Saudi Arabia holds the key to global energy security. It plays an extremely significant role in balancing the overall demand and supply.
With many in the Western world continuing to be skeptical of the Saudi potential and capacity, at least in the longer run, eyes continue to remain focused on Riyadh.
And any move by Riyadh is viewed critically.
A Reuters report, citing Simmons & Co. analyst Bill Herbert, raised eyebrows last week when it said that Saudi Arabia is planning to boost the number of oil rigs in operation by almost 30 percent to 118 from a current level around 92.
The report said Saudi Aramco met leading oil service companies including Halliburton over the weekend to discuss plans to boost the rig count to 118. Simmons’ Herbert said Saudi Arabia wanted the rig count to rise quickly in the second half of 2011 and the first half of next year.
It was also suggested that Aramco might use some of the rigs for the $16 billion Manifa offshore heavy crude project, scheduled to start up by June 2013 at 500,000 bpd and to be ramped up to 900,000 bpd by 2024.
Oil service company Halliburton said late on Monday it would accelerate its activity at Manifa.
The Manifa project has been running one rig, but it originally targeted 10 rigs, according to analysts at Houston energy research firm Tudor Pickering Holt.
Halliburton won the offshore portion of the Manifa heavy-oil project in 2008 to provide directional drilling, cementing, logging and other services for 93 wells in the Gulf waters off the north-eastern portion of Saudi Arabia.
The Saudi move to increase the number of rigs came amidst increasing outage of the “sweet crude” from Libya.
And true to its role in balancing the global energy demand — supply equation, media reports now confirm that Riyadh has stepped in to fill in the gap.
Media reports indicate Aramco has sold three shipments of light, sweet crude for March and April delivery: Two to Austrian oil company OMV AG and one to the UK’s BP. Each order was for a Suezmax tanker, which can carry up to one million barrels of crude oil.
Until the uprising, Libya was exporting about 1.3 million barrels a day, mostly to European refiners.
However, the quality of the Libyan oil, made it difficult for them to replace it.
Aramco is reportedly offering Arab extra-light crude in the spot market, to compensate the Libyan loss.
That sort of oil previously had been available only through long-term contracts.
In fact, the reports also emphasize that in order to replace the sweet Libyan crude, and Aramco had to produce a new blend of superlight crude meet the urgent needs of the European refiners.
Arab extra light and the superlight blend versions are lighter than Libyan oil.
Running between 0.5 percent and 0.8 percent, their sulfur contents are low enough to be considered sweet, but are higher than certain Libyan oil blends, which have sulfur contents of 0.01 percent and 0.07 percent.
The report that rig activity in Saudi Arabia was to increase by around 30 percent generated quite an uproar. Eyebrows were raised.
Some questioned how quickly Riyadh could be able deliver that additional volume. At least one analyst interpreted it as an indication of limited supplies in the Riyadh’s armory of oil reserves.
Tudor Pickering said in a research note “either they have less dry powder (we believe less than three million barrels a day), or they are more concerned about longer-term regional unrest impacting supplies, or both.”
And while doubting the long term prospects of Saudi crude, Tudor Pickering asked in the note, “With Saudi producing 8.3 million barrels a day pre-Libyan disruptions, why would Saudi accelerate a heavy-oil development if they really had 4.2 million barrels per day of spare capacity?“
Simmons & Co. founder Matthew R. Simmons, until his death in August 2010, repeatedly questioned Saudi Arabia’s ability to boost and sustain higher production in the long term, citing geological constraints.
Other commentators have also doubted the extent of Saudi spare capacity and said it would be tested to the limit if protest movements across the Middle East caused further supply disruption.
“The real risk is that the remaining spare capacity cannot accommodate an escalation in disruption right now in our view,” Goldman Sachs wrote in a note dated March 7.
Earlier, at the onset of Libyan uprising, Goldman had commented that Libyan disruption could absorb as much as half of OPEC’s spare capacity.
The Saudi move needs to be seen with a different prism.
The move is not in desperation, as some want the world to believe, it is a move by the global central bank of oil, which is more than once in past has been expected to fill in the gaps in supply.
RBC Capital Markets analyst Kurt Hallead believes that Saudi Arabia is “looking to increase oil production capacity in an effort to offset lost production in Libya, create a larger spare capacity cushion and stem a spike in global oil prices.”
Another commentator contended that Saudi Arabia, rivaled only by Russia in terms of world oil production, was seeking to enlarge the amount of spare capacity it has and thus help blunt a potential further spike in global prices.
Before that crisis erupted, the Kingdom retained spare capacity of about four million bpd — three-quarters of a global surplus of about 5 million bpd.
However, the need to make up for the shortfall in Libyan crude has eroded that crucial margin.
The planned deployment of more rigs shows the Kingdom is trying to build up more spare capacity — a point noted by Herbert of Simmons & Co.
“Meeting Libya’s shortfall has got OPEC’s spare capacity down to uncomfortable levels, particularly on a one- to two-year forward view,” he added.
“The risk premium in the Middle East has risen. Also, with Libyan production falling, Saudi Arabia may feel it has to be ready for higher production capacity,” he added.
Low spare capacity has helped increase market volatility, many times in recent history.
In order to ensure stability, this needs to be avoided.
And who else can do it better than Riyadh?
The call on Saudi oil is rising and the move by Aramco needs to be seen in this perspective. One cannot help underlining this fact.
