Minasama, konnichi-wa and good afternoon. It is a pleasure to join you here in Tokyo, one of my favorite world capitals, particularly in the spring. My only regret is that I missed seeing the Sakura trees in full bloom, as I hear they were particularly stunning this year. I also appreciate your gracious hospitality, as well as the chance to spend time with your chairman and my close friend, Yonekura-san.
My friends, for more than six decades, Keidanren has played an important role in developing this nation’s economy and positioning Japan’s corporations to compete internationally. Furthermore, the companies represented here this afternoon have helped to make the world a better place through their quality products, superior services and innovative technologies. We at Saudi Aramco very much admire — and indeed share — the values you stand for, such as hard work, discipline, integrity and partnership. Beyond a doubt, these core values have been at the heart of Japan’s phenomenal success around the world.
They have also been central to Saudi Aramco’s fruitful partnership with Japan going back many decades. When we decided to open our first international affiliate office in Asia, it was right here in Tokyo because of our commitment to our customers in Japan and the prospect of partnerships with our Japanese counterparts. But our long relationship with Japan goes beyond business, as it reaches out to the most important element of any engagement: people.
For example, the dozens of Saudi Aramco-sponsored students who have studied at Japanese universities over the years come not only to explore an academic field or master a professional discipline, but also to learn about Japan’s society, its rich history and traditions, and its language and values.
Some of those students may have learned an old Japanese proverb which says, “Strength comes through perseverance.” (kay-zoku wa, chi-kara). Never has that adage been more vigorously demonstrated by so many, and in so many local communities and neighborhoods, than in the wake of last year’s tragic natural disaster. Our hearts were with you as you tirelessly worked to recover from the devastation wrought by last year’s earthquake and tsunami, and the resulting nuclear disaster in Fukushima. The material cost has been heavy, but nowhere near the dreadful human toll of lives lost and disrupted. Yet each time I have come to Japan since that disaster, I have been most struck by the determination, tenacity and solidarity that are the hallmarks of the Japanese people.
Out of the ashes of the Second World War, Japan rose to retake its rightful place at the forefront of the global community, delivering products that have been the envy of the industrial world and unleashing a quality revolution which set the global standard. Today this great nation faces a set of different challenges, and as I look out from this podium, I see the architects of a new Japanese renaissance.
And it’s in the spirit of strong bonds and shared values that I’d like to explore how the already strong relationship between Japan and Saudi Arabia can yield even greater mutual benefits in the future.
Before I do, though, I would like to share with you the perspective we have at Saudi Aramco on current global petroleum markets, which certainly affect all of us — regardless of our particular area of business.
We have been consistently arguing that the petroleum market fundamentals are sound with inventories at healthy levels and plentiful supplies, amid major downward pressure on demand emanating from the challenging global economy. In fact, there is a consensus that oil demand this year will grow by less than a million barrels per day — a relatively modest increase. This situation should have led to stable and moderate prices.
However, the turbulent geopolitical situation, currency fluctuations and financial speculation have created market anxiety complicating the short-term outlook, and lifting crude oil prices. I have repeatedly stated that the market is pricing a considerable premium for these uncertainties. In fact, had it not been for Saudi Arabia’s massive investment in its substantial spare production capacity, that premium would have likely been much higher.
Last week, the inevitable happened. With geopolitical tensions easing somewhat and the bearish economic environment setting in, prices fell by about 6% to their lowest levels in many months driven by the healthy fundamentals, which I just referred to. This price correction is a welcome development, as we all seek a stable market with moderate oil prices supportive of a global economic recovery, while promoting continued investments in growing energy supplies.
In terms of meeting this country’s energy needs, I would like to stress that for Saudi Aramco, Japan is and will continue to be a core market to which we are deeply committed.
As you continue to rebuild from last year’s tragic natural disaster and work to hone your global competitive edge, a reliable energy supply will be key — and we will continue to be a partner on whom you can always depend. You are among our most valuable customers and your requirements are at the top of our agenda.
