Saudi Oil, OPEC's Ire

Saudi Oil, OPEC's Ire
Saudi King Abdullah wants to bring prices down to ensure long-term demand, but other OPEC ministers disagree
by Stanley Reed
BusinessWeek


It happens almost like clockwork. A few days before the end of every month, marketing executives from Saudi Aramco, Saudi Arabia's national oil company, ring up the likes of ExxonMobil (XOM) and Royal Dutch Shell (RDS), sounding them out about the oil they need and the price they would be willing to pay. The Saudis crunch the numbers, set a price, then call the global customers back to see how much they'd be willing to buy. By the 10th of the following month, customers—there are about 80 in all—are told how much crude they'll actually get.

It's all part of an elaborate dance that goes on continually at OPEC's biggest producer. While the cartel may set production quotas for each member, the Saudis and a few other top suppliers frequently exceed those limits in order to meet world demand. And these days, the dance looks more like a tug-of-war, as the Saudis and their allies in the organization seek to contain crude prices while Iran and others want to keep them as high as possible. Saudi relations with OPEC "depend on where prices are; when prices are too high [the Saudis] side with consumers," says Vera de Ladoucette, senior director of consultancy Cambridge Energy Research Associates in Paris.

WARY OF HIGH PRICES
The tug-of-war is a key factor in the extraordinary volatility in prices lately. After soaring to $147 per barrel this summer, crude plummeted to below $90 in early September. On Sept. 22 it jumped again to $130 as traders scrambled to cover short positions and fretted about the U.S. economy, then fell to $107 as those pressures eased.

Why wouldn't the Kingdom want to squeeze the maximum out of customers? The Saudis have long memories and recall how high prices can cut into consumption; it happened in the 1980s and it's happening again now. Any threat to oil's leading role as a source of energy is a big worry for a country that sits on reserves of some 260 billion barrels. "We are concerned about the permanent destruction of demand," says a senior Saudi official. "Those who buy hybrid vehicles are not going back to SUVs."

OPEC hardliners such as Iran and Venezuela, by contrast, have less oil in the ground and are running short on cash, so they're more interested in maximizing revenues today. Friction within OPEC has been growing because Saudi Arabia has been pumping almost 10% more than its OPEC quota of 8.9 million barrels per day. The Saudis and other Persian Gulf states believe a price of $90 per barrel is about right, while the hardliners don't want to see anything less than $100 per barrel. "The current market is not balanced; it is oversupplied," Iranian OPEC representative Mohammad Ali Khatibi told Reuters.

Talk to the Saudis privately and they often express frustration with OPEC. Saudi negotiators complain that some members come to meetings with rigid political positions that don't take the real world into consideration. And the Saudis dismiss the likes of Venezuela and Iran for talking big without having the oil to back it up. Venezuela can't produce its quota of 2.5 million barrels per day, while Iran struggles to pump its 3.8 million. Only the Saudis have significant unused capacity that they can tap to influence the markets, and they are working to add to this margin.

The conflict flared this summer. Fearing that sky-high prices could blight oil's future, King Abdullah convened a conference of energy ministers and oil executives in the port city of Jeddah on June 22. At the meeting, the Saudis unilaterally announced a 200,000-barrel-a-day hike in production, on top of an increase of 300,000 barrels daily a few weeks earlier, annoying others in the producers' club. Algerian oil minister and current OPEC President Chekib Khelil called reporters to his hotel room to say he saw no need for the Saudi move.

It's clear the Saudis and Khelil don't see eye-to-eye. At a Sept. 9 OPEC conclave in Vienna, the Saudis went along with vague language promising a cut. But after the meeting they put out the word that they didn't feel bound by it. Khelil, meanwhile, held a 4 a.m. press conference at which he said the agreement required OPEC to cut output by 520,000 barrels per day—apparently violating an agreement with the Saudis, who would bear the brunt of any cut, not to mention a specific number.

The Saudis aren't about to abandon OPEC. But when it comes to pumping what the world needs to keep going, they will generally deliver what their customers want even if it goes against other members' wishes—which likely means more conflict in the producers' club. The Saudi production increases, says Christophe de Margerie, CEO of French oil giant Total (TOT), "are a coup de knife in the OPEC system."

ASPO-USA Prediction

The following was taken from an article by Dave Cohen of ASPO-USA:

Saudi Aramco Update

Business Week published Saudi Oil: A Crude Awakening on Supply? on July 10, 2008. Steve LeVine's story should leave us with no doubt about what to expect from the Kingdom in coming years. Mysteriously, this story was not Front Page News in every media outlet all over the world.

IMAGE:Businessweek Saudi Fields projections to 2013
Important

Business Week received a "detailed document obtained from a person with access to Saudi oil officials." The new information simply confirms what I already knew, but independent confirmation helps us reach firm conclusions. PFC's Roger Diwan, a respected oil analyst, vetted the Business Week document.

