and its Gulf Cooperative-member partners.

The first dimension of the model is oil and gas development. Petroleum is a traditional driver of progress in this region, and the bedrock of our economies. Yet oil and gas development alone is not an end-all, but rather leverage from which associated growth occurs. Our ability to diversify is enhanced as production capacity increases - which helps meet the call for energy and opportunity.

Earlier I mentioned "leading by example" - and good examples abound. Saudi Aramco, for one, is currently working full speed to expand the Kingdom's production capacity from 11 million barrels per day to 12.5 million by the year 2009. At the same time, we plan to maintain between 1.5 and two million barrels per day of spare capacity, to help insure market stability.

This costly but critical policy has more than once averted world economic harm and calmed concerns about disrupted supplies elsewhere. Therefore, the importance of the Gulf's vast oil reserves - in total about 487 billion barrels or 38 percent worldwide - cannot be discounted. Nor should our cooperative efforts to develop oil and gas with partners whose interests are clearly aligned with ours.

Let me illustrate. We are using Japanese technology, expertise and equipment in nearly every aspect of Saudi Aramco's operations, from precision pumps to supertankers. Japanese manufacturers, contractors and engineering firms have worked closely with us to develop grassroots projects like Hawiyah and Haradh - two of the largest gas plants ever built. Projects like these and more from throughout the GCC are on the drawing boards.

A second dimension of our model is also energy-related but distinct in application. That is the dimension of value-added opportunity. Gulf state producers are increasingly pursuing ways to add value to their existing oil and gas streams. By so doing, they are launching new industries, expanding product lines, reaching new markets and creating more jobs.

These downstream opportunities are rapidly changing the industrial landscape in the Gulf. Simple topping refineries are becoming full-conversion, high-throughput complexes. Raw gas and NGLs are becoming finished petrochemicals. Petrochemical products that meet world-class quality specs now arrive from - not just to - our GCC ports. And the examples go on and on.

Such a metamorphosis speaks to the fruition of cooperative investment. Saudi Aramco is engaged in multi-billion dollar projects to upgrade its refineries and develop petrochemical capabilities that will rival any in the world. We are currently working with two international partners to build twin, in-Kingdom export refineries - one on the Red Sea coast and the other on the Arabian Gulf -- each with 400 thousand barrels per day of capacity.

Over the next five years, we will be boosting our total global affiliated refining capacity by almost 50 percent, to nearly six million barrels per day. The two-fold benefit will expand industrialization in Saudi Arabia while helping ease the world's current shortfall in refining output.

Japan is certainly playing a key role in our plans. One of the crown jewels of Saudi Aramco's value-added vision is Rabigh - once a basic crude-topping facility but now destined to anchor an entirely new industrial city - with our partner Sumitomo Chemical of Japan.

Further, a key role in the financing of our joint venture with Sumitomo Chemical has been played by JBIC. The $2.5 billion loan from JBIC was the cornerstone in our total financing program of $5.8 billion. The excellent support and proactive participation from JBIC during the development of the financing package was instrumental in achieving the aggressive timeline and successfully completing this milestone financial transaction.

PetroRabigh, as it's now known, will upgrade its crude oil capacity to 400 thousand barrels per day and 2.2 million tons per year of olefins-based petrochemicals. From that will arise a cluster of industries that produce plastics, paints, insulation, waterproofing materials, auto parts and many other products.

These outgrowths dramatically illustrate how innovation, investment and technology can transform abundant natural resources into once-undreamed-of opportunities. Better still, the benefits can be liberally shared when international partnerships recognize value-added projects for their long-term potential.

A third dimension to our model holds equal promise for the future. We call it "energy intensive industries." Like petroleum and petrochemicals, these require substantial power sources. Among them are metals and minerals processing, glass, fertilizers and wood product manufacture. What's attractive to Saudi Arabia is the inherent low-cost synergy between minerals and the Kingdom's large hydrocarbon base.

Dubai and Bahrain already have world-class aluminum smelters that benefit from reasonably priced, local energy supplies. By contrast, Japan's natural endowment of energy and mineral resources is small, yet that nation possesses skills and technologies that make it an ideal partner in the Gulf's energy-intensive sector. So, cooperation means opportunity.

The fourth dimension is economic diversification. There is little question that single-source revenues limit any nation's ability to grow. Over the past three decades the member countries of GCC have witnessed phenomenal economic and social transformations. Much of this lies in diversifying their economies to enable competitive roles in the world marketplace. Change has come slowly but steadily in the non-oil sector, and there obviously remains plenty of room to grow.

Opportunities exist especially in services like finance, banking, trade, travel, transportation, insurance, and government work. The ripple effect from such massive projects as PetroRabigh will create many small-to-medium sized firms that yield products and services for both local and export markets.

Before I close, and in keeping with today's occasion, I would like to briefly cite a few other thoughts that affirm the strong relationship between Japan and Saudi Aramco. Interdependence, as I noted earlier, is a matter of mutual gain. More than that, I believe it's a manifestation of respect. Respect for the values of the other party, and respect for what each brings to the table.

Japan has been one of Saudi Aramco's oldest and most important customers. While the whole of Asia is poised for rapid growth in energy demand, Japan holds a special place for us. We remain fully committed to your market needs and your future energy security. Likewise, through our Sumitomo Chemicals partnership at Rabigh, and such earlier joint ventures as our 15 percent stake in Showa Shell, we have a lasting legacy to protect.

So, our four-dimension model is really a blueprint for building business. I believe we have seen how each dimension has some unique, yet some common attributes. The overriding theme is cooperation - a theme no less important to the Japan Bank for International Cooperation and, indeed, to all of us in the GCC. As Saudi Aramco carries through its immense expansion plans, we see genuine value added from our Japanese partners there.

Your Excellencies, Ladies and Gentlemen, it has been a pleasure to take part in these proceedings. If I may leave you with one final thought, it would be that people earn the confidence of others when they consistently perform to the highest standard. believe the partnerships between the GCC countries and Japan - as with Saudi Aramco -- have long borne that out. And I'm confident they will for years to come. Congratulations again to JBIC, and thank you.