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| Saudi Oil Chief Khalid al-Falih Tells OPEC Changes Are Coming | Saudi Oil Chief Khalid al-Falih Tells OPEC Changes Are Coming |
| (about 11 hours later) | |
| VIENNA — The new oil minister in Saudi Arabia, the de facto leader of the OPEC countries, had a message for the global market: Don’t expect us to influence the price of crude oil by adjusting supplies. | VIENNA — The new oil minister in Saudi Arabia, the de facto leader of the OPEC countries, had a message for the global market: Don’t expect us to influence the price of crude oil by adjusting supplies. |
| “I think managing in the traditional way that we tried in the past may never come again,” the minister, Khalid al-Falih, said on Thursday. “Certainly we will not go with certain price targets.” | “I think managing in the traditional way that we tried in the past may never come again,” the minister, Khalid al-Falih, said on Thursday. “Certainly we will not go with certain price targets.” |
| The message — which came after the decision on Thursday by the 13-nation Organization of the Petroleum Exporting Countries to maintain high levels of oil production — is central to the changing strategy of the Saudi crude-oil complex. And it could foreshadow a period of volatility for oil prices because OPEC’s policies and the Saudis’ sway have long helped guide the markets. | The message — which came after the decision on Thursday by the 13-nation Organization of the Petroleum Exporting Countries to maintain high levels of oil production — is central to the changing strategy of the Saudi crude-oil complex. And it could foreshadow a period of volatility for oil prices because OPEC’s policies and the Saudis’ sway have long helped guide the markets. |
| In a sweeping directive in April, Saudi Arabia set forth plans to diversify its economy, reduce its dependence on oil and pull back on its government handouts. And what Mr. Falih does with Saudi Arabia’s oil — how much the kingdom decides to pump and where the money goes — is the biggest piece of the puzzle. | |
| The global markets received a sneak peak at Thursday’s OPEC meeting, Mr. Falih’s first since his appointment last month as the head of an expanded energy, industry and mining ministry. | The global markets received a sneak peak at Thursday’s OPEC meeting, Mr. Falih’s first since his appointment last month as the head of an expanded energy, industry and mining ministry. |
| While other OPEC members have been urging the freezing or lowering of oil production, Mr. Falih is pushing to keep it high and plow the money into other industries that might prove profitable for Saudi Arabia. He wants the cartel to rethink its longstanding approach and assumptions that it can manage global oil supplies and prices. | While other OPEC members have been urging the freezing or lowering of oil production, Mr. Falih is pushing to keep it high and plow the money into other industries that might prove profitable for Saudi Arabia. He wants the cartel to rethink its longstanding approach and assumptions that it can manage global oil supplies and prices. |
| It runs counter to the longtime stance of his predecessor, Ali al-Naimi, who presided over an era when OPEC was largely content to restrain production to try to drive prices up. | It runs counter to the longtime stance of his predecessor, Ali al-Naimi, who presided over an era when OPEC was largely content to restrain production to try to drive prices up. |
| The Saudis’ shift is easier to justify because price pressures have abated of late. While oil initially dipped on Thursday, it recovered to around $50 a barrel, about twice what it was in January. | The Saudis’ shift is easier to justify because price pressures have abated of late. While oil initially dipped on Thursday, it recovered to around $50 a barrel, about twice what it was in January. |
| Oil producers should “let the market forces continue to seek and find that equilibrium price between supply and demand,” said Mr. Falih, speaking to a small group of reporters in his penthouse hotel suite. | Oil producers should “let the market forces continue to seek and find that equilibrium price between supply and demand,” said Mr. Falih, speaking to a small group of reporters in his penthouse hotel suite. |
| The Saudis can increasingly afford to go their own way. Along with a wealth of oil reserves, Saudi Arabia invested tens of billions of dollars in building a competitive oil business at a time when other OPEC countries like Venezuela and Iran allowed their industries to deteriorate. | The Saudis can increasingly afford to go their own way. Along with a wealth of oil reserves, Saudi Arabia invested tens of billions of dollars in building a competitive oil business at a time when other OPEC countries like Venezuela and Iran allowed their industries to deteriorate. |
| Mr. Falih has been at the core of those moves. | Mr. Falih has been at the core of those moves. |
| Mr. Falih a 1982 graduate of Texas A&M, jumped onto the international oil scene in the early 2000s. Hoping to inject life and competition into the economy, King Abdullah, Saudi Arabia’s ruler at the time, invited overseas companies to look for natural gas after shutting them out in the 1970s. | Mr. Falih a 1982 graduate of Texas A&M, jumped onto the international oil scene in the early 2000s. Hoping to inject life and competition into the economy, King Abdullah, Saudi Arabia’s ruler at the time, invited overseas companies to look for natural gas after shutting them out in the 1970s. |