The data describes Saudi maximum sustainable capacity (table above). Capacity remains around 12 million barrels per day (b/d) for the next 5 years. An important shift occurs which should give us all pause.

One dramatic part of the data concerns a site called Ghawar, which has been the kingdom's workhorse field for decades. It shows the field producing 5.4 million barrels a day next year, but the volume then falling off rapidly, to 4.475 million daily barrels in 2013. "That's why Khurais is so important—to make up for that decrease," said the oil industry executive who released the data.

The long anticipated decline ("twilight") of Ghawar, the world's largest oil field, is reflected in the Saudi Light data (blue circle). If these numbers are accurate, Ghawar output declines 17% between 2009 and 2013. This works out to about 4%/year for each of the next 5 years. Production of "good oil"—not Manifa heavy sour oil (gray circle)—to offset these declines is supposed to come from Shaybah.

Though 2014 is not included in the data, one of the fields listed—Shaybah—is to have a volume increase to 1 million barrels a day that year, from 750,000 barrels a day from 2009 to 2013, according to the oil executive.

Simple arithmetic tells us that additions from Shaybah after 2013 will not offset Ghawar declines for more than one year. Business Week's source indicates that 10.4 million b/d is Saudi Arabia's maximum sustainable production level between 2009-2013. This number confirms what I wrote in The Saudis Are Blowing Smoke Again (ASPO-USA, March 12, 2008). Whether the Kingdom will actually produce at their maximum sustainable capacity is another question. See Sleepwalking Toward the Oil Precipice to learn about setting correct expectations about OPEC production in the coming decade (ASPO-USA, April 30, 2008). This passage is from Blowing Smoke—

Khurais and Manifa are very likely the last large (about 1 million b/d) increments that Saudi Arabia will be able to put on-stream—ever. A "paradigm shift" means the Kingdom is not going to knock itself out raising crude oil production to (best case) levels beyond 10.5 million b/d in the medium term out to 2012 or so, and will likely not be able to do so thereafter—Ghawar will not last forever, despite what Mr. al-Naimi or CERA think. Investment in additional capacity available after 2011 would have to be on the drawing board now, but there is no indication that Saudi Arabia has thought that far ahead.

[I should add now that Khurais and Manifa must meet capacity expectations for the Business Week scenario to come true. Also, most Manifa oil will likely be refined in Saudi Arabia, not exported. The Saudis will export refined products beyond what they use themselves.]

The Saudi peak is now in sight. Saudi Arabia is the only OPEC member that can raise production by any significant amount in the medium-term to 2013. The longstanding argument about the Saudis is over.

Saudi Arabia Pumps 9.53 mbpd in June

Oil Trades Near Record as Investors Seek Alternatives to Stocks
By Christian Schmollinger
July 4 (Bloomberg)

Crude oil traded near a record in New York above $145 a barrel, set for a second week of gains, as investors purchased commodities as an alternative to flagging equities markets.

Oil has risen 19 out of 27 weeks this year as money managers bought crude futures rather than U.S. stocks, which yesterday completed the longest streak of weekly declines in four years. The International Energy Agency said July 1 that spare OPEC capacity will shrink by 2013, keeping the market ``tight''.

The Organization of Petroleum Exporting Countries increased production 1 percent in June, as Saudi Arabian output rose to a two-year high, a Bloomberg News survey showed.

OPEC pumped an average 32.52 million barrels a day in June, up 320,000 barrels from May, according to the survey of oil companies, producers and analysts. May output was revised down by 80,000 barrels a day. Output by the 12 members with quotas, all except Iraq, rose 380,000 barrels to 30.09 million barrels.

Saudi Output

Saudi production increased 280,000 barrels to an average 9.53 million barrels a day last month, the highest since March 2006. It was the biggest gain among OPEC members last month and represented 88 percent of the overall OPEC increase.

The world has as much as 5 trillion to 7 trillion barrels of oil yet to be developed, located in ``challenging'' areas or acreage closed to exploration, Saudi Arabian Oil Minister Ali al-Naimi said.

``The limits to future supplies have more to do with politics than with geology and resource availability,'' al-Naimi said in Madrid, speaking at the World Petroleum Congress, where he is receiving an industry award. Concern over supply can be overcome by allowing ``explorers to explore and find hydrocarbons where they aren't allowed,'' he said.

Khurais

Giant Saudi field is key to boosting oil output
Remote Khurais project should be supplying crude by June of next year
The Associated Press
June. 29, 2008

This massive oil field surrounded by the desolate sands of Saudi Arabia's vast eastern desert feels like the middle of nowhere.

But what happens over the next year at Khurais, one of Saudi Arabia's last undeveloped giant oil fields, could hold the key to what drivers will pay at the pump for years to come.

Under way at Khurais and two other smaller fields nearby is what Saudi Arabia calls the single largest expansion of oil production capacity in history.