For instance, in 2011 we supplied 1.2 million barrels per day of petroleum to Japan, providing about 30% of this nation’s imports. That means that on average, every 30 hours last year a crude, LPG or product tanker sailed from Saudi Arabia to Japanese shores. This virtual pipeline of energy will always be there for Japan — and on that Ladies and Gentlemen, you can certainly count.
And to ensure an even higher degree of reliability, we have also gone one extra step: Saudi Aramco has acquired the capacity to position more than four million barrels of crude oil in Okinawa, to enhance the flexibility and responsiveness of our supply of energy to Japan and Asia as a whole.
We are also determined to build on our existing investments here in Japan. We are a committed stakeholder in Showa Shell, and are particularly excited to see our partnership expand beyond petroleum through the bold steps we are taking in the area of innovative solar energy technologies through the newly created subsidiary, Solar Frontier. This includes pilot projects on both coasts of the Kingdom of Saudi Arabia undertaken in collaboration between Saudi Aramco and Solar Frontier.
And on the Red Sea, our PetroRabigh joint venture with Sumitomo Chemical has taken these partnerships to the next level with its world-scale petrochemical complex, which is poised to launch its Phase II expansion after receiving support from the Boards of Directors of both companies.
This major expansion will not only make PetroRabigh one of the largest and most diverse and integrated petrochemicals facilities in the world, but will also strengthen its profitability in the future.
Here, I would like to pay tribute to our respective Boards and particularly to Yonekura-san for his vision and leadership in joining hands with us on this visionary venture. At the time the investment decision was made it represented a new frontier for both our companies, as it was Sumitomo Chemical’s first major industrial facility outside of East Asia, and our first foray into petrochemicals integrated with refining assets in Saudi Arabia.
Indeed, Sumitomo Chemical has proven itself with bold ventures elsewhere in Asia. For instance, whenever I go to Singapore and observe the phenomenal success of their petrochemicals sector, Yonekura-san is always mentioned as a visionary who is credited with anchoring what is a thriving, vibrant industry. I am convinced that in the future, observers will look back and see the investment in PetroRabigh as a transformative moment for Sumitomo and the Saudi petrochemicals industry — and as yet another concrete example of the power of partnership between our two peoples and out two countries.
Of course, this bold venture is the latest in a long line of Japanese investments in the Saudi chemical industry, stretching back to the early '80s. Companies such as Mitsubishi Chemical have been active investors and the Japan Bank for International Cooperation (JBIC) was a key financier for numerous projects.
Taken together, these partnerships underscore the strong sense of mutual commitment we have to each other. But now is an opportune time to take that same power of partnership a step further, to a wider range of other strategic opportunities on offer today in Saudi Arabia.
Until recently, Japanese investments in Saudi Arabia have been primarily in basic industry. We continue to welcome those investments, but I believe Japanese companies are uniquely placed to take advantage of far greater opportunities further down the value chain in a variety of sectors, building on but not limited to previous investments in energy and chemicals. Let me offer four key attractions that Saudi Arabia has for Japanese companies.
The first is economic. The Saudi economy is by far the largest in the Middle East – North Africa region and one of the fastest-growing in the world, with an exceptional growth rate of 6.5% last year. Economic growth is expected to remain healthy, which is quite remarkable in light of the overall state of the global economy. We also have a young and eager workforce, as more than half of the population is under the age of 25, with the government making concerted efforts to train young entrants into the workforce. Also, the investment and regulatory environment is increasingly progressive and highly pro-business. There are no personal income taxes; corporate tax is flexible and low at 20%; our currency the Saudi Riyal, is one of the world’s most stable; and there are no restrictions on repatriation of capital. When it comes to the domestic market, Saudi Arabia’s 27 million increasingly prosperous consumers are at the heart of the MENA region’s 400 million strong population.
What all these powerful economic drivers offer Japanese companies is a fast integrating, high-growth market with an educated, relatively low-cost workforce in a dynamic pro-business environment.
