KHOBAR, Saudi Arabia, (Reuters) – Saudi Aramco’s oil output capacity reached 12 million barrels per day in June when three new oilfield projects started, the al-Hayat newspaper reported Aramco’s chief executive as saying on Tuesday.
One of those projects was the 250,000 barrels per day (bpd) Shaybah oilfield expansion, Khalid al-Falih told the newspaper.
The company had not previously announced the start of output from the project, the last of an expansion plan to boost the country’s total capacity to 12.5 million bpd.
The capacity of the world’s top oil exporter is around 500,000 bpd higher than Aramco’s, as the shared Neutral Zone with Kuwait is not counted in the state company’s capacity.
“Production capacity of the company was 12 million barrels per day in June, when output started from three fields which are Nuayyim, Khurais and Shaybah,” the paper reported Falih as saying.
The kingdom had expected to be producing more than 10 million bpd of oil by the time it completed its crude capacity expansion plan, Falih said. That was nearly two million bpd above current output, which a Reuters survey estimated to be at around 8 million bpd in June.
But the economic slowdown has cut crude demand, leading the Organization of the Petroleum Exporting Countries (OPEC) to reduce output to match sliding consumption. OPEC pledged to cut output by 4.2 million bpd last year, around 5 percent of global supply.
Saudi Arabia, by far OPEC’s largest producer, shouldered most of the cuts, reducing output by over 1.5 million bpd from around 9.54 million bpd in August.
That has left it with around 4.5 million bpd in spare capacity, more than double the 1.5 million to 2 million bpd cushion it has the policy of keeping to meet any unexpected disruption in global supply.
Global oil demand would eventually return to growth, Falih said. Then, Saudi spare capacity would help stabilise the market, he added.
The kingdom had been worried about global investment in the energy sector when oil prices were around $30 to $40 a barrel, Falih said.
U.S. crude CLc1 has recovered to trade around $68.59 a barrel after falling to a low of $32.40 in December as demand slumped. The price is still nearly $80 off the high reached in July 2008 above $147 a barrel.
If the world failed to invest in the oil sector during this period of lower demand, then global output capacity would be reduced and could result in a rapid rise in oil prices in the future, the paper reported him as saying. That could cause a crisis in the wider economy, as well as in oil, he added.
The fall in crude demand has left Saudi with plenty of spare capacity and allowed the kingdom to concentrate on developing gas from fields not associated with oil output, Falih said.
Rigs that had been used for oil have been moved to gas operations, Falih said.
“We have a strong (capacity) surplus that has allowed us to reduce our operations in the oil producing sector and related drilling operations,” Falih said. “And this has allowed us to double our operations in the production of non-associated gas.”
The kingdom needed the gas to substitute for crude and fuel oil used in power plants to produce power, he added.
Decreased activity on oil has led to a fall in the number of rigs being used in the kingdom to 104 from 130, Falih said.
Aramco and joint venture partner Dow Chemical had agreed to spend $1.2 billion on engineering work for their Ras Tanura petrochemical plant. The cost of that plant has been estimated at over $20 billion and Dow’s would be the largest single foreign investment in the Saudi energy sector if the project goes ahead.
The two expected to take an investment decision on the project next year, Falih told the newspaper.
Aramco and ConocoPhillips were looking for ways to save on the cost of the 400,000 barrels per day export refinery the two plan to build together on the Saudi Red Sea coast at Yanbu, Falih said.
The companies have delayed a tender for construction contracts on the plant to exploit the slump in commodity and labour prices that came with the economic downturn.
The decline in oil product demand should reduce the number of projects globally to boost refinery capacity, Falih said.
Aramco and joint venture partner France’s Total saved $3.4 billion on a refinery they are building together on the Gulf coast at Jubail, Falih told the paper. The cost of that refinery came in at $9.6 billion, down from estimates as high as $13 billion, he said.