With consumers howling over record fuel prices and the United States pushing Saudi Arabia to produce more oil, this patch of sand 100 miles west of the Saudi capital of Riyadh has become one of the most important places in the world economy.

Saudi Arabia's state-owned oil company, Aramco, is spending $10 billion to build the infrastructure to pump 1.2 million barrels of oil per day by next June from the Khurais field and its two smaller neighbors. That alone would be more than the total individual production of OPEC members Qatar, Indonesia and Ecuador.

The project forms the centerpiece of the Saudi plan to increase the total amount of oil it can produce to 12.5 million barrels per day by the end of 2009 — up from a little more than 11 million barrels per day now.

Consuming nations have pushed Saudi Arabia to boost production capacity even further and also want the world's top oil exporter to begin pumping more crude immediately to bring down record oil prices hovering near $140 a barrel. They say oil production has not kept up with increased demand, especially from China, India and the Middle East.

Saudi Arabia plans to produce 9.7 million barrels of oil per day, or 11 percent of the world's total, in July. It is the only nation with significant excess capacity that it could put on the market quickly.

But the kingdom has resisted calls to increase production further, saying financial speculators and the falling dollar are to blame for high oil prices, not a shortage of supply.

These disagreements came to a head June 22 at a rare meeting of oil producing and consuming nations hosted by Saudi Arabia. In the end, Saudi Arabia said it could increase oil production capacity to 15 million barrels per day if needed in future years. But it gave no indication that step, or an immediate increase in output, was necessary or planned.



The political tussle over output masks the challenge Saudi Arabia faces in boosting production capacity by developing giant fields like Khurais.

"That is what people don't appreciate," said Manouchehr Takin, an oil expert at the London-based Centre for Global Energy Studies. "These are major projects, and people don't realize they aren't that easy."

The Saudis estimate Khurais and the nearby smaller Abu Jifan and Mazalij fields hold a total of 27 billion barrels of oil encased in solid rock 5,000 feet below the baking desert.

Saudi Arabia is no stranger to developing giant oil fields. Its massive Ghawar field, with an estimated 70 billion barrels of remaining reserves, is the world's largest.

But oil experts say Khurais, which was discovered in 1957, is geologically more difficult to tap.


Aramco is using hundreds of mostly South Asian workers to build a massive processing facility at the field. More than 150 wells will pump crude to the surface, where water and gas will be separated out. The oil then will be funneled to the country's east-west pipeline for delivery to ships in the Red Sea.

Workers are also building a huge sea-water injection system to pump more than 2 million barrels of water per day from the Gulf into 120 wells. That will maintain the necessary pressure underground to push the oil to the surface.

Disputes over Saudi's decisions aside, "when you talk about the fields and the engineers and so on, I think you have to respect their technical ability," Takin said.


With its twisting maze of metal, the half-finished facility rises out of the desert like a massive space station. Workers wear gloves and wrap bandanas across their faces to hide from the searing sun as they work 10-hour shifts in temperatures well above 100 degrees.

Aramco officials say that in addition to geological challenges, they also face difficulty finding enough qualified workers and equipment. The project will use 145,000 tons of steel — almost enough to build two Golden Gate bridges.

"We are trying to do it in a world market where contractors are in high demand," said Muhammed al-Rubeh, head of Aramco's project department.

When completed, the processing facility also will be protected by two layers of fences, crash barriers, security cameras and government forces, Aramco says. Al-Qaida has called for attacks against Saudi Arabia's oil facilities to disrupt the flow of crude.

Aramco officials insist that despite the tight construction market, the Khurais project will be ready to produce 1.2 million barrels per day by next June.

But equipment and labor shortages have delayed production at another field, Khursaniyah, which was originally scheduled to begin pumping 500,000 barrels per day at the end of 2007. Aramco officials now say Khursaniyah will come online in August.

Also in the works is the development of the Manifa field, which sits offshore in the Gulf and is Saudi Arabia's only other giant oil field still untapped.


If all goes as scheduled, Aramco forecasts more than 50 billion barrels of fresh reserves from the giant fields by 2011. That amount alone would give Saudi Arabia the ninth largest oil reserves in the world, not even counting its existing reserves.

Outside analysts estimate the kingdom's total current reserves at about 260 billion barrels. But Saudi Arabia refuses to provide detailed data to allow independent verification.

Amin Nasser, senior vice president for production and exploration at Aramco, acknowledges the company sometimes faces criticism for that secrecy. "We have a tradition of letting our actions and accomplishments speak for themselves," he said.

URL: http://www.msnbc.msn.com/id/25443913/

Mixed Signals

Saudis See No Reason to Raise Oil Production Now
May 16, 2008
Rigzone

Saudi Arabian leaders made clear Friday they see no reason to increase oil production until their customers demand it, apparently rebuffing President Bush amid soaring U.S. gasoline prices.

