Cablegate: Oil Minister On International Markets, Saudi

VZCZCXRO3383
PP RUEHDE
DE RUEHRH #1479/01 2721528
ZNY CCCCC ZZH
P 281528Z SEP 08
FM AMEMBASSY RIYADH
TO RUEHC/SECSTATE WASHDC PRIORITY 9267
RHEBAAA/DEPT OF ENERGY WASHINGTON DC PRIORITY
INFO RUEHHH/OPEC COLLECTIVE
RUEHJI/AMCONSUL JEDDAH 9777

C O N F I D E N T I A L SECTION 01 OF 02 RIYADH 001479

SIPDIS

STATE FOR NEA/ARP(HARRIS), EEB/ESC/IEC(SULLIVAN), OES/STC

E.O. 12958: DECL: 09/28/2018
TAGS: EPET PREL ENRG ECON TSPL SA
SUBJECT: OIL MINISTER ON INTERNATIONAL MARKETS, SAUDI
PRODUCTION, OPEC, AND KAUST

REF: JEDDAH 414

Classified By: Charge d'Affaires David Rundell for reasons 1.4 (b) and
(d).

1. (C) Summary: Minister of Petroleum and Mineral Resources
Ali Al Naimi told the Ambassador on September 20 that the
press conference following the September 9 OPEC meeting in
Vienna did not accurately reflect members' discussions there
and that there had been no agreement to cut production or any
talk of specific "numbers." He said Saudi policy was
unchanged and that his government remained committed to
filling requests from its customers for oil. The minister
also provided a briefing on the development of King Abdullah
University of Science and Technology (KAUST) boards and
committees, which Saudi Aramco is overseeing. End summary.

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OPEC meeting
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2. (C) Ambassador met Minister of Petroleum and Mineral
Resources Ali Ibrahim Al Naimi September 20 seeking his views
on energy market developments and a readout on the September
9 OPEC meeting in Vienna. Naimi said that recent
fluctuations in energy prices vindicated the Saudi view that
speculators bore significant responsibility for the sharp
increase in oil prices in the last few years, and he said it
also "gave credibility" to the OPEC decision, a shortfall he
described as "really not a decision except to abide" by the
organization's preexisting production ceiling. Naimi said
the organization's press conference had miscommunicated the
discussions during the meeting, especially in that there had
been no discussion of "numbers" at all.

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Saudi energy policy
-------------------

3. (C) Minister Naimi affirmed that Saudi Arabia had the same
energy policy as it had in June: "We will honor whatever our
customers request" in terms of orders for crude oil. He said
the country never actually produced as much as 9.7 million
barrels per day (mbpd) in recent months but had come close,
which he attributed to a lack of demand. The minister said
other problems contributing to this situation stemmed from
the fact that refineries had been looking for the "wrong
kind" of crude oil, recent hurricanes had disrupted some
crude deliveries, and refinery maintenance programs had
reduced the international capacity to refine Saudi oil. He
predicted that in October and November there would be less
demand from both Asia and the West. China had accumulated as
much oil as possible for the Olympics and now was in
possession of a significant surplus, he said, so its demand
would fall. Naimi predicted that Japanese consumption would
either be maintained or decline, and refinery maintenance
would cause further disruption to markets.

4. (C) The Minister predicted that Saudi production would
pick up in December in response to rising demand but not
before. He said Aramco had no problem producing between 9.3
and 9.5 mbpd, but as he said he told President Bush during
his visit to Saudi Arabia in May, "Saudi Arabia can't just
put crude out on the market, we need customers."

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More on speculation
-------------------

5. (C) Naimi referred to the latest U.S. Commodity Future
Trading Commission report which (he said) showed that
speculation had become more under control and probably would
have less of an impact on markets. However, he said it
defined oil trades in terms of "commercial and
non-commercial" transactions, of which the latter type did
not fully coincide with his own definition of speculation,
which he did not provide.

6. (C) The minister said that the possibility of the USG's
proposed "$500 billion" infusion of capital into the economy
had caused "euphoria" that now was driving the price of oil
higher. All markets were affected he said, citing America,
Russia, China, and the Middle East. Naimi acknowledged the
need for "regulators" to know the impact that they have on
markets. "We're only human," he said, which is why
governments need "smart people" to figure out what's going on
in both oil and financial markets. Regarding what he termed
the "Freddie Mac nationalization," the oil minister volunteered, "Governments have to do what they have to do."

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KAUST structure
---------------

7. (C) Ambassador asked the minister for a description of
committees being formed in connection with the King Abdullah
University of Science and Technology (KAUST), which Saudi
Aramco is responsible for developing. Naimi said KAUST would
have a Board of Trustees (20-25 members, half Saudis and half
expatriates) with investment management and audit committees.
He said KAUST also would have several advisory boards
(national, international, and technical advisory boards were
planned).

8. (C) The minister emphasized that since King Abdullah wants
KAUST to be much more than just a university, he was looking
not just for academics and university administrators but also
for people with experience working for large research firms,
national science programs, and science parks, as well as
finance experts. Naimi described some KAUST recruitment
efforts, including specific candidates who had tentatively
accepted or rejected his offers of board or committee
membership. From the descriptions he gave, the candidates
(many are U.S. persons) are all at the top of their fields
and represent a wide range of ages (though all he mentioned
were over 40), levels of notoriety, and field of expertise.
(Note: The SAG hopes KAUST will do much more than provide
education, technology, jobs, and an economic boost for the
country; it wants the 9,000 acre multi-billion dollar
research institution to create a space relatively insulated
from the country's hyper-conservative culture that eventually
could promote moderation in other parts of Saudi Arabia.)

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Atmospherics
------------

9. (C) Naimi expressed interest in the upcoming U.S.
elections and the financial crisis, and he displayed a
reasonably sophisticated grasp of U.S. politics and economic
policymaking. The minister said he had climbed mountains,
gone hiking, and "gotten some fresh air" during his trip to
Europe for the OPEC meeting. He appeared healthy and was an
engaging interlocutor but displayed the somewhat low energy
level typical of Saudis during the Ramadan fast, which he
said he was observing.
RUNDELL

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