Source: http://arabnews.com
With many in the Western world continuing to be skeptical of the Saudi potential and capacity, at least in the longer run, eyes continue to remain focused on Riyadh.
And any move by Riyadh is viewed critically.
A Reuters report, citing Simmons & Co. analyst Bill Herbert, raised eyebrows last week when it said that Saudi Arabia is planning to boost the number of oil rigs in operation by almost 30 percent to 118 from a current level around 92.
The report said Saudi Aramco met leading oil service companies including Halliburton over the weekend to discuss plans to boost the rig count to 118. Simmons’ Herbert said Saudi Arabia wanted the rig count to rise quickly in the second half of 2011 and the first half of next year.
It was also suggested that Aramco might use some of the rigs for the $16 billion Manifa offshore heavy crude project, scheduled to start up by June 2013 at 500,000 bpd and to be ramped up to 900,000 bpd by 2024.
Oil service company Halliburton said late on Monday it would accelerate its activity at Manifa.
The Manifa project has been running one rig, but it originally targeted 10 rigs, according to analysts at Houston energy research firm Tudor Pickering Holt.
Halliburton won the offshore portion of the Manifa heavy-oil project in 2008 to provide directional drilling, cementing, logging and other services for 93 wells in the Gulf waters off the north-eastern portion of Saudi Arabia.
The Saudi move to increase the number of rigs came amidst increasing outage of the “sweet crude” from Libya.
And true to its role in balancing the global energy demand — supply equation, media reports now confirm that Riyadh has stepped in to fill in the gap.
Media reports indicate Aramco has sold three shipments of light, sweet crude for March and April delivery: Two to Austrian oil company OMV AG and one to the UK’s BP. Each order was for a Suezmax tanker, which can carry up to one million barrels of crude oil.
Until the uprising, Libya was exporting about 1.3 million barrels a day, mostly to European refiners.
However, the quality of the Libyan oil, made it difficult for them to replace it.
Aramco is reportedly offering Arab extra-light crude in the spot market, to compensate the Libyan loss.
That sort of oil previously had been available only through long-term contracts.
In fact, the reports also emphasize that in order to replace the sweet Libyan crude, and Aramco had to produce a new blend of superlight crude meet the urgent needs of the European refiners.
Arab extra light and the superlight blend versions are lighter than Libyan oil.
Running between 0.5 percent and 0.8 percent, their sulfur contents are low enough to be considered sweet, but are higher than certain Libyan oil blends, which have sulfur contents of 0.01 percent and 0.07 percent.
The report that rig activity in Saudi Arabia was to increase by around 30 percent generated quite an uproar. Eyebrows were raised.
Some questioned how quickly Riyadh could be able deliver that additional volume. At least one analyst interpreted it as an indication of limited supplies in the Riyadh’s armory of oil reserves.
Tudor Pickering said in a research note “either they have less dry powder (we believe less than three million barrels a day), or they are more concerned about longer-term regional unrest impacting supplies, or both.”
And while doubting the long term prospects of Saudi crude, Tudor Pickering asked in the note, “With Saudi producing 8.3 million barrels a day pre-Libyan disruptions, why would Saudi accelerate a heavy-oil development if they really had 4.2 million barrels per day of spare capacity?“
Simmons & Co. founder Matthew R. Simmons, until his death in August 2010, repeatedly questioned Saudi Arabia’s ability to boost and sustain higher production in the long term, citing geological constraints.
Other commentators have also doubted the extent of Saudi spare capacity and said it would be tested to the limit if protest movements across the Middle East caused further supply disruption.
“The real risk is that the remaining spare capacity cannot accommodate an escalation in disruption right now in our view,” Goldman Sachs wrote in a note dated March 7.
Earlier, at the onset of Libyan uprising, Goldman had commented that Libyan disruption could absorb as much as half of OPEC’s spare capacity.
The Saudi move needs to be seen with a different prism.
The move is not in desperation, as some want the world to believe, it is a move by the global central bank of oil, which is more than once in past has been expected to fill in the gaps in supply.
RBC Capital Markets analyst Kurt Hallead believes that Saudi Arabia is “looking to increase oil production capacity in an effort to offset lost production in Libya, create a larger spare capacity cushion and stem a spike in global oil prices.”
Another commentator contended that Saudi Arabia, rivaled only by Russia in terms of world oil production, was seeking to enlarge the amount of spare capacity it has and thus help blunt a potential further spike in global prices.
Before that crisis erupted, the Kingdom retained spare capacity of about four million bpd — three-quarters of a global surplus of about 5 million bpd.
However, the need to make up for the shortfall in Libyan crude has eroded that crucial margin.
The planned deployment of more rigs shows the Kingdom is trying to build up more spare capacity — a point noted by Herbert of Simmons & Co.
“Meeting Libya’s shortfall has got OPEC’s spare capacity down to uncomfortable levels, particularly on a one- to two-year forward view,” he added.
“The risk premium in the Middle East has risen. Also, with Libyan production falling, Saudi Arabia may feel it has to be ready for higher production capacity,” he added.
Low spare capacity has helped increase market volatility, many times in recent history.
In order to ensure stability, this needs to be avoided.
And who else can do it better than Riyadh?
The call on Saudi oil is rising and the move by Aramco needs to be seen in this perspective. One cannot help underlining this fact.
Source: http://arabnews.com
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