During Bush's his second personal appeal this year to King Abdullah, Saudi officials stuck to their position that they are already meeting demand, the president's national security adviser told reporters.

"What they're saying to us is ... Saudi Arabia does not have customers that are making requests for oil that they are not able to satisfy," Stephen Hadley said on a day when oil prices topped $127 a barrel, a record high.

The Saudi government indicated that it is willing to put on the market whatever oil is necessary to meet the demand of its customers, Hadley said.

But even then, he said, Saudi leaders say increased production would not dramatically reduce pump prices in the United States.

The Saudis are investing in ways to increase oil production over time. Officials told Bush they are doing "everything they can do" for now to address a complicated market.

Hadley said the Bush administration will take the explanation back to its own experts and "see it if conforms."

When Bush and Abdullah met in the kingdom in mid-January, the president also sought more Saudi output but got a chilly response to that plea. Saudi Arabia said it would increase production only when the market justified it and that production levels appeared normal.

Bush acknowledges that raising output is difficult because the demand for oil -- particularly from China and India -- is stretching supplies. Also, economists say prices are being driven up by increased demand, not slowed production.

...

Saudi Hikes Output by 300,000 bpd in May
May 16, 2008
Rigzone

Contrary to earlier reports, Saudi Arabia has increased its oil production by 300,000 barrels per day in response to orders from customers, mostly from the United States, and will pump 9.45 million bpd in June, Oil Minister Ali al-Nuaimi said on Friday.

"Every month, we receive (orders) from our customers worldwide. On May 10 we increased our response to our customers by 300,000 barrels because they asked for it," Nuaimi told reporters during a visit by U.S. President George W. Bush to Saudi Arabia.

He said additional demand came from about 50 customers, mostly U.S. clients, "and we responded to it on May 10."

"Our production for June will be 9.45 million barrels per day," he added.

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.

Saudi Arabia Output Above OPEC Quota

Saudi Arabia Output Above OPEC Quota, Al-Naimi Says
By Maher Chmaytelli and Alexander Kwiatkowski
March 5
(Bloomberg)

Saudi Arabia, the world's biggest oil exporter, is producing above its OPEC quota because the market needs more crude, Oil Minister Ali al-Naimi said.

Saudi Arabia is producing 9.2 million barrels a day of oil, al-Naimi said today in an interview in Vienna, where the Organization of Petroleum Exporting Countries is meeting to decide production targets. Bloomberg calculates that Saudi Arabia has a production target of about 8.9 million barrels.

``That's what the market needs,'' he said.

OPEC will study the ``fundamentals'' when deciding what to do with production and customers aren't indicating that demand for oil is weakening, he said.

``Our aim is to keep supply and demand balanced with stocks standing at 5-year average,'' al-Naimi said. The Saudi minister earlier told al-Hayat newspaper that a change to production isn't justified because supply and demand are stable.

Al-Naimi said he wouldn't be ``surprised'' if OPEC held an emergency meeting before it meets again in September. ``The aim would be to ensure market balance,'' he said.

OPEC will leave production targets unchanged at today's meeting, according to 10 of the group's 13 members. Representatives including ministers from Iran, Venezuela and Algeria have told Bloomberg that the Organization of Petroleum Exporting Countries will hold output steady.

Saudi Aramco Raises Crude Oil Prices to the U.S.

Saudi Aramco Raises Crude Oil Prices to the U.S. for February
By Nesa Subrahmaniyan
Jan. 7 (Bloomberg)

Saudi Aramco, the world's largest state oil company, increased its official selling prices for crude shipments to the U.S. for a second month in February.

The discount of Arab Light, the most common variety exported by Saudi Arabia, to Saudi Aramco's benchmark price narrowed to $4.15 a barrel from $6.85 a barrel in January, the Dhahran-based company said in a faxed statement on Jan. 5. Discounts for Extra Light, Arab Medium and Arab Heavy were also reduced. Aramco raised prices of Arabe Medium and Arab Heavy grades for Asian customers, while cutting them for Europe.

For U.S. customers, prices for all grades were raised by between $2.50 and $2.80 a barrel. Arab Extra Light's discount narrowed to minus $1.10 a barrel from minus $3.90 a barrel, Arab Medium to minus $7.45 from $10.05 and Arab Heavy grade to minus $10.75 from minus $13.25, Aramco said.

Prices to the U.S. are set as a discount to the West Texas Intermediate benchmark.

For Asian customers, Saudi Aramco cut its premiums for Arab Super Light, Extra Light and Arab Light by between 20 cents and $1 a barrel. Asian prices are quoted in relation to the average of Oman and Dubai grades, the two Arabian Gulf benchmarks used by Asian oil refiners and traders. Aramco started linking its prices to the average of Oman and Dubai crudes in 1986.

