Saudi May Add 1.6 Mln B/D Oil Capacity After '09

DUBAI Oct 05, 2005 (Dow Jones Commodities News Select via Comtex)

Saudi Arabia could add another 1.6 million barrels a day of crude oil capacity after 2009 if the country's current plans to boost refinery capacity remain on track, a report to be published later Wednesday says.

The increase could raise the oil-producing heavyweight's capacity beyond the 12.5 million b/d it is currently planning to achieve by 2009, but Riyadh will only invest to produce this extra heavy crude if there is sufficient demand into the next decade, says the report by The Center for Strategic and International Studies, a Washington-based think-tank.

The plans are part of Saudi Arabia's adoption of a new dual strategy of boosting upstream crude oil production and downstream refining capacity in a bid to dampen overheating oil markets that won't process the last remaining barrels of crude oil available from the oil-rich kingdom.

"If Saudi plans are successful, these plans to expand its crude oil production capacity and its refining capacity will help ease the growing strains on world oil supply," write the report's authors, Nawaf Obaid, a CSIS adjunct fellow and a Saudi oil advisor, and Nathaniel Kern of Foreign Reports Inc., a Washington-based oil consultancy.

"Under some market conditions, they may do more...they (the plans) may be able to create enough spare capacity in both sectors to prevent the kind of price spikes that have hit energy markets during the past two years," they add.

U.S. President George W. Bush Tuesday called for a serious expansion of the nation's refining capacity to make more gasoline.

The report, entitled "Saudi Arabia's Upstream and Downstream Expansion Plans for the Next Decade," says the net increase in crude oil production capacity of 1.5 million b/d to 12.5 million b/d by 2009 will be accompanied by similar increases in Saudi-owned refining capacity aimed at processing heavy crudes.

State-owned Saudi Arabian Oil Co. (SOI.YY) and its international refinery partners are planning from 2009 to have an extra 2.02 million b/d of capacity specifically tailored for processing heavy crude into high-demand products such as gasoline and diesel.

The leading member of the Organization of Petroleum Exporting Countries, currently producing 9.6 millionb/d, today has spare capacity of 1.5 million b/d in heavy crude, largely from the offshore Safaniya field, but refineries tend to shun the grade as it is harder to convert into high-demand products such as gasoline.

Saudi oil minister said there were "no takers" for the 2 million b/d of spare capacity - mostly from the kingdom - that OPEC offered to global markets after its meeting last month in Vienna.

Other oil producers are also considering investing in new refinery capacity, hoping to meet emergency demand for products that triggered recent oil price spikes; Kuwait, Qatar and the United Arab Emirates are planning new refinery capacity.

Saudi Arabia, which currently refines 4.7% of the world's crude, is planning to raise refinery capacity by more than a third, from 3.9 million b/d this year to more than 6 million b/d, the report says.

The report says projects in the U.S., China and Saudi Arabia will add 1.365 million b/d of "high-conversion" capacity, which can process most grades into gasoline, diesel, heating oil and jet fuel. Work underway at Rabigh, Saudi Arabia, and Fujian, China, will also mean an additional 655,000 b/d of refining capacity.

This extra domestic and international refining capacity will allow Saudi Arabia to kick-start new crude oil capacity expansion plans.

Aramco, the report says, may from 2009 develop the Manifa oil field, providing an extra 1 million b/d of heavy crude production, if extra refinery capacity is in place by then. Two other projects could add another 600,000 b/d of heavy crude, the report says.

"These schemes are dependent upon the success of downstream projects to create more refining capacity as well as demand conditions in the global petroleum market after 2010," the report says.

Riyadh has already unveiled plans to raise sustainable capacity to around 12.5 million b/d from around 11 million b/d. Saudi's Naimi has said the country could raise capacity to 15 million b/d, if needed.

All the pre-2009 capacity additions will bring onstream the light, sweet crude that refineries prefer, the report says.

The report highlights 2.3 million b/d of new capacity scheduled to come onstream by 2009, 800,000 b/d of which is earmarked to replace natural declines in production from older fields.

Haradh will add 300,000 b/d in 2006; Abu Hadriya, Fadhili and Khuraniya will add 500,000 b/d from 2007, Khurais will add 1.2 million b/d from 2009, Shaybah will add an extra 300,000-400,000 b/d from 2008; and Nuayyim will add another 100,000 b/d by 2009.

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