Saudi Arabia sees no need for raising production

Saudi Arabia sees no need for raising crude oil production
05.28.07
RIYADH (Thomson Financial)

The surge in oil prices is being driven by political factors and there is no need for additional crude supplies, Saudi Arabia's assistant oil minister said on Monday.

'What brings prices up is politics, what brings them down is politics,' Prince Abdul Aziz bin Salman bin Abdul Aziz told Agence France-Presse, referring to tensions in major crude producers Nigeria, Iraq, Iran and Venezuela.

'We have a well-supplied market,' he said on the sidelines of a European-Gulf forum today. 'We have always said, and OPEC has always committed itself to keep the market well-supplied and balanced. Never has this market been more balanced with crude than today,' said Prince Abdul Aziz, who is assistant oil minister for petroleum affairs.

He said that while there was no need for additional crude supplies, there is a problem with refining capacity. He was referring to what Saudi officials say is a need to invest in expanding refining capacity in consumer countries.

OPEC kingpin Saudi Arabia was sticking to its output quota of 8.5 mbpd, he said.

Saudi Cautious on Oil Plans

Saudi cautious on oil plans as demand uncertain

May 10, 2007
By Simon Webb

DUBAI (Reuters) - Saudi Arabia's reluctance to commit to boosting oil production capacity beyond 2009 is a response to the potentially huge impact on future demand of energy efficiency, alternative fuels and high prices.

Demand uncertainty is providing little incentive for oil producers to risk investing billions of dollars on long-term projects to boost capacity, as they worry it will lie idle.

"This is a major concern for producers," said David Kirsch, manager of market intelligence at Washington-based consultancy PFC Energy.

"If you assume certain conservation measures, alternative fuels and the introduction of some form of carbon limiting legislation, you could take as much as 6 million barrels per day (bpd) off global demand by 2015."

Under the greener world scenario, PFC projects demand growth could be limited to 4 million barrels per day between 2007 and 2015, taking global consumption to 89 million bpd from around 85 million bpd now, Kirsch said.

Without environmental and conservation policies, demand could soar to as much as 95 million bpd, he said.

The International Energy Agency (IEA), adviser to 26 industrialized nations, has pegged the untrammeled demand scenario even higher, at 99 million bpd in 2015.

Faced with such disparate projections, Saudi Oil Minister Ali al-Naimi sent the strongest signal yet last week from the world's biggest oil exporter that it needs concrete signs of demand before committing to further supply boosts beyond its 12.5 million barrels per day target in 2009.

"Our feeling now, with the thrust and push for conservation, efficiency and the use of alternatives, is that we probably need not go beyond 12.5 million bpd," Naimi said after a gathering of Asian and Middle East energy ministers in Riyadh.

Naimi has called for better data on future demand, turning the tables on oil consumers that press producers for commitments to boost output capacity.

Saudi Arabia sits on a quarter of the world's oil reserves and is seen as one of the principal sources of future supply growth. The IEA has forecast the kingdom may need to boost output to as much as 18 million bpd by 2030.

Targeting that kind of capacity boost would be unwarranted in the current price environment and may anyway be unsustainable, said Sadad Husseini, a former top executive at Saudi Arabian oil firm Saudi Aramco.

"I think the oil minister's comments introduce a certain realism to all these projections that wasn't there before," he said. "It's not that demand will go down, it's that it will level off at these higher
prices."

Soaring energy costs globally, as the industry strains to bring new capacity online, are making producers more cautious.

"Making such investments at a time when capital expenditure costs are at an all-time high entails a significant risk. The last thing we need is idle capacity," OPEC President and United Arab Emirates Oil Minister Mohammed al-Hamli said in Riyadh.

HIGH PRICES CURB DEMAND

High prices have slowed annual demand growth from the breakneck pace of 2004, when the world's thirst for oil grew more than 3 million bpd. Last year, annual growth was just over 750,000 bpd, according to the IEA.

As oil markets reeled from the 2004 growth, Saudi Arabia accelerated its plans to expand to the 2009 target to ensure it kept spare capacity of at least 1.5 million bpd to deal with any surprise global supply outages. Naimi said then that the kingdom could raise capacity further to 15 million bpd if needed.

