Al-Naimi

No Need for Further Saudi Oil Capacity Expansion — Al-Naimi
Reuters
ROME, 20 April 2008

Top oil exporter Saudi Arabia has no plans to embark on further capacity expansion as long-term oil demand forecasts fall and alternative fuel supplies rise, the Saudi oil minister told industry newsletter Petroleum Argus.

The holder of the world’s largest oil reserves sees no need to go beyond its 2009 capacity target of 12.5 million barrels per day “at least up to 2020,” Minister of Petroleum and Mineral Resources Ali Al-Naimi said.

Long-term future energy demand forecasts have fallen sharply, he said in the interview given to the weekly on April 11, casting doubt on the need for more Saudi oil.

Demand forecasts have fallen as low as 106 million bpd in 2030, down from previous estimates as high as 130 million bpd. The world currently consumes around 86 million bpd.

“The projection of demand is on the decrease,” Al-Naimi said. “The projection of alternative fuels is on the rise. Therefore, it behoves us to pause, instead of expending unnecessary funds on expanding capacity that will probably not be needed,” he said. “We will watch what happens in the coming years. It is a pragmatic position.”

Saudi Arabia has spent tens of billions of dollars on projects to meet growing world demand and maintain spare production capacity of 1.5 million-2.0 million bpd to deal with any unexpected outages in global supply. The Kingdom has previously said it could take output capacity of 15 million bpd.

The Kingdom is the only oil producer with substantial spare capacity that can be brought online quickly.

“We are idling at around 9 million bpd and we will reach capacity of 12.5 million bpd by 2009,” Al-Naimi said. “That is substantial spare capacity. As far as I know, all the latest projections, at least up to 2020, do not require anything higher than that.”

A Saudi oil official said earlier this month that output stood at around 9 million bpd. Current capacity is around 11.3 million bpd.

Al-Naimi said the oil market did not need more oil and crude inventories were “fairly high”.

“Today there is no reason to jump up and down and say ‘we will supply more crude’ — because that request from consuming countries is probably politically driven rather than a fundamental requirement,” he said.

British Prime Minister Gordon Brown this week said he wanted to see collective action to persuade the Organization of the Petroleum Exporting Countries (OPEC) to boost output and bring down prices. US President George Bush has also repeatedly urged OPEC to supply more oil.

But boosting Saudi oil output would destabilize the market, Al-Naimi said.

“We would be flooding the market,” he said. “The market cannot handle it, there is no demand.”

The price of oil was divorced from oil market fundamentals, Al-Naimi said. Oil has become a hedge for investors, like gold, against the falling value of currencies, he added.

“That is the reason for the pressure on the price of oil,” he said.

US crude hit a record of $117 a barrel on Friday.

Rising costs for materials, construction and oil service contracting has pushed up the cost of adding new oil output capacity in Saudi Arabia to between $5000 and $8000 per barrel, Al-Naimi said.

Capacity additions at the Shaybah oilfield, where state oil firm Saudi Aramco is adding 250,000 bpd to current capacity, cost around $5000 per barrel he said. At the giant Ghawar field, additional capacity costs were around $2000 per barrel.

Costs for new refineries had almost doubled from initial estimates, Al-Naimi said, although he did no refer to any specific plants. The cost of new joint venture refineries between Aramco and France’s Total and US major ConocoPhillips has risen above $10 billion from initial estimates of $6 billion, industry sources have said.

The highest depletion rates at Saudi oilfields were around 2-3 percent per year, Al-Naimi said. Reservoir management and drilling prevented higher decline, he added. Decline rates at existing wells were around 6-8 percent per year.

The only capacity addition that Saudi Arabia has detailed beyond 2009 is the 900,000 bpd Manifa field, which is to replace decline at other fields, Al-Naimi said.

“Manifa is really a ‘maintain potential’ facility, Al-Naimi said. “It does not add to our spare capacity.”

Saudi King says keeping some oil finds for future

Saudi King says keeping some oil finds for future
04.13.08
Reuters

Saudi Arabia's King Abdullah said he had ordered some new oil discoveries left untapped to preserve oil wealth in the world's top exporter for future generations, the official Saudi Press Agency (SPA) reported.

"I keep no secret from you that when there were some new finds, I told them, 'no, leave it in the ground, with grace from god, our children need it'," King Abdullah said in remarks made late on Saturday, SPA said.

The U.S. President George W. Bush in January urged the Saudi king to help tame soaring prices by encouraging OPEC to pump more oil. On separate trips to Saudi Arabia this year, the U.S. energy secretary also asked for more oil, while the vice president discussed high prices with the king.

The kingdom has spent billions on building over 2 million bpd of spare crude capacity and is the only country in the world able to bring online large volumes of crude supply quickly to deal with unexpected supply shortages.

OPEC held production steady at meetings in February and March despite calls for more oil from the U.S. and other consumers. OPEC officials blame the high price on factors beyond the group's control such as the weak dollar, investment flows into commodities and speculation. Saudi Oil Minister Ali al-Naimi said last week that global oil markets were well supplied and there was no need to put more oil on the market, despite prices hitting a record of over $112 a barrel last week.

Saudi Arabia has trimmed its output to around 9 million bpd to reflect lower customer demand, a Saudi oil source said on Friday. The kingdom had in previous months pumped around 9.2 million bpd. Crude demand traditionally dips at this time of year after the end of winter as refiners carry out maintenance and prepare to meet summer demand.

