How Much Oil Can Saudis Really Pump? We're Set to Find Out

How Much Oil Can Saudis Really Pump? We're Set to Find Out
Does Saudi Arabia have the extra oil?

"Near-term spare capacity is effectively maxed out," Amrita Sen of consultant Energy Aspects Ltd. said, echoing a widely held view across the industry.

Spare capacity is a fluid concept. For some, it means extra output that can flow at the flick of a switch. Realistically, most industry executives define it as production that can be brought onstream in 30 days, and then sustained for a at least three months. Beyond that, some of the spare capacity is simply oil on the ground that can be pumped by drilling new wells, requiring more time.

Over the years, Saudi Arabia has been cagey about how much of its spare capacity falls in each bucket. But Ali Al-Naimi, who was oil minister for nearly 25 years until 2016, offered a glimpse in 2012.

"I believe we can easily get up to 11.4, 11.8, almost immediately in a few days," Naimi told CNN in 2012. "All we need is to turn valves," he added. The other 700,000 barrels a day to reach about 12.5 million requires three months of work, however. "And the 90 days is for one thing: to mobilize additional drilling," he said.

There’s one more complication: of the 12.5 million barrels a day, only 12 million is controlled directly by state-owned company Saudi Arabian Oil Co., or Aramco. The other 500,000 barrels a day lies in the so-called Neutral Zone shared with Kuwait. But the region hasn’t produced a single barrel for nearly two years due to a dispute between Kuwait and Riyadh.

Beyond production, Riyadh has another line of defense to meet a supply outage like Iran: a vast network of storage facilities, both in the kingdom and overseas, that can be drawn down temporarily.

Al-Falih said last week that "as the supply shortfalls were a concern" for customers, "we did make a determined effort to top up the storage that was not already full." As well as domestic storage, Saudi Arabia has filled up its strategic storage in Okinawa, Japan; Sidi Kerir in the Mediterranean coast of Egypt; and in the European oil hub of Rotterdam. 

Officially, Saudi Arabia declared stocks of 229 million barrels in July, the latest data available, down from a record high of 329 million in October. Yet again, as with the spare capacity data, the market also has its doubts. Antoine Halff, an executive at Kayrros, a company that uses satellite data to track storage, takes issue with the Saudi numbers.

"From the sky, we see 70 million barrels in storage," he said, out of the 125 million barrels that the kingdom can store in 231 tanks spread across with terminals and refineries. "We don’t see anything extraordinary either in Saudi overseas tanks."

The naysayers should be wary, however. The kingdom has been here before, and proved its doubters wrong: it tapped its spare capacity and pumped more than expected during the Iranian revolution in 1979, the Iran-Iraq war between 1980 and 1988 and during the first Gulf War in 1990-91. To a lesser extent, it also tapped its spare capacity during turmoil in Venezuela in 2003. 

Moreover, Riyadh is taking measures to reinforce its production machine, bringing onstream 300,000 barrels a day of new production from the Khurais oil field. The expansion was meant to compensate declines elsewhere, but over the short-term it could help to boost spare capacity.

Others within OPEC are also trying to help. The United Arab Emirates is bringing forward the expansion of the offshore Umm Lulu and SARB fields, which will pump 129,000 barrels a day by the end of the year, up from 50,000 barrels a day now. Iraq is bringing on stream the expansion of its Halfaya oilfield, doubling output to 400,000 barrels a day.

Yet, despite the efforts, the Saudis and OPEC face a huge challenge to replace Iran.

Pouyanne, the head of Total, puts it in simple terms: "You need to mobilize the wells, the rigs... It’s not immediate. In our industry, you don’t push a button and then oil flows. It’s more complex!"

With assistance from Grant Smith, Francine Lacqua and Julian Lee. To contact the reporter on this story: Javier Blas in London at jblas3@bloomberg.net. To contact the editors responsible for this story: Will Kennedy at wkennedy3@bloomberg.net James Herron, Alaric Nightingale.


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Leonard Andrew Harvey  |  October 01, 2018
Don't forget there are many other OPEC fields that are coming on line, not just Saudi!


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