| To the surprise of Western oil executives, the king tapped Mr. Falih, then a young executive at Saudi Aramco, to manage complex negotiations for a series of joint ventures with Royal Dutch Shell of Britain, Total of France and Lukoil of Russia. Although the ventures didn’t find much gas, Mr. Falih garnered credit for deftly juggling conflicting interests. | To the surprise of Western oil executives, the king tapped Mr. Falih, then a young executive at Saudi Aramco, to manage complex negotiations for a series of joint ventures with Royal Dutch Shell of Britain, Total of France and Lukoil of Russia. Although the ventures didn’t find much gas, Mr. Falih garnered credit for deftly juggling conflicting interests. |
| “After a year or so, I had to accept that he was really good at what he was doing,” said Floris Ansingh, who was the head of Shell in Saudi Arabia at the time. “He understood the different trade-offs.” | “After a year or so, I had to accept that he was really good at what he was doing,” said Floris Ansingh, who was the head of Shell in Saudi Arabia at the time. “He understood the different trade-offs.” |
| Mr. Falih’s international focus set the stage for the evolution of Saudi Aramco. | Mr. Falih’s international focus set the stage for the evolution of Saudi Aramco. |
| After he was named chief executive of the company in 2009, he pushed for modernization, trying to turn the state-run oil company into a global competitor that rivaled the private giants in the West. He expanded areas like oil trading and acquisitions and tried to lock up demand by investing in China and in other growing economies. | After he was named chief executive of the company in 2009, he pushed for modernization, trying to turn the state-run oil company into a global competitor that rivaled the private giants in the West. He expanded areas like oil trading and acquisitions and tried to lock up demand by investing in China and in other growing economies. |
| Saudi Aramco has recently developed three giant oil fields, sharply increasing the amount of oil it can produce. The company earned an estimated $200 billion from oil production last year, according to the commercial intelligence firm Wood Mackenzie. | Saudi Aramco has recently developed three giant oil fields, sharply increasing the amount of oil it can produce. The company earned an estimated $200 billion from oil production last year, according to the commercial intelligence firm Wood Mackenzie. |
| “The view in the industry is that Aramco is one of the best oil companies in the world,” said J. Robinson West, a senior adviser on energy at the Center for Strategic and International Studies, a research organization. “Khalid has been important in building that.” | |
| Mr. Falih also seems unafraid to tread on sensitive ground. | Mr. Falih also seems unafraid to tread on sensitive ground. |
| As the head of the national oil company, he warned that fast-rising domestic fuel consumption risked eroding the crude-oil exports that are the kingdom’s main source of cash. | As the head of the national oil company, he warned that fast-rising domestic fuel consumption risked eroding the crude-oil exports that are the kingdom’s main source of cash. |
| “We need to make sure that we use our precious oil and gas resources efficiently, wisely and minimizing waste,” Mr. Falih said at a dinner in 2010. | “We need to make sure that we use our precious oil and gas resources efficiently, wisely and minimizing waste,” Mr. Falih said at a dinner in 2010. |
| At the time, rethinking the country’s energy use at home was a politically fraught issue. Government subsidies that kept fuel cheap were considered an untouchable piece of the Saudi social contract. And with oil prices surging back then, the kingdom’s oil wealth, it seemed, would only grow. | At the time, rethinking the country’s energy use at home was a politically fraught issue. Government subsidies that kept fuel cheap were considered an untouchable piece of the Saudi social contract. And with oil prices surging back then, the kingdom’s oil wealth, it seemed, would only grow. |
| Now, his warning is part of the new Saudi mind-set. | Now, his warning is part of the new Saudi mind-set. |
| “He is a very astute political player,” said Valérie Marcel, author of “Oil Titans,” a book about national oil companies. “He has been able to push back and create space to debate issues, while still keeping himself in good position with the ruler.” | “He is a very astute political player,” said Valérie Marcel, author of “Oil Titans,” a book about national oil companies. “He has been able to push back and create space to debate issues, while still keeping himself in good position with the ruler.” |
| Mr. Falih also recognized early on that growing concern for the climate could reduce demand for Saudi oil, creating a risk that a large portion of those resources might be left in the ground. | Mr. Falih also recognized early on that growing concern for the climate could reduce demand for Saudi oil, creating a risk that a large portion of those resources might be left in the ground. |
