Saudi Arabia pledges to fill oil supply gap amid Libyan unrest

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Seeing is believing. That was the first that thought came to my mind when I visited the onshore Khurais oil field in Saudi Arabia's vast desert this week.

Located some 150 km (100 miles) southeast of the capital Riyadh, the Khurais oil field began pumping 1.2 million b/d in 2009, the largest single increment from any single oilfield in the kingdom's history.

As an energy correspondent visiting from Japan, which imports 1.1 million b/d of crude from Saudi Arabia, seeing a production facility that can alone meet 30% of my country's total imports is mind boggling. The Khurais field's production capacity alone is higher than the output capacities of several oil producing countries in Asia and elsewhere.

Saudi Aramco achieved production of 1.2 million b/d at Khurais a month after it was commissioned in May 2009 and was one of several mega projects designed to take the company's total production capacity to its current 12 million b/d.

The Khurais oil field currently produces around 1 million b/d of Arabian Light crude oil with a gravity of around 32 API, reflecting current demand patterns for lighter grades, Saudi Aramco officials said.

The Khurais field can sustain production at current levels for 30 years, they added.

Output capacity from Khurais could be taken up to between 1.4 million to 1.5 million b/d, should the need arise, by adding another production line to its existing 14 lines, they said, adding that water processing units and other infrastructure can accommodate this increase.

Saudi Arabia, which has total production capacity of 12.5 million b/d if output from the partitioned neutral zone with Kuwait is included, has some 4 million b/d of spare production capacity. Currently, Saudi Arabia's crude oil output is 8.4 million b/d.

The volume of spare capacity held by Saudi Arabia and a few other members of OPEC was the focus of discussions at an extraordinary meeting of the International Energy Forum held in Riyadh on February 22 amid fears that unrest in Libya might disrupt supply.

Saudi Arabian Oil Minister Ali Naimi told reporters after the oil producers and consumers forum ended that he did not expect the price spike of 2008 to be repeated and that recent market volatility was unlikely to last because current oil markets were well supplied, spare capacity was plentiful and there was no shortage of supply.

Naimi said that, in the event of a supply disruption, Saudi Arabia and OPEC would be ready to step in and use their spare capacity to balance markets. He put global spare capacity at 5 million to 6 million b/d.

"Let me emphasize that this is not is an extremely different situation from 2008," Naimi said of the year that saw oil prices soar to a record above $147/barrel, some $38/barrel shy of the current value of Brent crude oil futures.

OPEC insisted at the time that there was no shortage of oil and that the rocketing prices were due less to high demand than to excessive speculative activity.

But it is Saudi Arabia's ability to ramp up production quickly to meet any supply disruption that holds the key to oil market stability and this was reflected in remarks by several officials representing the interests of the world's major oil consuming nations.

The Executive Director of the consumer watchdog the International Energy Agency, Nobuo Tanaka, told Platts in an interview in Riyadh that he had been assured by both the OPEC secretary general and Naimi that any supply gap would be filled.

"There is ample spare capacity. We should not panic," Tanaka said, adding that OPEC members, particularly kingpin Saudi Arabia, were producing "more than they say."

With 260 billion barrels of crude oil reserves lying beneath the sands of this desert kingdom, Khurais is a vital component of the global oil supply chain.

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This entry was written by Takeo Kumagai and was published on February 24, 2011 2:30 PM ET.

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