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MENAFN - Arab News - 17/02/2013

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(MENAFN - Arab News) The US Energy Information Administration (EIA) country report on Saudi Arabia reiterates the known facts about the Kingdom's oil industry and also highlights new issues. All these matters point to the challenges ahead for the Kingdom and the world oil industry.

The EIA report, released recently, highlights the central role played by the Kingdom in the industry given the fact that last year's figures show that it continued to be the largest producer of total petroleum liquids pumping 11.6 million barrels per day (bpd) on average of various liquids, holder of the biggest proven oil reserves and second largest crude oil exporter after Russia.

Though Saudi Arabia has managed to reach a production capacity of 12 million bpd back in 2009, the growing demand and the fact that it sits on 265 billion barrels of proven reserves, or some 20 percent of the world known reserves, gets the industry to focus on the Kingdom to raise its production capacity yet again to 15 million bpd.

The idea has been mooted during the Jeddah summit of 2008 at the height of tight market supplies then that led oil prices to reach their record level of 147 a barrel.

There is a possibility for raising production, given the fact that there are 100 major oil and gas fields, with production coming from eight big ones.
On the top of the list is the largest field, Ghawar, with an estimated reserves of 70 billion barrels that competes with the entire oil reserves of Russia, the world's leading oil exporter.

Exports averaged 7.5 million bpd last year, according to the report.
Though more than half, or 54 percent went to the Asian markets in particular, yet it was interesting to note that the US market continued to take a sizable portion of its foreign oil imports from the Kingdom.

During the first 10 months of last year, exports to the US market amounted to 1.4 million bpd in absolute figures against 1.2 million bpd for the whole previous year. This made up 16 percent of the total US foreign oil imports, second only to nearby Canada.

Equally significant were exports to China, the world's second largest oil consumer that stood at 1.1 million bpd and a similar amount to Japan, the third largest oil consumer, followed by South Korea of 0.8 million and India 0.7 million bpd.

The main concern here is to what extent the Kingdom can continue to meet world needs at the time its domestic consumption is rising at alarming rates.
According to the report, the domestic consumption is put at 3 million bpd, which puts it as the top consumer in the Middle East region and the 13th world largest consumer of total primary energy in the latest figure available back in 2009.

The EIA report quoted Khalid El-Falih, Saudi Aramco CEO, as warning that if current consumption trends are left unchecked, up to 3 million bpd of exports will be lost, as they will be redirected to the local market by the end of this decade. Part of the problem is the economic boom enjoyed by the Kingdom as well as the tendency to burn crude so as to generate electric power. This aspect becomes apparent during the summer where around one million bpd are consumed during this period for that purpose in particular.

In addition, there is the issue of beefing up the ration of light crude production from the current level of 60-70 percent at the expense of both the medium crude that account for some 25 percent of oil produced and a similar percentage for the heavy crudes.

In addition, there is the ongoing task of dealing with the natural declining ratio of field production, which officially is being put at between 2-3 percent, though some industry journals go for higher figures. Saudi Aramco is believed to have budgeted between 20 billion to 30 billion over the coming five years to tackle the issue of natural decline.

However, with the conclusion of the major upstream crude oil expansion, the focus turns toward the downstream side with a number of projects expected to come on-stream later this year starting with the Aramco-Total joint venture refinery with a 400,000 bpd capacity.

The same volume is expected from the Yanbu joint venture with the Chinese Sinopec as well as Jazan in the southern part of Saudi Arabia.

The Kingdom with a drive to refine as much as half of its production has already seven domestic refineries with a total thorough output of 2.1 million bpd and overseas joint ventures in a number of key markets that have a capacity of 2 million bpd.

In a nutshell, it seems as new challenges emerge domestically and internationally, the Kingdom's oil policies are well placed to take on these new developments.

This article is exclusive to Arab News.


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