FORMER ARAMCO EXECUTIVE OFFERS HIS VIEWS ON OIL

C O N F I D E N T I A L RIYADH 009488

SIPDIS

SIPDIS

DHAHRAN SENDS
ENERGY FOR DAS BRODMAN AND MIDEAST OFFICE DIRECTOR PERSON

E.O. 12958: DECL: 12/21/2015
TAGS: EPET EINV ECON PREL SA OIL
SUBJECT: FORMER ARAMCO EXECUTIVE OFFERS HIS VIEWS ON OIL
SUPPLY AND DEMAND

REF: RIYADH 7473 (NOTAL)

Classified by Consul General John Kincannon for reasons 1.4
(b) and (d).


1. (C) Over lunch at the CG's residence on December 21,
2005, Sadad Al-Husseini, who retired from Aramco in 2004
after serving twelve years as Executive President for
Exploration & Producing, shared his views on global oil
supply and demand with CG, EconOff, and PAO. Al-Husseini,
who is now a consultant, sees constraints on the growth of
refining capacity as the limiting factor on oil supply in the
short term, citing a study he reviewed for Morgan Stanley
that showed refining capacity expanding by about 600,000
barrels/day (b/d) over the next three to four years. "If
demand is expected to grow at 1.5 percent, refining capacity
won't keep up."


2. (C) Asked by the CG whether Aramco would reach its target
of a sustainable capacity of 12.5 million b/d by the end of
2009, Al-Husseini said it would not. "That is Minister
Naimi's number, not Aramco's," he continued, "but so what?
Maybe they will get to 12.2 by 2009; maybe they will get to
12.5 a year or so later." He said that Naimi generally
tended to exaggerate, causing problems for Aramco executives
in explaining his estimates (reftel). Agreeing with the CG
that better transparency was needed from oil-producing
countries, Al-Husseini noted that Saudi Arabia had little to
lose from greater transparency as "we have a great record."
According to Al-Husseini it is countries like Iran, which
claimed two to three times more reserves than it has, and
Russia, which "claims there are huge basins in Siberia but
then no one can ever get to them," that are acting
irresponsibly.


3. (C) Al-Husseini also discussed the evolution of Aramco
joint partnerships in refineries in Asia. Most of these
projects began in the early and mid 1990s, he said, when the
oil market had substantial excess oil in search of buyers, as
a way of ensuring a purchaser for Saudi oil. Al-Husseini
said that Aramco was pleased with the current operations of
its refinery in South Korea. In the Philippines, on the
other hand, the government, which owns 40 percent of a joint
venture refinery with Aramco, would not allow Aramco to
increase the price of various products as international
prices increased, causing Aramco to reduce its production to
minimize losses. Turning to China, Al-Husseini said that
Aramco's Executive Committee had recently delayed again a
major project that had been planned 11 years ago but never
begun. "The Chinese government guaranteed to Aramco verbally
that they would buy a certain amount of product, but they
refused to put it in writing, so the Aramco board was unable
to approve it." Al-Husseini pointed to differences in
regional and local government structures and to the influence
of the Chinese military as additional obstacles to Aramco
investments in China.


4. (C) Bio note: Sadad Al-Husseini retired from Aramco in
2004 after serving twelve years as Executive President for
Exploration & Producing. Since retiring from Aramco, he has
been an active writer and consultant on oil issues. He holds
a PhD in Geological Sciences from Brown University.
Al-Husseini is married to Souad Al-Bassam, who also attended
the December 21 lunch and who holds a film degree from NYU.
End bio note.

(APPROVED: SPEIDEL)
GFOELLER