Since then, as well as encouraging conservation and alternatives, high prices have allowed non-OPEC producers to begin drilling oilfields that were previously deemed too expensive, a process that continues to play out.

"We still haven't seen the full effect of the high price scenario on non-OPEC supply," said Husseini.

Saudi Arabia and other OPEC members late last year agreed to cut production by 1.7 million bpd to bolster prices. Even before then, the kingdom had reined in supply on slower demand for its oil.

According to a Reuters survey, Saudi Arabia was producing around 8.5 million bpd in April, down from around 9.45 million bpd in March 2006. With capacity of around 11.3 million bpd, it is already sitting on spare capacity of nearly 3 million bpd.

Should demand growth again begin to quicken, the kingdom could quickly install new capacity, the IEA said.

"We are not too concerned about our long-term numbers," said William Ramsay, the IEA's deputy executive director. "They can put in spare capacity very quickly if they want to."

Saudi King says he wants to Boost Production

The Associated Press
Apr. 14th, 2007

RIYADH : Saudi Arabia wants to increase its oil production so it can meet domestic and international demand while ensuring "fair" world prices, King Abdullah said. xXX Now pumping just over 11 million barrels a day, the kingdom is the world's largest oil producer and the biggest supplier of petroleum to the United States.

The king did not say Saturday how much Saudi Arabia might increase production, but it has repeatedly said it was prepared to do so. Last May, Oil Minister Ali al-Naimi spoke of raising output to 12.5 million barrels a day by 2009.

Abdullah said the kingdom was "seeking to increase its oil production capacity so that it can meet its commitments for national growth and the demands of the international economies."

He added that Saudi Arabia "is aware of its international responsibilities and is working to create fair prices to this resource that take into consideration the interests of the producer and the consumer."

OPEC has cut production twice in the past five months, contributing to relative stability that has kept benchmark crude between US$50 and US$60 a barrel — down from the record highs of above US$78 a barrel last summer, but still around 40 percent above 2004 levels.

Abdullah made his remarks in his annual address to the unelected Consultative Council, the closest thing Saudi Arabia has to a parliament. The king delivered only a summary of his speech Saturday, and the full text was distributed to journalists.

In the speech, Abdullah also warned that Iran's nuclear program had added another crisis to the region that needs to be contained, along with the sectarian conflicts in Iraq and Lebanon.

Saudi Arabia has recently embarked on an aggressive push to resolve the Middle East's most troubling issues, sending envoys to Iran, talking to Shiite and Sunni Iraqis and urging Lebanon's feuding leaders to negotiate.

Without naming Iran directly, Abdullah said Saudi diplomacy had been careful to deal with the "nuclear issue in a peaceful, rational and objective manner that seeks to avoid tense rhetoric" while seeking to keep the Middle East free of weapons of mass destruction.

"The issue of the nuclear crisis in the region has created a new burden in the region, adding to its consecutive crises," the king said.

The rising profile of Shiite-majority Iran worries Saudi Arabia, a predominantly Sunni kingdom ringed by neighbors with Shiite majorities — Kuwait, Iraq, Bahrain and Yemen.

Some Saudis also fear that if the international confrontation over Iran's nuclear program escalated into war, Tehran would retaliate against U.S. allies in the region — and Saudi Arabia's oil installations across the Persian Gulf are the biggest and most important target.

Any disruption in the kingdom's oil exports would seriously affect world supplies and cause prices to soar.

Aramco Manifa Field Project on Target

Saudi Aramco $10B Manifa Field Project on Target for Mid-2011

Apr 12, 2007 Dow Jones Newswires

DUBAI - Saudi Arabian Oil Co., the world's largest oil company by production, is on schedule with plans to develop the Manifa offshore oil field to produce 900,000 barrels a day of crude by mid-2011, the company has said.

Plans for the field development are "proceeding on schedule" to be completed in June 2011, the Manifa project management team said at a recent progress update meeting in London, according to a report posted on Aramco's Web site Wednesday.

