The dawn of the Al-Falih era for world oil

Saudi Energy Minister Khalid al-Falih is the new king of global oil

In a confident performance at the Atlantic Council Energy Forum in Abu Dhabi today, Saudi Arabia’s Energy Minister Khalid al-Falih targeted the legions of sceptics questioning the kingdom’s ability to remain a leading force in global energy.

Sytematically addressing the big short-term and long-term issues Saudi Arabia faces, Al-Falih said the OPEC-non-OPEC deal agreed on 10 December will hold, the oil market is stabilising, world oil demand will grow by at least 1m b/d this year and that the Saudi Aramco IPO will proceed as planned in 2018.

Of course, the critics challenge all these assertions. The December production deal will founder as others have in the past, they say. Oil won’t get above $50 a barrel for a sustained period. Nothing can stop the technology that will eventually undermine oil demand. The Saudi Aramco share sale will never take place

They may be right.

But there’s no doubt that Al-Falih, 57 this year, has emerged this month from the giant shadow of his predecessor Ali al-Naimi who he replaced as the kingdom’s oil minister last May.

January 2017 will go down in oil history as the start of the Al-Falih era.

This time last year, Al-Falih was in the Saudi cabinet as Health Minister. He’d replaced Al-Naimi the previous April as chairman of Saudi Aramco.

Some thought it was a sideways move and that Al-Naimi, who had wanted to retire at least five years earlier, would be succeeded by assistant oil minister Prince Abdulaziz Bin Salman al-Saud, son of King Salman and half-brother of deputy crown Prince Mohammed Bin Salman.

But hindsight suggests there was never any doubt that Al-Falih would become oil minister.

A lifelong Saudi Aramco executive who graduated with an engineering degree from Texas A&M, Al-Falih emerged as a key figure during Saudi Arabia’s attempts to create natural gas joint ventures with leading international oil companies at the start of last decade. These eventually foundered, but Al-Falih’s reputation was made as a result of his confident handling of demanding negotiations.

He joined the Saudi Aramco board in 2004 and succeeded Abduallah Jumaa as the company’s third Saudi CEO in 2009.

Al-Falih is in the mould of Al-Naimi, the first Saudi Arabian to head Saudi Aramco, and his predecessor Jumaa. A commoner from a humble background, Al-Falih is a technocrat not an aristocrat with a low-key personality, essential for someone dealing with the kingdom’s byzantine domestic politics and the hothouse atmosphere in OPEC meetings.

The market-share defence plan pursued by Saudi Arabia from the summer of 2014 that sent oil prices tumbling and raised questions about OPEC’s future was perhaps inevitable. Soaring US and Russian oil output encouraged by oil above $100 a barrel was threatening the kingdom’s position in world oil. President Obama’s administration was making it clear it wanted to do a deal with Iran that would lead to the lifting of sanctions on Iranian oil exports, possibly in 2015.

It was time for Saudi Arabia to demonstrate that it remained the most important force in world oil.

But it wasn’t Al-Naimi’s strategy. It was the kingdom’s and affirmed by King Salman who replaced the late king Abdullah two years ago this month.

Al-Naimi was the public face of an agreed policy. He absorbed the bitter attacks it drew from other OPEC states. It was his final service to the kingdom.

There was always going to be a new deal and Al-Falih’s appointment as Saudi Energy Minister last May set the scene for the delicate negotiations that produced the OPEC-non-OPEC deal last month.

Russia’s agreed to trim output, Iran and Iraq are delivering on their production promises and the new administration in Washington which comes to life next week are onside. America under Trump wants higher oil prices to sustain further rises in US oil production. Trump’s nominee as secretary of state Rex Tillerson, also a Texas A&M engineering graduate, is a personal friend who has known Al-Falih for years.

This is a seminal moment for the world and the global energy industry. The big uncertainty in 2017 surrounds whether president-elect Trump will do what he promised and radically shift the direction of America’s domestic and foreign policy.

There are, therefore, bound to be shocks ahead for the global energy. But Al-Falih’s position as leader of Saudi Arabia’s energy industry and pivotal figure in world oil is now beyond dispute.

Whatever comes next, Al-Falih will be at its centre.