The Future of Saudi-Japanese Relations and Oil Consumption

Abdallah S. Jum'ah (President and Chief Executive Officer, Saudi Aramco)
J. Sean Curtin (Fellow, GLOCOM)
Shawn Auster (Reporter, Dow Jones)
Kiyoshi Mori (Director of Industrial Research, Japan External Trade Organization)

Saudi Arabia is the largest oil-exporting country in the world, making it an important ally of Japan, which has no oil supplies of its own. One-fourth of all crude oil imported into Japan comes from this Arab Kingdom. Saudi Aramco is the national oil company and the most important supplier of oil to the world, producing 12% of the world’s needs in crude oil.

In 2001, Japan consumed 5.432 million barrels of oil per day, while the United States was the world's largest consumer taking up 19.993 million barrels of oil per day. In the same year Saudi Arabia produced an average of 8.528 barrels a day.

According to the Japanese Foreign Ministry, in October 2003 there were 741 Japanese living in Saudi Arabia. These comprised 694 people who were there for a long-term stay and 47 who held the status of permanent residents. The largest concentration of Japanese was in Riyadh, the Saudi capital, where there were 159. Another major group lives in the city of Khobar, where there are 119.

Sean Curtin: In February of this year, Japan signed the Azadegan oil deal with Iran. This is one of the biggest oil deals in history. This should eventually reduce Japan's dependency on Saudi oil. How do you see future relations developing between Japan and Saudi Arabia?

Abdallah Jum'ah: I think the relations between the two countries are great. The relationship between the consumers, the Japanese oil companies and ourselves is good. We don't see any change. On the contrary, I have more Japanese executives coming to my office than from any other country. I think it is interesting too that we have just now signed a memorandum of understanding with Sumitomo on a very big investment in Saudi Arabia. Together we are building a joint venture. We continue to be the major supplier to Japan.

Sean Curtin: Do you think this position will change in any way?

Abdallah Jum'ah: This position, I do not think it will change because at the end of the day you have to realize Saudi Arabia has one quarter of the world's oil reserves. No one can talk about supply and forget about Saudi Arabia. Whether we are the number one or the number two in Japan, but we will be if not be the major supplier, we will continue to be a major supplier to Japan.

Shawn Auster: One of the big demand stories this year is from China. They have made an indication that they are hoping to diversify away from oil to use more gas and other sources to increase their fuel efficiency. How do you see Chinese demand growing in the future? The same rapid growth?

Abdallah Jum'ah: I think we are looking at China as a big customer of ours, a big user of energy and a big user of oil. There may be times when they will probably hold the reins here and there. But I think looking into the future, looking at the growth and looking at the needs for energy for the 1.1 or 1.2 billion people, we are confident that China is going to be a huge user of the oil that we produce and that others producers.

Kiyoshi Mori: Thank you for mentioning Japanese companies in your comments. We are very proud that you have chosen Japanese companies as strategic partners. Now, I would like to ask a question about spare capacity. How much were you able to increase your capacity a month ago within a period for 24 to 48 hours? At this moment, how much can you increase your output within 24 to 48 hours?

Abdallah Jum'ah: During the Iraq war within 24 hours we were able to elevate our production to 9.6 [million barrels per day] and then the last maybe 400k [barrels per day] within 72 hours. We say we have a maximum capacity within 90 days. I would like to explain this 90 days [period]. 90 days is when we are called upon to put a cushion of having the last barrel to come in 90 days. Within this 90 day period, if we are to sustain this capacity over a period of say six months to a year, we will of course need to drill. Therefore, that is the time it takes us to mobilize rigs coming from all over the world so that we can sustain our production. Yes, we are able, and we were able, within 72 hours to bring that capacity on stream.

The above discussion took place at the Royal Institute of International Affairs in London on 26 May 2004

References

Impact of American Middle East Policy on Iran and Iraq
Europe Report #86, 18 May 2004

Japan to Polish its Tarnished Middle East Image
Asia Times, 5 May 2004Asia Times, 5 May 2004

Predicted Backlash from U.S. over Oil Deal with Iran Misplaced
John de Boer, Weekly Review #125, 25 February 2004