The estimated $10 billion Manifa development program, Aramco's largest-ever offshore project, aims to add 900,000 barrels a day of Arabian Heavy crude and 65,000 barrels a day of condensate production.

The project will also process 90 million cubic feet a day of natural gas.

Persian Gulf oil producers are spending income generated from three years of high oil prices to expand and upgrade their crude oil production capacity to meet rising global demand, in particular from fast-growing Asian economies such as China and India.

Aramco to Cut Oil Supply to Asia

Saudi Aramco to Cut Oil Supply to Asia a 7th Month
By Nesa Subrahmaniyan

April 12 (Bloomberg) -- Saudi Aramco, the world's largest state oil company, will maintain a cut in crude oil supply to Asian refiners for a seventh month in May. xxx

Saudi Aramco will reduce mainly contracted supply of its Arab Heavy crude exports, said three refinery officials who received notices and asked not to be identified because of confidentiality agreements with the Dhahran, Saudi Arabia-based oil producer. The company has lowered shipments below contract levels since November.

The supply cuts are between 9 percent and 10 percent of contracted volumes, the officials said. Saudi Aramco is lowering exports to Asian refiners in April by an average 9 percent, and the cuts this month and in May are more than the 7 percent reduction in March shipments.

Saudi Aramco's export reduction is to comply with 1.7 million-barrel-a-day production cuts agreed last year by the Organization of Petroleum Exporting Countries.

Fredrik Robelius on Saudi Arabia

Fredrik Robelius – Giant Oil Fields

Many publications with forecasts of future oil production has a gap between future production and demand. A common solution to fill the gap is production from Saudi Arabia. There seem to have been a general consensus among forecasters on a more or less unlimited production capacity from Saudi Arabia, with production levels up to 20Mbpd (EIA, 2005, 2006; IEA, 2005).

Peculiar enough, this consensus has developed despite no such information fromneither Saudi Aramco nor Saudi Arabian officials. Permanent increases in production rates together with ever increasing reserves have simply been taken for granted. Indeed, the reserves of Saudi Arabia are large, the largest in the world. However, to refer to the discussion in chapter 5, the official Saudi Arabian proven reserve number is listed at around 260Gb and have been more or less unchanged the latest 16 years. This is despite a total production of 48Gb during the last 16 years. Moreover, new field discoveries during the same time amount to less than 10Gb (OFN,GF). Thus, a simple calculation reveal a proven reserve of around 220Gb. This number includes the debated increase from 170Gb to 258Gb in 1990. A look at the URR for the giant fields of Saudi Arabia reveals a number between 230 and 361Gb (GF). A majority of this difference can be found in the URR estimates of the largest fields: Ghawar, Safaniya, Berri, Shaybah, Abqaiq and Zuluf. Cumulative Saudi Arabian production excluding the neutral zone is some 103Gb. This leaves a volume between 127 and 258Gb left of the original URR. By assuming the URR to the 2P reserves, the higher number is consistent with the official number. The only difference being the official number is proven reserves instead of 2P.Moreover, assuming the top 25 per cent is probable reserves leaves the high end estimate of Saudi Arabia proven reserves at 194Gb and the low end at 95Gb. Still, the lower value is a very large reserve but undeniable much less than the official value of 260Gb. Unfortunately, as Simmons (2005) has argued, neither Saudi Aramco nor the official Saudi Arabian oil ministry has released any detailed field by field data to prove either the reserve estimate of 260Gb or 95Gb right.

As a response to Simmons work, two representatives from Saudi Aramco presented their view on the criticism on the Saudi reserve at a meeting inWashington D.C. The presentation by Baqi and Saleri (2004) showed for the first time since the early 1980s details on production from single fields. Furthermore, the presentation includes a forecast on future production from Saudi Arabia. The forecast shows two views, one of sustained production at a 10Mbpd level and the other at 12 Mbpd. Thus, far away from other forecasts of 20 Mbpd. Moreover, Dr S. I. Al-Husseini, retired executive from Saudi Aramco E & P, called the expectations of 20Mbpd production from Saudi Arabia unrealistic, instead he referred to future plateau levels of 10 and 12Mbpd (Mortished and Duncan, 2004; Al-Husseini, 2004).

pages 106-107 Fredrik Robelius – Giant Oil Fields

http://publications.uu.se/abstract.xsql?dbid=7625

Saudi King Condemns U.S. occupation of Iraq

From the New York Times:
RIYADH, March 28 — King Abdullah condemned the presence of American forces in Iraq as an “illegitimate foreign occupation” in a speech today, and said the withholding of aid to Palestinians should end.

