Promises of 'Spare' Saudi Oil Ring Hollow
August 11, 2004
Summary
Oil Minister Ali al-Naimi said Aug. 11 that Saudi Arabia stood ready to immediately use its 1.3 million barrels per day in spare capacity to alleviate high oil prices. Not likely. And whatever additional oil output Saudi Arabia is capable of would not be immediately available.
Analysis
In an interview with state-run Saudi Press Agency, Oil Minister Ali al-Naimi said his country had 1.3 million barrels per day (bpd) of spare oil production and stood ready to use it immediately to meet international demand for crude. International oil prices instantly fell back from recent record highs to levels that still would have set records two weeks ago.
Al-Naimi's comment is an effort to deflect pressure from oil-importing states demanding that Saudi Arabia increase supplies; what spare Saudi production there is cannot be brought on-line easily or quickly.
Saudi oil output is 9.5 million bpd. According to Saudi state oil company Saudi Aramco, it maintains another 1.0 million bpd of spare capacity, as opposed to al-Naimi's claim of 1.3 million bpd.
Stratfor does not mean to quibble about the potential existence of an extra 300,000 bpd. The issue is how fast Saudi Aramco can bring this extra crude on-line.
Al-Naimi says "immediately." Saudi Aramco disagrees. According to sources within the U.S. Department of Energy and Saudi Aramco, this extra production is at mothballed fields -- some of which are offshore in the Persian Gulf -- that would require about three months of work to bring back on-line.
Even that could be a bit optimistic. Much of the technical work necessary to reactivate these fields is carried out by Western expatriates working in the kingdom. These are the same expatriates that al Qaeda has been targeting -- and the Saudis have been doing a shoddy job of protecting -- for the past several months. Many expatriates have since left the kingdom, so Saudi Armco's actual operational capabilities -- particularly offshore production capabilities -- are a bit of a mystery.
The "fresh" production that Saudi Aramco is bringing on-line is coming from the Abu Safah and Qatif fields, which became operational Aug. 4. These two new fields will ultimately produce 800,000 bpd. Originally, Saudi Aramco planned to use Abu Safah and Qatif to replace older production sites, but with oil prices at more than $40 a barrel, it is far more likely to keep everything up and running. Saudi Aramco estimated it would take three months to bring the two fields completely on-line -- and that was before it started hemorrhaging expatriates.
In a CNBC interview at 4:45pm EST today, the Saudi spokesman admitted that their excess production capacity is sour heavy oil. |
