Dubai: A rare public dispute over oil policy in Saudi Arabia emerged on Tuesday as the kingdom’s oil minister and a senior member of its royal family disagreed over long-term production targets for the world’s largest crude exporter.
The Middle Eastern kingdom, which produces around 10 per cent of the world’s oil, needs to increase its crude production capacity by a fifth to 15 million barrels a day by 2020 in order to meet rising domestic consumption and maintain its current export capacity, said Prince Turki Al Faisal, a former intelligence chief and ambassador for the kingdom.
The comments from the prince, who has no formal government position but is a prominent member of the kingdom’s royal family, were contradicted by Saudi Oil Minister, Ali Al Naimi. There is currently no need to increase crude production capacity beyond 12.5 million barrels a day, Naimi said.
Saudi Arabia currently produces around 9 million barrels a day of oil, leaving 3.5 million barrels a day as spare capacity.
The level of Saudi Arabia’s spare capacity is closely watched by oil markets. Two of the strongest periods of oil price increases-from 2003 to 2005 and 2007 to 2008-coincided with Opec spare production capacity, most of which is in Saudi Arabia, falling to historic lows.
“Saudi Arabia’s national production management scheme is set to increase total capacity to 15 million barrels per day and have an export potential of 10 [million] barrels per day by 2020,” Prince Faisal, a former Saudi ambassador to the US and UK said in a speech at the Belfer Centre for Science and International Affairs of Harvard University. The speech was delivered last week and posted on the centre’s website late Monday.
The prince clarified his position in an email on Tuesday. “Saudi consumption may reach five million barrels of oil by then , hence the production capacity of fifteen million barrels,” is required to maintain country’s export potential, he said.
Saudi Arabia would be lucky to go past production of 9 million barrels a day by 2020 and, “we don’t see anything like 15 million barrels a day before 2030, 2040,” said Naimi in an appearance at the Centre for Strategic and International Studies in Washington DC Tuesday.
Any decision to increase capacity would be taken by Saudi Arabia’s oil ministry, which directs Aramco, or the kingdom’s Supreme Petroleum Council, which is chaired by the king.
Prince Faisal’s comments also run counter to the official position of the state-controlled Saudi Arabian Oil Co., also known as Aramco. Aramco declined to comment Tuesday, but its top executive has previously ruled out increasing capacity to 15 million barrels a day despite acknowledging that domestic use of crude would rise and thus limit exports.
Aramco’s Chief Executive Khalid Al Falih ruled out increasing Saudi production capacity to 15 million barrels a day in 2011, despite acknowledging that domestic use of crude would rise and thus limit exports, because he said expansion plans in other producing countries such as Iraq and Brazil should be enough to satisfy world markets.
Before 2011 Saudi Arabia had planned to increase oil production capacity to 15 million barrels a day.
Some economists predict that if Saudi Arabia’s current energy-consumption growth rate of 7 per cent a year continues unabated, within 20 years the kingdom will burn more than eight million barrels a day domestically, or around two-thirds of its current production capacity of 12.5 million barrels a day.
Saudi Arabia last year consumed around 3 million barrels per day of oil, according to the US Energy Information Administration, almost double its 2000 level and putting it on track to use more than 5 million barrels a day if a 7 per cent annual growth rate were to continue.
Aramco’s Al Falih acknowledged in 2011 that, if left unchecked, domestic energy consumption would rise to 8.2 million barrels of oil a day by 2030.
If Saudi Arabia were to raise its oil production capacity to 15 million barrels a day, it would have enough of a supply buffer to instantly replace all of the production of Iraq, the second-largest member of the Organization of the Petroleum Exporting Countries, Prince Faisal said.
Iraq’s oil exports should rise to 3.4 million barrels a day in 2014, said the country’s oil minister Abdul Kareem Luaiby on Tuesday.
Investment of over $100 billion in oil infrastructure will enable to kingdom to remain for many more decades the major supplier of energy to the world, Prince Faisal said.
Saudi Arabia, which is currently producing about 9 million barrels a day of oil, is the only exporter in the world that can offset major supply disruptions at short notice. It did so in 2011 after the civil war in Libya took more than 1.5 million barrels a day of oil off the market, and in 1990 after the suspension of Kuwaiti output during the Iraqi invasion.