The king’s speech, at the opening of the Arab League summit here, appeared to distance his country’s position from that of the United States. Saudi Arabia has been a powerful Arab ally to the United States in the Persian Gulf region.

The speech was wide-ranging, but in referring to the Palestinians and the conflict in Iraq he touched on two of the biggest issues in the Middle East. “In our dear Iraq, the blood is spilling between our brothers in light of an illegitimate foreign occupation,” he
said.

Amy Jaffe - - Rice University Study

Rise of National Oil Companies Crimping Long-Term Crude Supply

by John M. Biers
Dow Jones Newswires 3/1/2007

URL: http://www.rigzone.com/news/article.asp?a_id=42009

HOUSTON Mar. 01, 2007 (Dow Jones Newswires)
The rising dominance of national oil companies has relegated the Western oil majors to "second-tier status" and could have a "substantial long-term impact on resource development," according to a report to be released Thursday by researchers at Rice University.

The report, which notes national oil companies, or NOCs, now control more than 75% of global proved oil reserves, offers broad policy guidance to U.S. officials on navigating a global oil patch increasingly controlled by companies that view their socio-economic mission as equal to, or more important, than their commercial success. It will be released Thursday at a conference hosted by the James A. Baker Institute for Public Policy at Rice.

Although the report doesn't explicitly discuss prices, the rise of NOCs has been a "huge factor" in the price run-up of recent years, said Amy Myers Jaffe, a Rice fellow in energy studies who helped prepare the study. If leading NOCs don't adopt more commercially oriented measures, then "the path for prices is up," Jaffe added.

Crude currently trades in the $60-per-barrel range amid a multi-year bull run in energy commodities that began in 2004 and is expected to persist for at least a few more years. Analysts have generally attributed higher prices to several factors, including surging Asian energy demand, political instability in the Middle East and tepid production from a war-torn Iraq.

The Baker report suggests the rise of NOCs constitutes an important, if less obvious, factor in this trend. Companies like Venezuela's Petroleos de Venezuela, or PdVSA, have steered significant investment dollars away from oilfield development and toward social programs, while Iran's National Iranian Oil Co. could cease to be an oil exporter by 2011 because of costly fuel subsidies that encourage consumption, according to the report.

While these programs "admirably" benefit wider socio-economic objectives, they impact output, the report said. "These noncore, noncommercial obligations have imposed costs on NOCs, and in some cases, dilute the incentive to maximize profits," according to a summary of the report. "The result has been stagnation in capacity growth, and an inability to maintain or grow the countries oil production capacity."

The report broadly praises national oil companies such as Norway's Statoil ASA (STO) and Malaysia's Petronas that have moved to at least partially privatize and/or sell shares publicly, an approach with "empirically" demonstrable efficiency benefits. The report also praises global oil heavyweight Saudi Arabian Oil Co., or Saudi Aramco, for its dexterity to date in fulfilling non-commercial goals with its core oil functions, but notes that "questions remain" on whether the company can continue to "balance these conflicting goals as the call on its oil rises to new highs."

The road ahead is more complex for the U.S. and other importing nations, the report suggests. While the U.S. would probably prefer to see NOCs privatized, "it will have to accept NOCs as a fact of life but should encourage steps to make their activities more businesslike, transparent and - to the extent possible - free of onerous government interference," the report said.

