Saudi Ara­bia’s new en­ergy min­is­ter plans to keep the oil flow­ing

Khalid al-Falih, ex-CEO of Saudi Aramco, be­comes the oil min­is­ter

Bloomberg Businessweek (Asia) - - CONTENTS -

The ap­point­ment could sig­nal “more of the same for Saudi pol­icy”

Saudi Ara­bia’s new oil min­is­ter, Khalid al-Falih, landed his job on May 7 in a ma­jor house­clean­ing by King Sal­man and his son Deputy Crown Prince Mo­hammed bin Sal­man. Al-Falih, who’s also chair­man of the board of di­rec­tors at state pro­ducer Saudi Aramco (a job he’ll hold on to), says he’ll main­tain the poli­cies of his pre­de­ces­sor, Ali al-Naimi, who is in his 80s. “If the mar­ket con­sid­ers the ap­point­ment as sig­nal­ing more of the same for Saudi pol­icy, that could al­low prices to con­tinue fol­low­ing their grad­ual trend up­ward,” says Ed­ward Bell, a com­mod­ity an­a­lyst at Dubai bank Emirates NBD.

Saudi Aramco stands ready to meet de­mand from cus­tomers this year as global con­sump­tion rises by 1.2 mil­lion bar­rels a day, Chief Ex­ec­u­tive Of­fi­cer Amin Nasser told re­porters at com­pany head­quar­ters on May 10. Nasser suc­ceeded al-Falih last May. OPEC’s Saudiled pro­duc­tion in­crease will prob­a­bly force 700,000 bar­rels a day of high-cost, non-OPEC crude off the mar­ket in 2016, mainly U.S. shale oil and Cana­dian oil pro­duced from tar sands, says the Paris­based In­ter­na­tional En­ergy Agency. Saudi pol­icy has helped send prices more than 60 per­cent higher since Jan­uary, to above $45 re­cently.

Al-Falih was drafted to head the health min­istry last year. The min­istry was in need of re­struc­tur­ing. Yet on trips to the U.S. and the World Eco­nomic Fo­rum in Davos, Switzer­land, al-Falih was asked to ex­pound more on sta­bil­ity in the oil mar­kets than on im­prov­ing do­mes­tic med­i­cal ser­vices. Taw­fiq al-Rabiah, for­mer com­merce and in­dus­try min­is­ter, re­placed al-Falih as health min­is­ter.

Ed­u­cated as an engi­neer at Texas A&M, al-Falih joined Aramco in 1979, where he mapped out the com­pany’s strat­egy for ex­pand­ing the nat­u­ral gas sup­ply, which was needed for power gen­er­a­tion and in­dus­trial ex­pan­sion. As CEO, a job he as­sumed in 2009, he presided over Aramco’s push into petro­chem­i­cals. Peo­ple who have worked with al-Falih say he’s hands-on, with a sharp grasp of oper­a­tional and

strate­gic de­tails.

He will prob­a­bly pre­side over the an­nounced Saudi Aramco ini­tial pub­lic of­fer­ing. The IPO is es­sen­tial to the deputy crown prince’s plan to build up the fi­nan­cial re­sources needed to wean the coun­try off oil even­tu­ally.

De­fend­ing Saudi oil pol­icy means al-Falih will face op­po­si­tion when he rep­re­sents his coun­try for the first time at the OPEC meet­ing on June 2. The Ira­ni­ans re­fused to honor a pro­duc­tion freeze that Saudi Ara­bia and Rus­sia pro­posed, and the Venezue­lans are in such poor fi­nan­cial shape they need a price of al­most $100 a bar­rel to sta­bi­lize their econ­omy.

With the Ira­ni­ans in­tent on pro­duc­ing flat out, Saudi Ara­bia can’t af­ford to hang back. Al-Falih won’t bend to the de­sire of OPEC mem­bers such as Venezuela, Ecuador, and Al­ge­ria to cap out­put in a bid to raise prices much higher, says Ed Morse, Cit­i­group’s global head of com­modi­ties re­search. Saudi Ara­bia, he says, will “look at the na­tional in­ter­est in pro­duc­ing to gain mar­kets and mar­ket share.”

Al-Falih’s full ti­tle is min­is­ter of en­ergy, in­dus­try, and min­eral re­sources. He’ll have to an­a­lyze pro­pos­als to break up the na­tional power util­ity to bring in more pri­vate com­pa­nies and boost com­pe­ti­tion, an is­sue al-Naimi didn’t have to deal with.

An­thony DiPaola, Nayla Raz­zouk, and Wael Mahdi, with Javier Blas and Deema Al­mashabi

The bot­tom line Khalid al-Falih, Saudi Ara­bia’s new oil min­is­ter, pledges oil pro­duc­tion will stay high, as the king­dom ex­pands mar­ket share.


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