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Mideast Oil Producers Seek Heavy Crude Output Boost: Week Ahead

May 30 (Bloomberg) -- Middle East oil producers and international companies will meet this week to discuss how to tap heavy crude, a thicker form of the commodity that’s harder to refine, to boost output capacity even as prices fall.

Executives from the national oil companies of Bahrain, Kuwait and Saudi Arabia and from Total SA and Chevron Corp. are set to discuss projects and technology at the two-day Heavy Oil World MENA 2010 conference in Bahrain starting tomorrow.

Saudi Arabia, the largest OPEC producer, aims to develop heavy crude at deposits such as Manifa and is planning refineries to process the oil. Kuwait, seeking to boost production capacity 50 percent to 4 million barrels a day by 2020, is in talks with companies such as Exxon Mobil Corp. and Total SA about developing the resources. Heavy oil, which takes more work to extract and yields less valuable refined products than easier flowing light oil, can cost more to produce, depending on the location and technology needed to pump it.

“As production is maturing at older fields, that’s where future capacity lies,” Samuel Ciszuk, an energy analyst at IHS Global Insight in London, said of heavy oil. “It’s less valuable crude, and it’s more difficult to produce.”

Crude oil slumped this month after prices gained almost 9 percent in the first four months of this year on growing confidence the global economic recovery would stimulate fuel demand. Crude closed at $73.97 a barrel May 28, down 6.8 percent for the year. It dipped eight times this month below $70 a barrel, the minimum price Organization of Petroleum Exporting Countries members have said is needed for investment.

OPEC Price Range

Prices between $70 and $80 a barrel are “almost perfect” and may promote investment to increase energy supplies to meet global demand, Saudi Arabia’s Oil Minister Ali al-Naimi said in January. Kuwait’s Oil Minister Sheikh Ahmad Al-Abdullah Al-Ahmad Al-Sabah said last month that crude trading in a range of $75 to $85 a barrel was “acceptable” and spurs investment.

The International Energy Agency this month cut its estimate for the amount of oil OPEC will need to pump in 2010 on a weaker demand outlook and as supply from outside the group rises.

Lower crude prices and slack demand abroad are unlikely to reduce the need among Persian Gulf countries to continue to raise production capacity and seek new sources, IHS’ Ciszuk said. Domestic demand is rising, creating a need for more crude that can be refined and used at home, he said.

Chevron Pilot Project

Chevron, the U.S.’s second-largest oil company, has been conducting a pilot project for about a year in which it is pumping steam into the Wafra oil deposit shared by Saudi Arabia and Kuwait to force more crude out. The partners aim to use new technologies to maintain Wafra’s output at about 250,000 barrels a day, and full operation using the technology at the field could start by 2017.

Aramco is developing two 400,000 barrel-a-day refineries to process heavy crude at Jubail and Yanbu. ConocoPhillips, the third-largest U.S. oil company, last month said it was pulling out of Yanbu. Aramco is also developing a third facility at Jizan in the country’s south after the government didn’t accept bids by foreign companies.

Processing the heavy crude grades at home will leave Saudi Arabia more of its more valuable light crude to sell. Aramco this month raised prices on its light crudes for June shipments to the U.S. and Asia and cut the price for heavy oil to the U.S.

To contact the reporter on this story: Anthony DiPaola in Bahrain at adipaola@bloomberg.net.

To contact the editor responsible for this story: Stephen Voss on sev@bloomberg.net

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