Aramco cut the premium for Arab Super Light by $1 to $6.05 a barrel, by 40 cents to $4.95 for Extra Light and by 20 cents to $1.55 for Arab Light. It narrowed discounts for Arab Medium by 10 cents to minus $1.75 a barrel and by 30 cents to minus $4.80 a barrel for its Arab Heavy grade.

Europe Shipments

Refiners in Europe and the Mediterranean would pay less for Saudi Arabian crude oil shipments in February.

For its Northwest European customers, Aramco widened Arab Light's discount to the benchmark by 25 cents to minus $3.15, Arab Medium was lowered to minus $5.70 and Arab Heavy reduced to minus $7.90, while Extra Light was cut to a premium of $1.20 from $1.55.

Oil refiners in the Mediterranean would pay between 50 cents and 70 cents less for their shipments from Saudi Arabia.

Mediterranean and European prices are expressed as a differential to Intercontinental Exchange's weighted average of North Sea Brent crude oil. All prices are free-on-board, where the buyer has to pay for shipping costs.

Saudi Aramco's most expensive oil variety is Arab Super Light and the cheapest is Arab Heavy.

Vela Orders 4 VLCCs for $600 million

Daewoo Shipbuilding Wins Order for Oil Tankers at Record Price
By Kyunghee Park
Nov. 14 (Bloomberg)

Daewoo Shipbuilding & Marine Engineering Co., the world's third-largest shipbuilder, received an order to build four crude tankers at an industry record price from Vela International Marine Ltd. of Saudi Arabia.

The 317,000-deadweight-ton tankers were priced at about $151 million each, Seoul-based Daewoo said in an e-mailed statement today. A 300,000-ton vessel cost $142 million at the end of September, according to Clarkson Plc, the world's biggest shipbroker. The order was announced yesterday.

Shipyards in South Korea, the world's biggest shipbuilding nation, have received record orders this year as global demand for iron ore, fuel, toys and computers increase the need vessels. Ship prices have more than doubled to a record since 2003, when they came off from a 10-year low.

``The order will help further improve Daewoo Shipbuilding's profitability,'' the shipbuilder said in the statement.

Including the latest order, Daewoo Shipbuilding now has a total of $18 billion in new contracts this year, surpassing its target of $17 billion. The company's backlog rose to about $39 billion, representing more than three years of work.

Daewoo Shipbuilding added 2.6 percent to 50,800 won as of 9:48 a.m. in Seoul, compared with a 2.4 percent advance in the benchmark Kospi index. The stock has climbed 74 percent this year, about double the Kospi's gain.

Saudi pipeline blast kills 28

Saudi pipeline blast kills 28
The Associated Press
Nov. 18, 2007

An explosion set a gas pipeline ablaze and killed 28 workers in eastern Saudi Arabia, the Saudi national oil company Aramco said Sunday.

"The fire broke out while contractor workers where linking a new pipe" to the pipeline during maintenance late Saturday, Aramco said in a statement.

It said 28 workers, including five Aramco employees, had died in the fire, which was put out early Sunday some 30 kilometers from its Hawiyah gas plant.

The company did not specify how many people had been injured in the blaze, or give the victims' nationalities.

"The company is taking all necessary measures to guarantee the continuation of the normal gas output," it said.

Saudi Arabia's national oil company, Saudi Aramco is the world's largest oil producer, located on the country's east coast.

The Hawiyah plant produces 310,000 barrels of ethane and NGL daily.

URL: http://www.msnbc.msn.com/id/21864094/

Saudi Arabia Pushes for Extra 500,000 bpd OPEC Hike

Saudi Arabia Pushes for Extra 500,000 bpd OPEC Hike
by Adam Smallman and Spencer Swartz
Nov 12th, 2007

Saudi Arabia is to push for an extra 500,000 barrels-a-day hike in output by OPEC, or 1.8%, as soon as this week if oil prices drive toward $100 a barrel, an official familiar with the situation said Monday.

Speaking the day after Saudi Arabia's Oil Minister Ali Naimi indicated that the 12-member Organization of Petroleum Exporting Countries may discuss a production increase, an official close to the group's policy discussions told Dow Jones Newswires: "The Saudis want another 500,000 barrels a day in the market. They don't like these prices for consumers."

Leaders from the world's top oil producers will meet this weekend in Saudi Arabia's capital, Riyadh to discuss the challenges a potential global recession and an anemic dollar present to their estimated $1.8 billion a day in revenue.

Presidents, sheikhs and a king from the OPEC cartel, which meets more than 40% of the world's needs, are to discuss a raft of challenges to their core business, including soaring costs to projects, heightened environmental concerns that spur a push toward alternative energies, and what, if anything, they can do to prevent record oil prices from destabilizing the global economy.

Senior officials within the Saudi Arabian delegation have made it plain they don't feel comfortable with current oil prices, which have almost doubled from a low of $49.90 a barrel in January to a record $98.62 a barrel for U.S., light, sweet crude last week, and that something must be done.