Here is a link to the study. It comprises 17 sections in Adobe(PDF) form which can be downloaded. There is a lot of good material here.

http://www.rice.edu/energy/publications/nocs.html

Saudi Aramco paper (100 pages) :

http://www.rice.edu/energy/publications/docs/noc/Final%20PDFs/SaudiAramco_Jaffe-Elass.pdf

Vaclav Smil on Saudi Arabia and Peak Oil

http://www.tcsdaily.com/article.aspx?id=021307A

If one is to believe the catastrophic prophecies of Matthew Simmons, another prominent peak-oiler, this must be the stupidest business decision of the 21st century. Simmons claims that Saudis have falsified their oil reserve data so much that in reality they have only a fraction of the claimed oil left in the ground, and that their, and the world's, largest oilfield, al-Ghawar, has been so damaged by waterflooding (used for enhanced recovery of oil) that it faces imminent and massive extraction downturn. And yet Saudis will be investing nearly $50 billion between 2007 and 2011 to get this nonexistent oil to the global market. Perhaps they know something that Simmons is not aware of (these days it is, after all, de rigueur to say only bad things about Saudis).

Peak Oil, Saudi Arabia, Vaclav Smil, Matthew Simmons

Saudi Aramco Found More Oil Than It Produced in 2006

by Oliver Klaus
Feb 28, 2007

DUBAI - Saudi Arabian Oil Co., the world's largest oil company by production, discovered 3.6 billion barrels of crude oil reserves last year, 6% more than it produced, the Saudi Press Agency reported Wednesday.

Saudi Aramco also added 10.4 trillion cubic feet of natural gas to its reserves in 2006, more than expected, Chief Executive Abdullah Jumah said at the company's board meeting in Dhahran, according to SPA.

Saudi Arabia holds the world's largest oil reserves at 264.2 billion bbl and the world's fourth largest gas reserves at 243.6 trillion cubic feet, according to the BP Statistical Review 2006.

Aramco's installed oil production capacity increased to 10.7 million barrels a day by the end of 2006, SPA reported Jumah as saying.

The figure doesn't include oil production from the partitioned neutral zone shared between Saudi Arabia and Kuwait.

The capacity addition of 300,000 b/d came from the completion of Aramco's Haradh field increment last year.

Aramco also continues to carry out work on 52 projects, Jumah said, according to SPA.

© 2007 Dow Jones Newswires.

RockDoc123 on PeakOil.com

http://www.peakoil.com/fortopic10918-0-asc-615.html

This is a thread that has been running for over a year on Saudi production.

Econbrowser On Saudi Cuts of 1 million barrels per day

http://www.econbrowser.com/archives/2007/02/saudi_oil_produ_1.html

James D. Hamilton writes:

That price doesn't look to me like it's being stabilized by the Saudis or by anybody else. In particular, the cuts in Saudi production began in October 2005, when oil was selling for $62 a barrel, and those cuts continued as oil rose to a new high over $75 last summer.

For that matter, the Saudi production numbers themselves don't look to me like they're under the precise control of anybody. Up through the first half of 2005, the Saudis hit
9.5 mbd or 9.6 mbd month after month. I interpreted the stability of those numbers as signaling that the Saudis could hit any target they wanted, and they happened to be picking 9.5 or 9.6. By contrast, the erratic path since is much harder to view as the outcome of some careful manipulations.

Saudi Arabia Oil Production and Price Chart

Saudi 'Political' Agenda Aside, Oil Soars

by Masood Farivar
Feb 23, 2007

NEW YORK - So much for Saudi Arabia trying to squeeze Iran's economy by knocking down the price of crude oil.

For weeks, Washington has been abuzz with speculation that oil giant Saudi Arabia, in an effort to counter Iranian influence in the Middle East, has started to drive down the price of oil to deprive Tehran of badly needed revenue.

The seed of the theory was planted in a provocative opinion piece by a one-time consultant to the Saudi government, Nawaf Obaid, that appeared in November in the Washington Post. In it Obaid argued that Saudi Arabia could devastate the Iranian economy by boosting its crude production and cutting the price of oil in half.

With oil prices falling sharply in early January amid warm weather across much of the U.S., the mainstream press picked up on the idea, with the New York Times reporting that the oil kingdom had resolved to keep prices close to $50 a barrel and a prominent Times of London columnist calling the alleged effort part of a U.S.-led "economic pincer movement" to thwart Iran's hegemony in the Persian Gulf.

