saudi export wane - running out of oil
nick...@googlemail.com
Author: Lianna Brinded
Source: Energy Risk | 27 Apr 2010
Saudi Arabia’s long-standing status as a swing producer of crude oil
could be drawing to a close according to the head of national oil
company Saudi Aramco.
Global oil exports from Saudi Arabia, the world's largest oil producer
alongside Russia, will start to wane in the coming years as domestic
demand surges and spare capacity drops, warned Khalid al-Falih, chief
executive officer of Saudi Aramco in a speech published on the
company's website.
Domestic energy demand is expected to increase by almost 250%, from
about 3.4 million barrels per day (b/d) in 2009 to about 8.3 million b/
d by 2028, which will eventually affect the country's ability to
export oil, he said.
"Along with China and India, we do expect Saudi Arabia to be one of
the largest sources of global oil demand," says Amrita Sen, oil
analyst at Barclays Capital. "And given Saudi's importance in the oil
market as the swing producer, in the longer term, this can impact
their ability to control the market at the margin. However, this is
unlikely to have a significant impact this year, given the substantial
spare capacity it is sitting on, though that buffer could get eroded
sooner rather than later in the coming few years."
Saudi Arabia maintains the world's largest crude oil production
capacity, estimated by the US Energy Information Administration (EIA)
to be around 11 million b/d, as of mid-year 2009. The country contains
approximately 264 billion barrels of proven oil reserves, including
2.5 billion barrels in the Saudi Kuwaiti shared Neutral Zone,
amounting to around one-fifth of proven, conventional world oil
reserves, says the Oil and Gas Journal.
If Saudi Arabia does not improve its energy efficiency, availability
of oil for export could fall by as much as 3 million b/d by 2028, al-
Fahih added.
However, opinion remains mixed as to whether global supply will be
affected, in the short or longer term. Although it is certain Middle
East energy consumption will grow, some think Saudi Arabia's exports
will reach a limit and start declining well before domestic
consumption will have such a pronounced effect.
"I think this is very long term and I doubt much will change in the
near future," says Andrey Kryuchenkov, analyst and strategist for the
commodities team at investment house VTB Capital. "I think they are
just talking their economy and oil prices up. The original statement
came from Saudi Aramco, which needs further investments to cope with
growing demand and need for extra capacity. The alleged capacity is
around 12.5 million b/d, but the more likely number is just below 12
million b/d at the moment. 2028 is a very, very far-fetched forecast,
as they are simply adjusting the current rate of change in
consumption."
VTB Capital says that, although Saudi Arabia knows it is running out
of oil, Saudi Aramco is already part of one of the most "remarkable"
developments of 2009, after admitting it has started exploration in
the Red Sea and not the Persian Gulf.
"Saudi Arabia is running out of oil and Ghawar field will exhaust
itself in the end," says Kryuchenkov. "It has been producing oil since
1948, which is unprecedented for any field and still accounts for
around 55–60% of exports. The decline will accelerate from here and I
think these are more immediate concerns than its consumption growing.
As a rule of thumb in the oil industry, Saudi Arabia is seen as the
following: a 5% decline in production and a 2% rise in consumption is
approximately 15% decline in net oil exports. However, this is not the
case just yet."
A quarterly oil price outlook feature will appear in the June issue of
Energy Risk. Separately, an in-depth article on China's oil outlook is
out now in the April issue of Energy Risk and online at www.energyrisk.com
or www.risk.net.