In Kuwait Sunday, Naimi, OPEC's de facto leader, told reporters: "It is premature" to speak of a production hike, but "when OPEC meets, we will discuss this issue," though it was unclear if he was referring to this week's summit or formal OPEC policy talks by oil ministers due Dec. 5 in Abu Dhabi.

One sticking point is the timing of any such a move. The official said the timing would hinge on talks with other OPEC oil ministers, who will meet Thursday or Friday in a closed session ahead of the summit of heads of state in Riyadh at the weekend.

"If the market progresses (and rises above) $100 a barrel, I think the Saudis will push for something then and not wait until the December meeting," the official said.

But a source familiar with OPEC thinking said Monday that insiders "really don't want this summit to turn into an OPEC policy meeting" and senior officials "are not getting any indication that they'll do anything" this week. It was, the source added, perfectly possible that oil ministers might agree to something late this week.

OPEC Revenue

OPEC's revenue may climb 9% this year to $658 billion, the Financial Times reported Monday, citing the U.S. Energy Information Administration, but, with rising economic concerns driven by a worsening global credit crunch, it is oil and the associated costs of heating fuel and gasoline that some economists now say could be the trigger for a full scale economic meltdown.

But the oil leaders may have little wiggle room when it comes to averting such an event, as many believe a wall of investment cash, not constrained oil flows, lie behind the record prices. Any move to add, say, a million barrels a day of additional oil, or around 3% more than they currently pump, would eat into Saudi Arabia's spare capacity ahead of the worst of winter, and at a time of heightened concern over OPEC member Iran's nuclear program and the future stability of U.S. ally Pakistan.

OPEC members at their last meeting on Sept. 11 agreed to raise output by 500,000 barrels a day from Nov. 1, shared among the 10 members with production quotas, amid growing concerns high oil prices may adversely affect global economies and that demand could outstrip oil supplies as the northern hemisphere's energy consuming nations head into winter season.

According to estimates by Dow Jones Newswires, the OPEC-10 in October were already pumping roughly in line with their new target of 27.25 million barrels a day, with Iraq and Angola, which don't have quotas, pumping a further 3.9 million barrels a day.

"However, OPEC's announcement has not yet dampened upward price pressure, and it is unlikely that these higher volumes will be enough to halt the downward trend in commercial inventories over the next several months," the U.S. Energy Information Administration said.

Indeed, recent output hikes by OPEC have tended to be followed by record high oil prices as investors assume spare capacity is shrinking and demand will outstrip supply.

With no OPEC hike agreed this week, leaders, many of whom hold competing political views, may be forced into issuing a bland communiqué that insiders say seeks to reassure customers they are reliable suppliers of oil and are increasingly responsible toward the environment.

© 2007 Dow Jones Newswires.

Why Saudi Arabia Favors Increasing OPEC's Output

Why Saudi Arabia Favors Increasing OPEC's Output...Officially
September 10, 2007 11:20:AM ET
By Tom Waterman
http://www.oilintel.com/

There's an increasing buzz surrounding the OPEC meeting in Vienna tomorrow that Saudi Arabia -- easily the most influential of cartel members, will make a pitch to increase output in the fourth quarter.

Practically every other cartel member, addicted to the petro-dollars now flowing through its coffers, does not agree. They all point out that crude oil supplies are growing and that any increase in OPEC output would collapse prices.

It's all a mirage anyway as crude supplies are building and OPEC is selling beyond output quotas, by anywhere from 650,000 to 850,000 barrels per day. So what's all the fuss?

We need to go back 10 years or so when OPEC looked at the commodities markets as just another financial instrument that would bow to its will. They never imagined that the price of oil would be set daily in New York or London, instead of Riyadh or Tehran.

Saudi Arabia understands that the explosion in electronic trading, particularly ICE in London, where regulations and oversight are virtually non-existent, speculators can control the price of oil. All it takes is enough money to force a position, and the staying power to see it through, and influence the rest of the speculative community.

There are rumors that some OPEC members, through third party agents, are in fact participating in the London Brent futures market. The suspects are Iran, Venezuela and perhaps Nigeria. What better way to push markets in a favorable direction, using the petro-dollars consumers pay.

It's not clear if Saudi Arabia participates, but it would not be surprising if all OPEC members have a role in conjunction with huge banking firms in manipulating oil prices. The financial ability of OPEC members cannot be underestimated. It would explain how prices can remain artificially high for such an extended period of time.

It also makes sense from the fundamental side. OPEC's power to influence oil prices relies on a joint commitment to restrict supplies in order to prop up prices. The problem with this method is the cartel itself. They simply cannot present a unified front when cutting production. Simply put, they cheat. Some more than others, but every OPEC member will not turn away buyers, especially with prices as high as they have been for the past two years.

