Top global oil exporter Saudi Arabia is set to use a record number of drilling rigs this year as it ramps up production, in the face of possible supply shortages due to Western sanctions on Iran.
With oil exports by Iran, Opec’s second largest producer under threat, Saudi Arabia is expected to have a record 140 oil and gas rigs by the end of the year, industry sources said.
“Aramco is following an ambitious programme to add rigs to accelerate field development in oil and gas,” said an industry source in Saudi Arabia.
State-run Saudi Aramco declined to comment.
The number of rigs operating in the world’s second largest oil producer after Russia is already back to levels seen in the early 2008 oil boom at around 130, up from 100 at the end of the third quarter last year.
Most are being used for oil drilling but others are probing for gas, being used for maintenance, or drilling for water needed to reinject into oilfields to boost production.
Last year, industry sources said that Aramco planned to raise the number of drilling rigs it operates to pre-financial crisis levels of up to 135 by the second quarter of 2012.
Many of the additional rigs will be allocated to Manifa, as Aramco expedited plans to bring the 900,000 bpd oil field on line in two phases from 2013.
Aramco sharply reduced its rig count from 130 to 104 as the global economic crisis hit demand in 2009.
Once Manifa is fully online by 2014, Aramco plans to boost production at offshore oilfields Safaniya, Zuluf, Marjan, and other onshore projects, Saudi industry sources said.
Aramco is already implementing a project to maintain maximum production capacity at its huge Safaniya offshore oilfield.
Plans to re-open the country’s first oilfield, Dammam, which could add an extra 40,000 bpd are still under study. Dammam still accounts for 0.5bn barrels of Aramco’s proven reserves, Aramco’s CEO Khalid al-Falih has said.
“The re-opening of Dammam is now under study and a decision is expected to be reached soon,” said an industry source in the kingdom. “For the time being Saudi has sufficient resources to bring online with ease.”
Oil Minister Ali al-Naimi said last week the kingdom had been meeting all its customers’ needs and was prepared to raise output from current levels of around 9.9mn bpd to full capacity of 12.5mn bpd, if needed.
But al-Naimi said he expected output next month to remain steady and that demand for Saudi crude was unlikely to ever reach Saudi Arabia’s existing 12.5mn bpd capacity because of rising production in other countries.
Aramco chief executive Khalid al-Falih said last November that plans to increase the kingdom’s production capacity to 15mn bpd had been put on hold because it already had enough spare capacity to meet expected demand.
“There is no doubt that Saudi Arabia is doing everything it can to increase its production for current and future demand,” said Kamel al-Harami, an independent Kuwaiti analyst.
“They want to be the world’s leader in oil production and are taking steps to ensure that they have this confidence from global buyers.”
Oil fields need to be repeatedly drilled to maintain healthy production levels.
‘Able to raise crude output’
The kingdom’s oil minister Ali Al Naimi stresses that Saudi Arabia maintained spare production capacity to meet any emergency shortage in supplies and to satisfy demand
SAUDI Arabian oil minister Ali Naimi says the kingdom can raise its crude oil production by 2 million barrels per day (mbpd) almost immediately and describes as “disturbing” Iranian threats that have roiled oil markets.
Iran’s Opec governor, Ali Khatibi, warned Arab oil producers against colluding with the West by agreeing to offset any gap in supply should Iranian crude oil be subjected to an embargo.
Naimi’s comments were the first reaction by a Saudi government official to recent rhetoric from Tehran, where some military commanders and politicians have threatened to shut the Strait of Hormuz oil route from the Gulf.
“Let me put it this way. I don’t think all these pronouncements are helpful to the international oil market or to the price of oil. It’s really disturbing,” Naimi says.
“I believe we can easily get to 11.4, 11.8 mbpd almost immediately, in a few days because all we need is to turn valves,” he says when asked how soon Saudi Arabia could turn up the taps in the event of a supply disruption. “To get to the next 700,000 or so, we probably need about 90 days.”
Saudi Arabia, the world’s leading oil exporter, has total oil production capacity of 12.5 mbpd. Its December output was 9.8 mbpd.
Naimi was responding to questions about fears of a supply gap should Iranian oil exports of 2.2 mbpd be interrupted as a result of tighter sanctions and a threatened EU oil embargo.
He stresses that Saudi Arabia maintained spare production capacity to meet any emergency shortage in supplies and to satisfy demand from its customers.
“This spare capacity is to respond to emergencies worldwide. To respond to a customer demand. That is really the focus. Our focus is not who drops out of production but who wants more,” Naimi says, referring to Saudi Arabia’s decision to raise output to make up for the loss of output in the US Gulf as a result of Hurricane Katrina in 2005.
The kingdom, the biggest crude oil exporter to China, was prepared to meet requests for additional supplies from China and other buyers, Naimi says.
“We know China’s overall demand fluctuates over the course of the year by between 400,000 and 500,000 bpd. But like prudent customers, they have diversified their supplies,” he says.
“So if we were asked to provide an additional 200,000 or 300,000 bpd, that’s not a big deal because you know we have the capacity to produce 12.5 mbpd,” Naimi says, adding that Saudi Arabia has been producing between 9.4 mbpd and 9.8 mbpd.
The US, which in December imposed sanctions against Iran’s Central Bank making it more difficult for Opec’s second biggest producer to receive payment for its crude oil exports, has urged Asian oil consumers China, Japan and South Korea to lessen their reliance on Iranian oil. Saudi Aramco and China’s biggest refiner Sinopec signed an agreement to build a 400,000 bpd oil refinery in Yanbu on the Red Sea Coast.
The signing ceremony coincided with a visit to Riyadh by Chinese Premier Wen Jiabao, who reportedly raised the issue of energy security with Saudi King Abdullah and other senior officials.
Asked whether Japanese and South Korean fears about the potential loss of Iranian oil were justified and whether Saudi Arabia would be able to meet any supply gap from Iran, Naimi replies: “Absolutely. As long as they are customers, we will honour their requests.”
Oil prices have been rattled by threats from some Iranian officials that they would block oil traffic through the Strait of Hormuz should their oil exports be targeted by sanctions.
Naimi says he did not think any closure of the strait would last long and CNN quoted him as saying that, while half of total Saudi oil exports are shipped through the Gulf waterway, Saudi Arabia had other alternatives.
“I personally do not believe that the strait, if it were shut, will be shut for any length of time. The world cannot stand for that,” Naimi says.
Naimi also he would like to see oil prices stabilised at around $100/b, explaining that he was referring to an average of Nymex crude, Brent and the Opec basket.
“Our wish and hope is that we can stabilise this oil price and keep it at a level around $100…for the average of the crudes worldwide. If we were able as producers and consumers to average $100, I think the world economy would be in better shape,” Naimi says.
With exports to the US already under an existing decades-old embargo, Iran is now facing the prospect of losing market share in Asia to rival producers, namely Opec kingpin Saudi Arabia with which its relations have been testy in the past year. Khatibi advises Arab oil producers to exercise wisdom, adding that a Western oil embargo would come only if the other Gulf producers provided assurances that they would raise their output.