SAUDI ARABIA - Part 2 - The Oil Production Profile & Fields.

Saudi production of crude oil and condensates/NGLs (the latter excluded from OPEC quotas) exceeds 9.6m b/d, with the crude oil output now averaging about 8.6 b/d. Since March 2003 state-owned Saudi Arabian Oil Co. (Saudi Aramco) has kept an installed capacity of 12.3m b/d for oil and condensates/NGLs - of which 11.3m b/d is for crude oil. The crude oil capacity will rise 500,000 b/d to 11.8m b/d in the fourth quarter of 2007 under a fast-track mega-project

Judging by Saudi Aramco's announcements in recent years, the planned capacity increase to 2009 will be 2.4m b/d for crude oil. This means a short-term capacity of more than 13.7m b/d for crude oil; but a part of this, involving sour crudes, will be mothballed for use when new refineries with advanced facilities to convert very heavy crudes into premium fuels have been built in the next decade.

Worldwide project costs in the petroleum sector from E&P to the downstream have risen more than three-fold since 2002. This has caused Saudi Aramco and potential partners in export refining JVs, ConocoPhillips and Total, to pause and reflect on the implications of the cost inflation for their projects. A 400,000 b/d refinery planned as a JV for ConocoPhillips and Saudi Aramco is now estimated to cost over $13 bn, while two years ago the budget was about $8 bn. The same is true in the case of a similar plant for Saudi Aramco and Total. If they decide to shelve these projects, supposed to convert very heavy Manifa crude, then plans to develop the offshore Manifa field will be affected (see gmt14SaudiFieldsOct1-07).

Because of the cost factor, Saudi Aramco delayed the fourth package on the onshore portion of its 900,000 b/d Manifa field by three months after a Sept. 10-11 meeting in London with contractors. Saudi Aramco only briefed contractors on the first three packages of the development. It opted to reissue the qualification notice for the fourth package before end-2007. Whether or not this package will be delayed further, or suspended, will depend on costs as well as the outcome of deliberations concerning the two refineries (see down14SaudiRefOct1-07).

To help reduce costs, Saudi Aramco has gone through various approaches, including use of new processes and buying huge quantities of steel pipes that would be needed in future. For example, Saudi Aramco now is using a device to measure the expansion or contraction of cement, which will have a concrete payoff. Science specialist Scott S. Jennings of EXPEC Advanced Research Centre designed such a device - the Cement Shrinkage and Expansion Tester - as a way to measure those effects. Saudi Aramco has also developed its own drilling processes (see omt13SaudiProspSep24-07).

Jennings was on Sept. 26 quoted as saying its device was so unique that it was patented by the US company and adopted by oil majors around the globe. A standard mix of Class G cement shrinks 2% after it sets. In wells where high pressure is a concern, expansion additives are used to reduce shrinkage during setting. The new device enables engineers to evaluate shrinkage or expansion as materials are heated to temperatures simulating well conditions.

Under US Patent 7,240,545 titled "Test Apparatus for Direct Measurement of Expansion and Shrinkage of Oil Well Cements", Jennings created an instrument to approve or reject certain cements for use in oil and gas wells. Jennings said his Cement Shrinkage and Expansion Tester was designed to fit into existing ultrasonic cement analyser cells. Cement slurry is poured into the cell and separated by a rubber diaphragm. Water serves as a cushion between a floating piston and the diaphragm. Piston movement indicates shrinkage or expansion. The instrument allows Saudi Aramco to ensure that selected materials are up to the task, saving money on costly repairs or shutdowns and promoting safer operations.

In September 2002, when market watchers began to worry that a US-led war in Iraq could cause a serious oil shortage, Saudi Aramco's CEO Abdullah Jum'ah told a conference his company could raise its 9m b/d output by 3m b/d "for immediate delivery". Also highlighting Saudi Arabia's supply flexibility, he then said his company could pump up to 5m b/d to the Red Sea terminals of Yanbu' and al-Mo'ajiz. But al-Mo'ajiz terminal and its pipeline from Iraq may be reclaimed by Baghdad, with USA being there (see Part 3).

Had it not been for the rapid rise in project costs, Saudi Aramco would have become the world's biggest export refiner by 2012. But already overseas oil refining and retail assets are considerable (see Part 4).

Because of its massive oil reserves, Saudi Aramco has always been able to produce large amounts of light oil, the most commercially attractive form of crude. However, with many of its fields ageing, it has had to start producing large amounts of heavier grades as it looks to increase production, and stem declines of up to 500,000 b/d. To do this, Saudi Aramco wants to increase production capacity to 12.5m b/d by 2009 and 15m b/d by 2015 as part of a $130-150 bn investment programme. A lot of this additional crude will come from the expansion of Arab Light-producing fields such as Khursaniyah and Khurais. Beyond that, however, the potential of an increase in Arab Light production from known deposits will be exhausted.

It will take up to 120 days to reactivate all of Saudi Aramco's mothballed capacity. But this involves heavy/sour crudes which are not popular on both sides of Suez. The lighter and sweeter grades - Arab Light (AL), Arab Extra Light (AEL) and Arab Super Light (ASL) - account for 78% of Saudi Aramco's current production of crude oil, including ASL which is a field condensate excluded from OPEC quota specifications (see breakdown of the capacity by crude type in Vol. 57, OMT 14).

The fields involved in the 2.4m b/d expansion are: Haradh-3, which in 2006 boosted AL capacity from 600,000 to 900,000 b/d; the Abu Hadriyah/Fadhili/Khursaniyah set, to boost AL capacity by 500,000 b/d, from 150,000 b/d of medium and sour grades, by the fourth quarter of 2007; Shaybah, to boost capacity by 300,000 to 800,000 b/d of AEL by 2008; Khurais, to boost capacity by 1.2m b/d of AL by 2009, up from about 150,000 b/d, and Nu'ayyim, to boost capacityh by 100,000 b/d of AL by 2009. This expansion follows a full commissioning of the Abu Sa'fa/Qatif oilfields' development was inaugurated in December 2004. This added an 800,000 b/d of oil production capacity (see gmt14SaudiFieldsOct1-07).

Saudi Aramco will increase its fleet of drilling rigs from about 70 to 110 by 2006 to boost its crude oil and gas production. It says on its website: "The increase is to meet plans to drill several hundred wells in the next several years, part of the ambitious expansion of the company's crude oil and gas programme. This is the most aggressive ramp-up of drilling activity in the history of the oil industry".

Addressing the World Petroleum Congress in Johannesburg, Petroleum and Mineral Resources Minister Ali al-Na'imi on Sept. 27, 2005, said Saudi Aramco's oil output capacity of 15m b/d could be reached before 2012. Na'imi then said Saudi oil reserves were conservatively estimated. Using state-of-the-art technology, he said, Saudi Aramco will "soon be able to boost our proved oil reserves by 200 bn barrels" to more than 464 bn barrels.