The International Energy Agency, responding to statements by officials of Saudi Aramco, said it is “very important” that oil producers in the Middle East and North Africa (MENA) continue to invest in increasing their oil production capacity.
“In the next 10 years, more than 90% of the growth in global oil production needs to come from MENA countries,” said IEA Chief Economist Fatih Birol. “There are major risks if this investment doesn’t come in a timely manner,” he said. “Oil demand is set to increase.”
Birol’s comments came just days after Saudi Arabian Oil Co. Chief Executive Officer Khalid Al Falih told the Wall Street Journal that his country had no plans to increase oil production capacity to 15 million b/d, given the expansion plans of other producers such as Brazil and Iraq.
“There is no reason for Saudi Aramco to pursue 15 million b/d [of output capacity],” said Al-Falih, whose remarks ended speculation that arose in 2008 when Saudi Arabia’s Oil Minister Ali I. Al-Naimi said his country could boost its capacity by another 2.5 million b/d to 15 million b/d.
In the 1970s, Saudi Arabia considered an increase in capacity to 20 million b/d, but dropped the idea due to US support of Israel against Palestine. The 20 million b/d output figure was reduced to 16 million b/d before being dropped altogether in 1978.
“Our objective is not to grow our production for the sake of growing our production but to be there for the market if the market needs it, and we are waiting to see what happens on the supply side as well as how demand stabilizes,” Al-Falih said.
“It is difficult to see [an increase in capacity] because there are too many variables happening,” Al-Falih said. “You’ve got too many announcements about massive capacity expansions coming out of countries like Brazil, coming out of countries like Iraq. The market demand is addressed by others.”
Saudi Arabia ‘comfortable’
Analyst Andrew Neff of consultant IHS Global Insight said Al-Falih's comments suggest that Saudi Arabia is “comfortable” with its current level of spare capacity.
“In fact, there is growing concern that Saudi Arabia may have to take more oil off the market rather than put more on, as global oil prices have weakened in recent weeks over fears of a new global recession in the midst of the ongoing Euro-zone debt crisis,” Neff said.
Meanwhile, Al-Naimi recently said the kingdom produced 9.39 million b/d in September, down from 9.8 million b/d in August. He gave no reason for the decline but oil prices fell by more than 10% last month due to worsening economic conditions along with the resumption of exports from Libya.
“There is still a continuous demand for Saudi oil,” Al-Naimi told local media, adding that he “doesn't expect a decline in global oil demand or a drop in the Kingdom's output despite current global economic conditions.”
Aramco and Dow Chemical Co. this week signed a joint-venture agreement to build one of the world’s largest chemicals plants in the kingdom’s Eastern Province at a cost of $20 billion. They announced the plan earlier this year (OGJ Online, July 26, 2011).
The Sadara project is Aramco’s second major investment in a large-scale petrochemical complex in the country after its Petro Rabigh JV with Sumitomo Chemical Co.
Aramco and Sumitomo Chemical Co., following an earlier memorandum of understanding, selected JGC Corp. as the project management services contractor to conduct a planned feasibility study for the development of the Rabigh Phase II Project (OGJ Online, June 24, 2009).
Contact Eric Watkins at firstname.lastname@example.org.