Business Online - 24/9/2006

SAUDI Arabia, the world’s largest oil producer, is planning to boost future production capacity by 1.5m barrels a day to counter potential supply disruptions expected from Iran, Venezuela and Iraq. The Kingdom, which owns 25% of the world’s proven reserves, has previously said production capacity would be sustained at 12m barrels. But in a private briefing to investment bankers on Thursday, executives at Lehman Brothers in London were told by representatives of the Kingdom that the revised figure for production will be up to 13.5m barrels a day by 2011.

They were presented with an “updated assessment” document entitled Saudi Arabia’s Strategic Energy Initiative: Safeguarding Against Supply Disruptions which has been prompted by “regional conflict and high oil prices”.

The Saudi oil authorities, under Ali al-Naimi, are embarking on $30bn (E44bn, $56bn) of downstream expansion projects over the coming years and are talking to investment banks competing for the project finance work. Saudi oil advisers plan to meet executives from other banks this week.

The higher-than-expected oil capacity will come on stream from three oil fields: Munifa, with 900,000 extra barrels per day, and Shaybah and an unconfirmed third field contributing 300,000 extra barrels each. The increase in production has been prompted by geopolitical tensions. The briefing document, which has been seen by The Business, says: “In light of regional conflict and high oil prices, the Saudi leadership has recently issued a directive to decouple energy and foreign policy, and to remove all political considerations from oil production decisions.

“To increase production so as to mitigate against effects of major supply disruptions from four key exporters of concern: Iran: threats to use oil as a political weapon; possibility of war with US. Venezuela: Threats to use oil as political weapon. Nigeria: Continuing unrest. Iraq: Successful attacks against oil infrastructure and likelihood of civil war.”

New information contained in the briefing says that by June 2007 Saudi Arabia is expected to have enough spare capacity to offset all Iranian exports. By 2009/10 the goal is to satisfy global demand during a potential disruption from Iran and one of the three other major Opec exporters.