Jan. 3 (Bloomberg) -- Saudi Aramco, the world's largest state- owned oil company, delayed the start of production from its 500,000 barrel-a-day Khursaniyah oil-field project and said it will meet market demand with existing spare capacity.

``Saudi Aramco stands ready to meet market demands with ample spare capacity, including 1 million barrels of Arab Light crude,'' the company said in an e-mailed statement today.

Khursaniyah will commence ``upon completion of commissioning activities,'' Saudi Aramco said. The company didn't say when production would start, after it missed a December deadline.

The project, which will produce and process 500,000 barrels a day of Arabian Light crude and 300 million square cubic feet a day of natural gas, is part of Saudi Arabia plans to increase its output capacity to 12.5 million barrels a day by 2009 to help meet demand for oil. The program covers the onshore Abu Hadriya, Fadhili and Khursaniyah oil fields near the city of Jubail on Saudi Arabia's Persian Gulf coast and a gas plant.

Aramco is seeking to add 1.2 million barrels a day of Arabian Light from the Khurais field by 2009, according to its Web site. The Shaybah field, in the southeast desert known as the Empty Quarter, will produce 750,000 barrels a day by 2008 from 500,000 barrels a day. The Manifa project will add 900,000 barrels a day of heavy crude from fields in the Persian Gulf from mid-2011.

Large-Scale Projects

Saudi Arabia, like other Persian Gulf oil producers, is implementing large-scale energy projects to boost crude oil and refining capacity to meet rising demand. Projects in the Middle East face delays because of higher raw material and labor costs. Kuwait boosted its budget last year for the 615,000 barrels-a-day al-Zour refinery to $14.3 billion after international bids were double initial cost estimates.

PetroRabigh, a chemicals and refining complex being built by Saudi Aramco and Sumitomo Chemical Co., is expected to cost $9.8 billion from a 2004 estimate of $4.3 billion.

``The costs of raw materials, such as steel and cement, have increased,'' said Faisal Hasan, head of research at Kuwait-based Global Investment House. ``Salaries and wages are definitely rising for these projects.''

Saudi Aramco has so far completed work on Khursaniyah's water injection facilities in preparation for oil production, the company said today. Oil production wells, trunk lines and pipelines have also been drilled, it said.

To contact the reporter on this story: Glen Carey in Dubai at gcarey8@bloomberg.net

Last Updated: January 3, 2008 09:07 EST