Saudi production capacity stands at around 11.3 million bpd, and is scheduled to rise to 12. 5 million bpd next year. (Editing by Will Waterman)

Saudi Oil Minister Says “Not Enough Buyers”

Saudi Oil Minister Says “Not Enough Buyers” to Increase Production
By Tom Waterman
April 10, 2008
Oilintel.com

Paris, France - On the sidelines of an international conference in Paris this morning, it was widely reported that Saudi Arabia's Oil Minister Ali Al-Naimi said "there were not enough buyers of oil to justify an increase in oil production, despite high prices."

This is a direct and accurate statement from the Saudi oil minister, but his next comment is even more telling. He said "that if more buyers emerged, then 'we' would sell. But there were no such buyers."

If you have followed OPEC for the past 30 years as we have, you would understand his logic. Frankly, OPEC will sell all the oil it can, if there are willing buyers. The fact is, Al-Naimi should have told reporters what he told VP Dick Cheney recently. He informed Cheney that they have no room to put any increased output. There are not enough buyers for the oil produced by OPEC and non-OPEC producers, much less if more oil was produced.

Other OPEC nations continue to produce, but they won't admit it. Reports that OPEC produced 100,000 bpd less oil in March than in February is a smokescreen. They certainly produced the same or more, they are just storing the excess until the market might need it, which they hope will be later in April or in May as refineries worldwide start gearing up for the summer driving season.

That's the hope. The reality is this self-defeating marketplace is overflowing with crude oil and even in normal times it might take until the end of June to right itself. With today's dynamics, it might not be resolved during the driving season at all.

That's why the Saudis refuse to pump more oil. What the market will not admit is that the reason OPEC did not officially cut production in the second quarter was due to high prices, and how bad the PR would be.

In our weekly editorial meeting, we could not come up with a time when oil fundamentals were as weak as they are today. And we're talking many decades of experience. Oil stored on vessels, all land-based storage facilities bulging, a series of geo-political factors that provide artificial support without ever removing a barrel of oil from the market.

Perhaps it will take the collapse of the U.S. economy, which is on the horizon unless energy and food prices fall, for the U.S. government to radically change and enhance the regulations that govern commodities and speculation. Increasing the cost of speculation will not solve the problem, only forcing out smaller traders. The large financial institutions that have the biggest stake, and are taking billions in profits can afford any increases. The answer is speculative limits on both the exchanges and the companies that manage these speculative funds. They must find a way to limit how much influence these firms have on baseless prices increases for profit.

Commodity markets are all tremendously affected. Grain tightness does not justify the price of corn, wheat, soybeans or other crops to double, triple and quadruple in price. The oil markets are fundamentally weak, yet prices rise. These financial institutions sell the dollar based on perceptions the Fed may keep lowering interest rates, and buy oil as a hedge. The result? A weaker dollar and justification for higher oil prices. If it were not such a dire situation, it would be comical.
Three years ago, a statement similar to the one uttered by the Saudi oil minister this morning would have sent crude oil crashing, by perhaps $1.50 per barrel, which based on the changes in perception and volatility, would mean about $6.00 per barrel today.

These speculative firms keep the cycle of greed alive and growing while at the same time, sending the U.S. economy into a death spiral. I wish I were exaggerating, but I'm not. I just won't use the "D" word just yet. We were using the "R" word in October, 2007.

OPEC Production Cut?

Oil Falls, When Will We Hear From OPEC?
April 1st, 2008
By John Troland, Tom Waterman

Houston, TX - May Nymex prices have fallen this morning, continuing the long liquidation that began Friday.

The Iraqi hype ended on Monday when Iran told Shiite antagonists to cool it, as a spread of that violence would certainly have brought the U.S. into a more involved role.

On April Fools Day, it's ironic that the great lie of the past two years, that oil is worth $100 and more, may finally be giving way. But the day is young and we can't help but wonder which OPEC country will step up and announce that the cartel needs to reduce production in the second quarter, just one day into that quarter.

Crude oil has been at glut levels for more than two months and if prices tumble to the mid-$90s, there will be an immediate reaction from the hawks within OPEC. The early money favorite is Hugo Chavez, with Iran running a close second. We need to include Algeria in this equation, despite the fact that it really doesn't want to cut a single barrel of production. Then again, neither do Iran or Venezuela. No, all OPEC countries will look to Saudi Arabia to provide the necessary restraint.

It's hard to calculate just how much production needs to be scaled back. We had once predicted that OPEC would announce a 500,000 bpd cut for the second quarter, but based on current demand trends in the U.S., Europe, and yes Asia, plus some additional non-OPEC supply in the near term horizon, the cut to refuel this market might need to be 750,000 to 1 million bpd. Anything short of that level probably won't avert what seems destined to be a steady decline in oil prices.

So where did the speculators go? Apparently, with the announcement by the Fed that more oversight in all financial markets, including commodities, is needed helped induce long liquidation in virtually all commodities on Monday, although natural gas was a notable exception. Today natural gas joins the liquidation party.

Or, the U.S. dollar improved, probably on the government's announcement Monday, which hastened an exit from long positions. In either case, if speculators are moving away from commodities, fearing that the government may be catching on to the scam they have engineered over the past two years, there is a chance that the fundamentals of supply and demand might have to be considered once again, after a long period of total disregard.