Saudi Arabian Oil Co, the state-owned producer known as Saudi Aramco, raised its annual capital budget tenfold to $40bn over the last decade and, in the past two years, has adjusted its daily production by more than 1.5mn barrels.

 

Bloomberg

Daegu, South Korea

 

 

Saudi Arabia, the world’s largest crude exporter, is making “massive investments” as it seeks a production buffer to guard against swings in global oil prices while addressing a decline in output from its older fields.

Saudi Arabian Oil Co, the state-owned producer known as Saudi Aramco, plans to maintain spare output capacity of more than 2mn bpd, according to chief executive officer Khalid al-Falih. The Dhahran-based company raised its annual capital budget tenfold to $40bn over the last decade and, in the past two years, has adjusted its daily production by more than 1.5mn barrels, he said.

“We are on track to increase the average of our conventional oil recoveries to 70%, which is more than double the current world average,” al-Falih said at the World Energy Congress in Daegu, South Korea, yesterday. “Resources are, in fact, abundant.”

Benchmark oil futures have rallied 11% in New York this year amid unrest in the Middle East, a region that accounts for more than a third of global production. Saudi output increased to 10mn bpd last month, coinciding with a drop in supply from Libya, according to a Bloomberg survey of analysts and producers.

Global crude reserves, estimated at 1.6tn barrels, are equivalent to half a century of production at current rates, according to al-Falih. Demand will rise by about 20mn bpd over the next two decades, he said. Daily consumption is forecast at 92.1mn barrels next year, the International Energy Agency said in an October 11 report.

Saudi Arabia has the largest portion of spare capacity within the 12-member Organisation of Petroleum Exporting Countries. Maintaining a cushion of unused production allows the kingdom to raise output to meet supply shortfalls and potentially limit price spikes.

“Opec nations, and especially Saudi Arabia, will continue to meet all supply needs,” Ibrahim al-Muhanna, senior adviser to the Minister of Petroleum and Mineral Resources, said yesterday in a speech at the triennial conference. “Saudi Arabia will continue to be the supplier of last resort.”

At the same time, Saudi Arabia’s demand for natural gas risks exceeding supplies of the fuel it has available. The company started developing so-called unconventional gas resources two years ago and is ready to begin supplying a 1,000 MW power plant in the country’s north with fuel set to be produced through that programme, al-Falih said.

Saudi Arabia, Opec’s biggest producer, will maintain its output capacity at 12.5mn barrels through new fields including the offshore Manifa deposit, according to al-Falih. Saudi Aramco also plans to add 550,000 bpd of capacity from the Shaybah and Khurais fields by 2017.

Manifa, which produces Arabian Heavy grade crude, and Shaybah and Khurais, which will supply lighter varieties, will help Aramco replace the oil that is no longer being pumped from aging fields, he said on Sunday.

“These are to basically allow us to relax production from the more mature fields and reservoirs and extend them, and also to rebalance our crude slates because with Manifa we’re tilting toward more heavy,” he said.

Shaybah will reach a capacity of 1mn bpd by the end of 2016 or early 2017, after adding 250,000 bpd output capability, according to al-Falih. The company will add 300,000 bpd of capacity at Khurais, bringing it to 1.5mn in 2017. Aramco is also adding output of 250,000 barrels of natural gas liquids at Shaybah in a project set to be complete by the end of 2014, he said.

Saudi Aramco will have more light crude for export once the new deposits start producing, al-Falih said. The heavier output from Manifa is earmarked for new joint-venture refineries the company is developing in the coastal towns of Jubail and Yanbu.

A third oil refinery the company is building at Jazan will be completed by late 2016, al-Falih said. The facility will produce products from light and medium crudes for export.

The company plans to build a 3,000MW power plant at Jazan, he said. It awarded the contract for the supply of the turbines to Siemens in August. A residue gasification unit will be added at the refinery.

 

Related Story