The reports caught the attention of Iranian President Mahmoud Ahmadinejad. After unveiling a draft budget last month and being forced by lawmakers to base it on $30 oil prices, he managed to put a political spin on it. "We assume our enemies want to damage us by decreasing the price of oil," Ahmadinejad said. "So we have reduced dependency on oil revenue."

But Saudi officials have denied any political agenda to drop the price of oil. To drive home their point, they even severed their ties to Obaid. If that's not enough for skeptics, consider recent Saudi actions and their consequences in the oil market: Thanks in no small measure to an aggressive Saudi effort to remove "excess supply" from the market, oil prices have climbed from a January low of less than $50 a barrel to a high of almost $62.00 a barrel on Friday.

"They're definitely not trying to drive prices lower," said Phil Flynn, an oil analyst at brokerage Alaron Trading Corp. in Chicago. "Whenever the Saudis speak, people look for a conspiracy. If the Saudis are trying to push down prices, they're going about it the wrong way."

Saudi officials have long called for "moderate" prices, although they have studiously avoided outlining a desired price level. But Saudi production policy decisions over the past year have aimed to keep prices somewhere around $60 a barrel. Last year, Saudi Arabia not only reduced its own output by about 800,000 barrels a day to 8.8 million barrels a day, but also engineered two agreements by OPEC to cut production by a total of 1.7 million barrels a day. The result: prices averaged $66 a barrel last year. OPEC's most recent output cut of 500,000 barrels a day, the bulk of which came from Saudi Arabia, went into effect Feb. 1 and contributed to the recent rebound in oil prices.

"These policy actions were clearly intended to put a floor under prices, not yank the rug out from beneath them," said Tim Evans, an energy analyst at Citigroup in New York.

Saudis Need Oil Revenue Too

As OPEC's de facto leader, Saudi Arabia is certainly in a position to influence oil prices and indeed uses that leverage every day. On the other hand, Iran, OPEC's second-largest producer, is in a shaky economic position even with high prices, struggling with high unemployment, spiraling inflation and a young and restive population heavily dependent on cheap government-subsidized gasoline. A plunge in oil prices could add to the country's economic malaise and destabilize it politically.

But Saudi Arabia is no less insulated from sharply lower oil prices. While clearly in better economic and financial shape than it was just a few years ago, the country remains just as dependent on oil revenues to support one of the world's fastest-growing populations with double-digit unemployment rates. And it is just as vulnerable to an extended period of lower prices, as underscored by the economic havoc brought about by the collapse of oil prices in the late 1990s. A $10 drop in the price of oil, for example, costs Saudi Arabia more than $30 billion in lost annual revenue (by contrast, Iran loses only $9 billion).

Even if Saudi Arabia wanted to, it is simply not in a position to engineer a price collapse by flooding the market the way it did in the mid-1980s. In 1985, faced with an eroding market share and falling revenue, Saudi Arabia decided to tap its 5 million barrels a day in spare capacity to boost its production by 40%. The result: prices plunged from nearly $32 a barrel to less than $10 a barrel within months.

Not The 1980s

Saudi Arabia's ability to drive down prices has since waned, thanks to a sharp decline in its spare production capacity. The EIA estimates Saudi Arabia's current unused capacity is just 1.7 million barrels a day to 2.2 million barrels a day, up nearly 800,000 barrels a day from a year ago. The kingdom plans to add another 500,000 barrels a day in capacity next year and to raise total capacity to 12.5 million barrels a day by 2009.

But with production on the rise to meet growing world demand, the kingdom's spare capacity is expected to remain around 2 million barrels a day, a fraction of the 86 million barrels a day in world oil consumption. What's more, half the spare production, defined as capacity that could be brought on line within 90 days, is of the hard-to-refine "heavy sour" variety, considered less desirable by many refineries.

"The 1980s were different from the present period because there was an oil glut and lower global demand," said Steve Yetiv, a political science professor at Old Dominion University in Norfolk, Va., and an expert on energy security. "With demand still high, it is much harder to flood the market. The Saudis, however, could try to affect the psychology of the market but that is a hard game to play."

Gulf Production during 1980's