There are many reasons the Saudis would favor an increase in output, not the least of which is a means to protect market-share as glut conditions approach. Saudi Arabia is concerned that it is losing ground in some of its Asian markets, and it wants to protect its current U.S. market-share, among other markets.

Through the first six months of 2007, Saudi Arabia supplied 10.7 percent of U.S. imported crude oil. They would prefer to supply about 11.5 percent, a share achieved just once in 2007, in January. In May and June, Saudi Arabia supplied 11.4 percent of U.S. imported oil -- acceptable levels.

However, two countries currently exempt from output restrictions are Iraq and OPEC's newest member -- Angola. Iraq will not have a quota until it can sustain production levels at predictable rates, which might not be for another 5 years. Nevertheless, Iraq is gradually increasing production and its share of the U.S. import market is growing. In May, Iraq supplied the U.S. with 10.6 million barrels of crude oil, or 2.4 percent of total imports. In June, Iraq supplied the U.S. with 17.2 million barrels, or 4.2 percent of total U.S. imports.

Saudi Arabia, while sustaining an 11.4 percent of the U.S. market in May and June, it supplied 4 million less barrels of crude in June than in May.

Angola, the other OPEC member that has no output quota, has been erratic in its supplies to the U.S. The range has been a low of 12.9 million barrels in February (3.8 percent) to a high of 21.4 million barrels in May, or 4.9 percent of the U.S. import market. Angola has also competed successfully for some of Saudi Arabia's Asian customer base.

This is the main reason that Sheik Ahmed Fahd Al Ahmed Al Sabah, who is also Kuwait's oil minister, had talks with Angolan officials about how they will be assigned a quota in the near future. Just as they are ready to bring new production online in early 2008, Angola does not like the timing of being assigned a quota. It seems that the prestige of becoming an OPEC member might not be worth the potential financial sacrifice.

We expect that a quota will be postponed until the second quarter of 2008, after new deepwater production is flowing and its levels have risen.

But there is another reason that Saudi Arabia might favor increasing production in the fourth quarter. Prices are too high. The Saudis always look beyond today and tomorrow. They realize that prices approaching $80 per barrel, while offering tremendous profits, also carry a risk. The risk is a weak U.S. economy that seems to heading toward a possible recession, which will mean a broad worldwide economic slowdown. Perhaps even more important than the Federal Reserve reducing interest rates by a half point would be oil prices that fall to the low $60s.

Saudi Arabia understands that current prices are artificially high, and simply making statements that there is plenty of crude oil available is not enough to overcome the powerful spec money that controls the price of oil. Something else must be done to curb the speculative direction oil is tracking.

There are other reasons to bring prices down. The political battle of wills between Iran and Saudi Arabia as each country tries to influence policies in Iraq should not be underestimated. Iran needs money as it pours support into Shiite dominated Iraq. Saudi Arabia provides cash for the Sunni contingent, trying to carve out its slice of Iraq. The Saudi vault is virtually limitless while Iran works paycheck to paycheck. Every petro-dollar Iran can grab, a certain percentage will work to extend its influence.

As Iran's influence in the region grows, it undermines the Saudi royal family, and beyond all other factors, the royal family wants to remain in power.

This is why I suspect that Saudi Arabia will try to impose its will on the OPEC meeting tomorrow. It's not clear if the Saudis have the will to demand a direction against price hawks like Iran, Venezuela, Libya and Nigeria, but the signals are that the Saudis will either nudge the cartel to announce increases in the fourth quarter. The alternative is that Saudi Arabia could open the spigots and single handedly increase worldwide supplies.

In a dangerous time, Saudi Arabia seeks to limit Iran's influence, and now may be the moment to do so.

Aramco invites engineering bids for refinery

By Oliver Klaus
Aug 20, 2007
DUBAI (MarketWatch)

Saudi Arabian Oil Co. has invited engineering firms to bid for a contract to help it build an estimated $8-billion refinery in eastern Saudi Arabia, people familiar with the plans said Monday.

Saudi Aramco, the world's largest national oil company, has invited international engineering companies to bid by Sept. 15 for the contract to carry out early engineering for and manage the construction of the new refinery, the sources said.
The plant, known as East Coast refinery, is the fourth new facility planned in the kingdom and will boost total domestic crude oil refining capacity to above 3.5 million barrels a day by 2012, more than double the U.K.'s.

The refinery, due for completion around late 2011, will process 400,000 barrels a day of Saudi crude and will be at Ras Tanura on the Persian Gulf, already home to the country's largest refinery with a capacity of 550,000 barrels a day, the sources said.

Aramco will meet selected contractors Monday for a project briefing in Bahrain, the people said.

Companies including KBR Inc. KBR, Foster Wheeler Ltd. FWLT, and WorleyParsons Ltd. (WOR.AU) have bid for similar contracts in the kingdom.

The new project is aimed at meeting fast-growing demand for refined products from the local power and industrial sectors.