| On Thursday, Mr. Falih said that Saudi Arabia was now preparing for the worst case by moving aggressively to spur growth of nonoil-based industries. While he said he thought that demand for crude would last for generations, Mr. Falih added that “we as human beings cannot be complacent and assume that oil will continue to fuel the world forever.” | On Thursday, Mr. Falih said that Saudi Arabia was now preparing for the worst case by moving aggressively to spur growth of nonoil-based industries. While he said he thought that demand for crude would last for generations, Mr. Falih added that “we as human beings cannot be complacent and assume that oil will continue to fuel the world forever.” |
| In recent years, Mr. Falih has taken on the role of trusted confidant, serving as adviser and troubleshooter for Prince Mohammed bin Salman. In 2015, the prince put Mr. Falih in charge of the kingdom’s troubled Health Ministry, which was struggling to contain a deadly respiratory virus called MERS. | In recent years, Mr. Falih has taken on the role of trusted confidant, serving as adviser and troubleshooter for Prince Mohammed bin Salman. In 2015, the prince put Mr. Falih in charge of the kingdom’s troubled Health Ministry, which was struggling to contain a deadly respiratory virus called MERS. |
| In his new role, Mr. Falih has significant oversight of a huge portion of the Saudi economy. The Oil Ministry absorbed the Ministry of Electricity and was renamed the Ministry of Energy, Industry and Mineral Resources. He has also been appointed head of the government-owned mining company, a state-run industrial fund, the geological survey, the atomic and renewable energy program and a number of other state-run economic bodies. | In his new role, Mr. Falih has significant oversight of a huge portion of the Saudi economy. The Oil Ministry absorbed the Ministry of Electricity and was renamed the Ministry of Energy, Industry and Mineral Resources. He has also been appointed head of the government-owned mining company, a state-run industrial fund, the geological survey, the atomic and renewable energy program and a number of other state-run economic bodies. |
| Mr. Falih faces a huge set of objectives, some in areas where his predecessor came up short. Despite its oil wealth, the kingdom struggles to produce sufficient natural gas to meet the fast-growing needs of electricity generators and industry. Efforts to develop solar power and other renewable energy sources have also lagged some of Saudi Arabia’s neighbors, like the United Arab Emirates. | Mr. Falih faces a huge set of objectives, some in areas where his predecessor came up short. Despite its oil wealth, the kingdom struggles to produce sufficient natural gas to meet the fast-growing needs of electricity generators and industry. Efforts to develop solar power and other renewable energy sources have also lagged some of Saudi Arabia’s neighbors, like the United Arab Emirates. |
| Mr. Falih is part of the plan to refocus the country’s financial firepower to invest in areas other than oil. In a sign of the shifting strategy, the kingdom, traditionally conservative in its investment approach, recently invested $3.5 billion in the ride-sharing start-up Uber. It was one of the largest investments into a privately held start-up. | Mr. Falih is part of the plan to refocus the country’s financial firepower to invest in areas other than oil. In a sign of the shifting strategy, the kingdom, traditionally conservative in its investment approach, recently invested $3.5 billion in the ride-sharing start-up Uber. It was one of the largest investments into a privately held start-up. |
| Mr. Falih is also in charge of the effort to sell a small stake in Saudi Aramco to investors with a target of 2018. He said the idea was to make the company more global as it looks to add investments in natural gas. | Mr. Falih is also in charge of the effort to sell a small stake in Saudi Aramco to investors with a target of 2018. He said the idea was to make the company more global as it looks to add investments in natural gas. |
| A public listing might also improve the company’s performance. | A public listing might also improve the company’s performance. |
| “If you have to face the analysts every quarter,” he said, “it gives you a bit of competitive tension.” | “If you have to face the analysts every quarter,” he said, “it gives you a bit of competitive tension.” |
| To make it all work, Mr. Falih will have to persuade the country’s stubborn constituents to adopt a more commercial focus and to participate in joint ventures with international companies. While some doubt whether Mr. Falih is the right person to lead this transition, others say only an insider has the credibility to do so. | To make it all work, Mr. Falih will have to persuade the country’s stubborn constituents to adopt a more commercial focus and to participate in joint ventures with international companies. While some doubt whether Mr. Falih is the right person to lead this transition, others say only an insider has the credibility to do so. |
| Either way, the oil market will be watching. | Either way, the oil market will be watching. |