Saudi Aramco Plans ‘Massive’ Spending to Extend Field Life

Photographer: SeongJoon Cho/Bloomberg

Saudi Arabian Oil Co. Chief Executive Officer Khalid Al-Falih. Close

Saudi Arabian Oil Co. Chief Executive Officer Khalid Al-Falih.

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Photographer: SeongJoon Cho/Bloomberg

Saudi Arabian Oil Co. Chief Executive Officer Khalid Al-Falih.

Saudi Arabia, the world’s largest crude exporter, is making “massive investments” as it seeks a production buffer to guard against swings in global oil prices while addressing a decline in output from its older fields.

Saudi Arabian Oil Co., the state-owned producer known as Saudi Aramco, plans to maintain spare output capacity of more than 2 million barrels a day, according to Chief Executive Officer Khalid Al-Falih. The Dhahran-based company raised its annual capital budget tenfold to $40 billion over the last decade and, in the past two years, has adjusted its daily production by more than 1.5 million barrels, he said.

“We are on track to increase the average of our conventional oil recoveries to 70 percent, which is more than double the current world average,” Al-Falih said at the World Energy Congress in Daegu, South Korea, today. “Resources are, in fact, abundant.”

Benchmark oil futures have rallied 11 percent in New York this year amid speculation Middle East unrest may disrupt shipments from a region that accounts for more than a third of global production. Saudi output increased to 10 million barrels a day last month, coinciding with a drop in supply from Libya, according to a Bloomberg survey of analysts and producers.

Global crude reserves, estimated at 1.6 trillion barrels, are equivalent to half a century of production at current rates, according to Al-Falih. Demand will rise by about 20 million barrels a day over the next two decades, he said. Daily consumption is forecast at 92.1 million barrels next year, the International Energy Agency said in an Oct. 11 report.

Spare Capacity

Saudi Arabia has the largest portion of spare capacity within the 12-member Organization of Petroleum Exporting Countries. Maintaining a cushion of unused production allows the desert kingdom to raise output to meet supply shortfalls and potentially limit price spikes.

“OPEC nations, and especially Saudi Arabia, will continue to meet all supply needs,” Ibrahim Al-Muhanna, senior adviser to the Minister of Petroleum and Mineral Resources, said today in a speech at the triennial conference. “Saudi Arabia will continue to be the supplier of last resort.”

At the same time, Saudi Arabia’s demand for natural gas risks exceeding supplies of the fuel it has available. The company started developing so-called unconventional gas resources two years ago and is ready to begin supplying a 1,000 megawatt power plant in the country’s north with fuel set to be produced through that program, Al-Falih said.

Manifa Deposit

Saudi Arabia, OPEC’s biggest producer, will maintain its output capacity at 12.5 million barrels through new fields including the offshore Manifa deposit, according to Al-Falih. Saudi Aramco also plans to add 550,000 barrels a day of capacity from the Shaybah and Khurais fields by 2017.

Manifa, which produces Arabian Heavy grade crude, and Shaybah and Khurais, which will supply lighter varieties, will help Aramco replace the oil that’s no longer being pumped from aging fields, he said yesterday.

“These are to basically allow us to relax production from the more mature fields and reservoirs and extend them, and also to rebalance our crude slates because with Manifa we’re tilting toward more heavy,” he said.

Light Crude

Shaybah will reach a capacity of 1 million barrels a day by the end of 2016 or early 2017, after adding 250,000 barrels of daily output capability, according to Al-Falih. The company will add 300,000 barrels a day of capacity at Khurais, bringing it to 1.5 million in 2017. Aramco is also adding output of 250,000 barrels of natural gas liquids at Shaybah in a project set to be complete by the end of 2014, he said.

Saudi Aramco will have more light crude for export once the new deposits start producing, Al-Falih said. The heavier output from Manifa is earmarked for new joint-venture refineries the company is developing in the coastal towns of Jubail and Yanbu.

A third oil refinery the company is building at Jazan will be completed by late 2016, Al-Falih said. The facility will produce products from light and medium crudes for export.

The company plans to build a 3,000 megawatt power plant at Jazan, he said. It awarded the contract for the supply of the turbines to Siemens AG in August. A residue gasification unit will be added at the refinery.

To contact the reporter on this story: Anthony DiPaola in Daegu at adipaola@bloomberg.net; Yuji Okada in Daegu at yokada6@bloomberg.net.

To contact the editor responsible for this story: Alexander Kwiatkowski at akwiatkowsk2@bloomberg.net

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