The second attraction is ready access to crucial enablers. We have an abundance of important resources, and so can offer a lower cost structure over the long-term.
As you know, the Kingdom has plentiful supplies of oil, gas, chemicals and competitively priced utilities, and we are establishing new world-scale industries producing aluminum, phosphate and other minerals. Then there is abundant liquidity and soft financing, an extensive modern infrastructure, and the Kingdom’s strategic geographic location between East and West.
The third attraction is opportunity. The Kingdom will invest hundreds of billions of dollars in the years to come in a multitude of areas, all designed to further develop and diversify the Saudi Arabian economy. Areas like infrastructure, housing, education, healthcare, telecommunications and IT, and manufacturing of consumer goods are all ripe for investment.
And most importantly, both the Kingdom and Saudi Aramco place great emphasis on establishing downstream conversion industries in a wide range of economic sectors which will produce finished and semi-finished products. Such competitive advantages can clearly be seen in the industrial clusters and value parks being developed by the government and Saudi Aramco. I am pleased to see these types of investments starting to take place in the manufacturing of membranes used for seawater desalination by a consortium led by Toyobo and Itochu, in submarine cables by J-Power and Marubeni, and most notably, a truck assembly plant by Isuzu.
I also see collaborative partnership opportunities in areas such as R&D and innovation. Saudi Aramco’s plans to undertake cutting edge research into groundbreaking oil-based fuels and the substantial progress Japan’s automotive industry is making with advanced engines is one example of the tremendous synergies here.
The fourth attraction for strategically minded Japanese investors comprises several built-in advantages which give you a head start over the competition. Japan is already the single largest foreign investor in the Kingdom, so you understand the market very well. In addition, Japanese brands enjoy tremendous respect and admiration among Saudi consumers and businesses alike. Across the Kingdom, there are waiting lists for Japanese motor vehicles, Japanese electronics command a premium; Japanese engineering is well-respected across the Middle East; and Japanese equipment is ubiquitous in the Saudi industrial and construction sectors. “Made in Japan” means top quality and value to the Saudi consumer — and that’s a reputation that has been won not with clever marketing, but through consistent performance and reliability over time.
From our perspective, the key goal of the Kingdom’s emphasis on investments in the downstream segments of the various value chains is to create meaningful jobs for the nation’s youth, and diversify the economy with a focus on knowledge-based industries. So I see an excellent fit between the technologies, expertise and global business position that Japanese corporations command on the one hand, and the Kingdom’s competitive position coupled with its developmental objectives on the other.
My friends, I also see that the challenges facing a capable nation like yours in our increasingly complex and competitive world are more than offset by opportunities. Japan has many competitive advantages centered around the ingenuity and work ethic of its people and the great companies represented here today.
To sum up, what I believe is needed at this point in time, is a broad set of mutually-beneficial partnerships that will give Japanese industry a new springboard, while meeting the Kingdom’s developmental needs. This of course, will build on the existing bonds of industrial and energy cooperation that exist between us today.
But to achieve this bold objective, we will all need a comprehensive approach to make the most of this once-in-a-generation opportunity. A relationship based on trade or isolated capital investments has been good in the past but will no longer suffice. Instead, we need a relationship which goes beyond the incremental; we require partnerships which are complementary; and we must have the courage to seize the opportunities which lie before us. I invite Keidanren and all of you here today to work with us at Saudi Aramco, the Saudi business community and with the relevant governmental agencies of both our countries to elevate our partnership while driving Japan’s resurgence in the years and decades to come.
Let me conclude by restating my firm belief that despite the uncertainties of the moment, Japan’s best days are still ahead of her. As all of us at Saudi Aramco have seen time and again, the solidarity and determination of the Japanese people and the capabilities and vision of this country’s business sector represented here today, are more than equal to the task.
Thank you for your hospitality and your attention today. I look forward to responding to your questions. Minnasan, Arigatou gozaimasu.