Aramco to invite bids for Manifa developments

Saudi Aramco to invite bids for $10 billion Manifa developments
Business Intelligence Middle East
July 31st, 2007

SAUDI ARABIA. Saudi Aramco is expected to invite companies in August to help develop Manifa oil field, with a potential production of 900,000 barrels of oil a day, sources familiar with the company's plans said earlier this week.

Aramco, the world's largest oil supplier, plans to invite prequalified companies to bid for an estimated US$3 billion worth of contracts on the company's largest-ever offshore project.

The estimated US$10 billion Manifa development programme aims to add 900,000 barrels a day of heavy crude, 120 million cubic feet a day of gas and 50,000 barrels a day of condensate to Aramco's production by mid-2011.

Manifa's heavy crude will be exported from Aramco's Al Juaymah and Ras Tanura terminals in Eastern Saudi Arabia. The gas and the condensate will be processed at the Khursaniyah gas plant.

The project also includes construction of four pipelines, a water supply system and oils and gas processing facilities.

The tender documents for the project were originally due to be released in June or July but have been delayed without explanation, sources familiar with the Aramco's tender told Dow Jones Newswires.

Companies including Bechtel Group, Fluor Corp, JGC Corp and Technip in late May submitted prequalification documents to Saudi state-owned company. They are still waiting for final to bid, sources said.

In February, Aramco awarded an estimated US$1 billion contract to Belgium contractor Jan De Nul for the Manifa project's offshore portion, covering dredging works in the Persian Gulf.

Middle East oil producers are spending income generated from four years of high oil prices on expanding and upgrading their crude oil production capacity to meet rising global demand, particularly from fast-growing Asian economies.

Saudi Arabia is the world's biggest oil exporter. The Kingdom is working to increase current output of almost 11.0 million barrels a day to 12.5 million barrels a day by 2009.

Saudi 2010: Empire in the Making

Saudi 2010: Empire in the Making
by Mohammed Aly Sergie
July 15th, 2007

[...]The recent oil boom has filled the coffers of all oil producing countries, and the largest producer received the greatest influx. According to the Economist Intelligence Unit, Saudi's GDP has nearly doubled since 2002 from US$118.6bn to US$347.3bn in 2006. While analysts debate the ‘peak oil' theory and look towards alternative sources of energy, Saudi Arabia continues to expand its current capacity and explore for more wells. With around 25% of global oil reserves and plentiful natural gas reserves, Saudi Arabia ranks fourth in the world in natural gas reserves, and Aramco claims that only 15% of the country has been "adequately explored for gas". Few analysts predict that oil prices will drop below US$60 per barrel over the next two years (oil is currently US$77 per barrel); oil and gas will remain the main source of revenue and the economic driver in the Kingdom.

The only player in oil production in Saudi Arabia is state-owned Saudi Aramco, the world's largest oil exporter. The company has been managing oil exploration and extraction for the Kingdom over the last 70 years and has become one of the largest state-controlled companies in the world.

In 2006, Saudi Aramco markedly enhanced its operations to achieve its goal of increasing crude oil production capacity to 12.5 million barrels/day (b/d) by the end of the decade. Underdeveloped fields throughout the Kingdom are coming on stream within the next two years which will triple the number of oil rigs in operation and should increase production by two million b/d.

Saudi Aramco is also increasing its gas exploration efforts. A myriad of onshore and offshore exploration and extraction is ongoing, which will go far to feed the voracious appetite for natural gas of power, desalination and petrochemical plants.

Natural gas is what brings us to another Saudi giant: Saudi Basic Industries Corporation (SABIC). While Aramco will invest nearly US$70bn in the petrochemicals industry in the next five years (the company recently teamed up with Dow Chemicals to build a US$20bn plant in Ras Tanura), SABIC has been a leader in the petrochemicals sector over the past 30 years, and is the largest non-oil producing company in the Middle East.

Not only is SABIC a regional giant, it is also a major global player. The company is among the world's market leaders in the production of polyethylene, polypropylene, glycols, methanol, and fertilisers, as well as the fourth largest polymer producer. Fuelled by impressive profits - profits rose to a record US$5.4bn in 2006, a 6% increase on 2005, while first quarter 2007 profits remained strong at US$1.7bn, an increase of 50% compared to the same period in 2006 - SABIC has gone on an aggressive acquisition spree[...]

full article

Aramco to build $8bn refinery

Aramco to build $8bn refinery
by Reuters
13 June 2007

Saudi Aramco, the state oil company of OPEC kingpin Saudi Arabia, has launched a project to build a new oil refinery, the Middle East Economic Digest (MEED) reported.

MEED said the refinery at Ras Tanura, with a processing capacity of up to 400,000 barrels per day (bpd) of Arabian heavy crude, will cost about $7 billion to $8 billion.

Saudi Aramco has a 550,000 bpd oil refinery in Ras Tanura in the east of the kingdom, the world's largest oil exporter.