Naimi - World_Must Be Prepared For High Oil Prices.

Visiting Washington, Saudi Petroleum and Mineral Resources Minister Ali al-Naimi said: For long-term energy security, prices must be higher than consuming nations like the US would like, and lower than what oil-producing nations would ideally like to see. He said: "The foundation for sustainable energy security is a price low enough to avoid harming consumers, yet high enough to ensure adequate return on investment for producers".

Naimi said crude oil prices were set to revisit records set just last month. Saudi Arabia, the world's largest oil exporter, is a key supplier to the US, the world's largest consumer. Another way to address world energy woes is to remove global constraints on delivering energy supplies, he said, adding: "There is plenty of oil left to be produced and technology will help us recover an ever greater percentage of the oil in place. While availability is not a concern, it is clear that the industry must confront serious bottlenecks and constraints on our ability to deliver products to end consumers".

Speaking at a US-Saudi energy forum in the American capital, Naimi said Saudi Arabia was committed to addressing the "deliverability" challenge through its plan to increase production capacity to 12.5m b/d by 2009 and the kingdom's plan to undertake refining, natural gas and power generation projects. But "Saudi Arabia, alone, cannot solve the world's deliverability problems", the minister said, adding: "All parties will have to actively participate - consumers, producers and energy companies".

Naimi said non-OECD consuming nations can help address energy challenges by maintaining strategic oil reserves, which he said improve the flexibility of the global petroleum market to deal with disruptions. Additionally, Naimi reiterated his call for greater demand data to justify massive investments in oil production capacity. He said: "The lack of reliable information on demand makes it very difficult to assess the risks and rewards of investing billions of dollars to increase capacity".

However, Naimi said the proposed switch from conventional crude oil use to less efficient alternatives will not help consumers in the long-run. While many experts hotly disputed this argument, political analysts said the Saudi minister's motivation to make such a forecast was President George W. Bush's State of the Union Jan. 31 address, when announced an energy plan to reduce the country's dependence on foreign oil by boosting use of gasoline alternatives like ethanol, which can be produced from corn. But the US can also switch to synthetic crudes produced from tar sands in neighbouring Canada. Bush said by 2025 US reliance on foreign oil will have been cut by 75%. The Canadian synthetic crude is not a "foreign oil"; but if so, oil majors can refine it in Canada and ship the fuels to the US. Canada will be able to produce more than 6m b/d of such crude by 2025.

Naimi said: "Forcing consumers to prematurely switch away from [conventional] oil to less efficient alternatives entails economic costs that must ultimately be borne by the consumer" Naimi, adding that political tensions, a tight global oil market and predictions that world petroleum production is near its peak are fostering an environment of fear in the markets.

The Saudi minister said: "We are at a crossroads on the path to our energy future. The current path poses the real threat of a continuing boom-and-bust cycle that robs us of the stability and predictability which promotes sound economic growth". Without a strong commitment to find a commonality between oil-producing and -consuming nations, the market will continue to be met with volatility and price spikes, according to Naimi.