Saudi Accelerated Oil Plan May Offset Supply Crises

WASHINGTON, Nov 9, 2006 (Dow Jones Newswires)

Saudi Arabia has accelerated its near-term production expansion plans and may add up to an additional 1.5 million barrels a day in crude output in 2010-2011 to mitigate potential supply disruptions and meet growing global demand according to a new report published by a Riyadh-based government consultancy.

Nawaf Obaid, managing director of the Saudi National Security Assessment Project, said in a presentation given to U.S. federal energy, policy and security agencies that the kingdom plans to increase output capacity to as high as 13.5 million b/d by 2012.

The first phase, increasing production to 12.5 million b/d from current capacity of 11.3 million b/d, has been placed on an accelerated timeline, while the second phase "is currently in preparation," Obaid said.

"The goal is to minimize supply disruptions caused by domestic instability in Iraq and Nigeria, or by the use of oil as a political weapon, such as Venezuela and Iran," he said.

Iran has warned the U.S. that it will use its crude production as a political weapon if the U.S. uses military force to resolve a dispute over the country's nuclear program. So far U.S. officials, who fear the country wants to develop nuclear weapons, have tried to resolve the issue diplomatically.

"By June 2007, Saudi Arabia is expected to have enough spare capacity to offset all Iranian exports," Obaid said. "By 2009-2010, the goal is to satisfy global demand during a period of potential disruption from Iran and one of the three other major OPEC exporters, Venezuela, Nigeria or Iraq," he said.

With the world's largest conventional, proven oil reserves and production capacity, Saudi Arabia has long been the de-facto leader of the Organization of Petroleum Exporting Countries.

As part of the accelerated near-term output increases, Obaid said the Khursaniyah field is seen expanding production to 500,000 b/d by June 2007 at a cost of $4 billion. The Shaybah field will increase 250,000 b/d to around 800,000 b/d by April or May 2008, nearly a year ahead of schedule. The Nuayyim field, currently offline, is expected online by February 2009, adding another 100,000 b/d. The Khoreis project - currently estimated to cost around $8-9 billion - will bring an additional 1.2 million b/d of output. Costs may increase, he added, because of the accelerated timetable.

Beyond 2009, Obaid said three fields would be most likely to provide the boost in capacity, with two already approved: the Shaybah and Munifa fields. Shaybah could produce between 200,000 to 300,000 b/d more light crude by 2010 with an $800 million investment. The Neutral Zone upgrade, a $400 million project to bring 300,000 b/d of heavy crude, is also seen online in 2010, with final approval expected soon. The $6-7 billion Munifa field development, which would produce 900,000 b/d of heavy crude, is seen online in 2011, two years earlier than Saudi Arabia has previously said.

Besides its refinery expansion projects and other export expansion operations, Obaid said the kingdom was also considering building an additional pipeline that would terminate in the port of Rabigh, allowing Saudi Arabia to switch most of its exports from the Persian Gulf to the Red Sea. That would give the country a strategic alternative route.

In September, the U.S. Government Accountability Office said the U.S.'s Strategic Petroleum Reserve could help substantially offset several real-life supply disruption scenarios such as an Iranian oil embargo or terrorist attacks on strategic oil producer Saudi Arabia, although impacts of up to $800 billion were possible as oil prices rise in response.

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