Business | Oil & Gas
Saudis idle oilfields amid weak demand
Saudi Aramco sees little chance of pumping crude from idle fields next year because a recovery in world demand has yet to begin, its chief executive officer said.
- Bloomberg
- Published: 23:06 September 22, 2009
Riyadh: Saudi Aramco sees little chance of pumping crude from idle fields next year because a recovery in world demand has yet to begin, its chief executive officer said.
Saudi Arabia has idled about four million barrels a day, or about one third of its crude-oil production capacity, according to the oil ministry. The Dhahran-based company, the biggest exporter of unrefined crude oil, is spending $90 billion (Dh331 billion) to develop new reserves and refineries over five years to 2012.
The world's most influential oil producer is leading Organisation of Petroleum Exporting Countries (Opec) members cutting a record 14 per cent of daily output, contributing to the 56 per cent rally in crude prices since December. Global demand for oil is expected to rise by 1.27 million barrels a day, or 1.5 per cent, next year, according to the International Energy Agency, not enough for Saudi Arabia to resume all of its idled fields.
"We're prepared for the long-haul," Saudi Aramco CEO Khalid Al Falih said in an interview on Monday in Jeddah, on the Red Sea coast of Saudi Arabia. "We have the excess capacity in case it's needed but we also have the ability to sustain ourselves with production levels similar to what we see today at prices similar to what we have seen so far."
Opec reduced output as prices fell below $40 a barrel in December from a record $147.27 in July 2008. Saudi Arabia curtailed a third of its 12.5 million barrels a day of production capacity and agreed to leave output quotas unchanged at Opec's September 9 meeting in Vienna as oil traded near $70.
"I don't expect a major shift in demand unless we see an acceleration of the economic recovery, which is not yet apparent," said Al Falih, who took over as Aramco president and CEO from Abdullah Juma in January.
As stockpiles grow, traders are paying more than ever in the options market to protect against a possible plunge in crude prices. Gasoil inventories near Europe's refining hub of Rotterdam reached a record 3.03 million tons on September 10, according to PJK International BV of Oosterhout, the Netherlands.
The gap between prices of options betting on a decline and those that would profit from a rise in New York oil widened to a record 10 percentage points, according to five years of data compiled by Banc of America Securities-Merrill Lynch.
Saudi Arabia is the world's largest exporter of crude oil. Russia is a bigger exporter than Saudi Arabia when exports of refined products are included as well.
This year, Aramco's output capacity reached 12 million barrels a day after it opened the 1.2 million barrel-a-day Khurais field, the 100,000 barrel-a-day Nuayyim field, and expanded Shaybah by 50 per cent to 750,000 barrels a day. Saudi Arabia produces another 500,000 from the Neutral Zone it shares with Kuwait.
Al Falih spoke at the King Abdullah University of Science and Technology, a new centre for postgraduate studies located 80 kilometres north of Jeddah. At Kaust, the kingdom's more conservative rules don't apply: women are taught alongside men, don't need to wear the obligatory black cloak and headscarf and are allowed to drive cars. Al Falih is a trustee of the university, which opened its doors to students this month and will have its official inauguration today.
Aramco is adding refining and petrochemicals plants.
Exporting refined oil products and plastic goods typically generates higher returns than shipping crude, and also creates domestic jobs, according to the company.
Its new, 400,000 barrel-a-day refinery with Paris-based Total SA in Jubail will start in the latter half of 2013 and a venture with Houston-based Conoco-Phillips in Yanbu on the Red Sea coast will start the year after.
Aramco will make a final investment decision with Midland, Michigan-based Dow Chemical Co on a refinery and petrochemical complex in Ras Tanura in "late 2010", Al Falih said. "We're proceeding with engineering, feasibility and licensing so it's going at a very fast rate."
The company also wants to bring in solar power technology from Japan's Showa Shell Sekiyu K.K.
Aramco and The Hague-based Royal Dutch Shell Plc are shareholders in Showa Shell.
"Solar power, yes," while "nuclear power, certainly for Saudi Aramco, is not on our radar screen," he said.
Aramco plans to accelerate solar power development with "a major concentrated project of 10 megawatts capacity that could be installed in Dhahran or some other location, I hope in the next two or three years".
Wasit project: Contract awardedSaudi Aramco, the world's largest state-owned oil company, awarded an engineering and design contract for the Wasit gas-field development project to SNC- Lavalin Group Inc of Canada.
SNC-Lavalin won a five-year service contract for front-end engineering and project management at Wasit, a venture aimed at processing as much as 2.5 billion standard cubic feet of natural gas a day, the Montreal-based company said in a statement late on Monday.
The Wasit project will process fuel from the Aribiyah and Hasbah offshore sour-gas fields, SNC-Lavalin said. Saudi Aramco also awarded an engineering contract to KBR Inc.
- Bloomberg
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