World Energy Supply Capacity.

*** Saudi Aramco's $16 Bn Ras Tanura Integrated JV Awaits Proposals; Dow Chemical Is Still Negotiating A Partnership In This To Produce Premium Fuels & Petrochemicals

*** Saudi Gasoline Price Will Rise 25% In 2007; But Cheaper Motor Fuel Will Be Available

*** Riyadh Is To Boost Kingdom's Refining Capacity By More Than 1 Million B/D

*** Ibn Zahr Olefins Contract Has Been Re-Tendered

*** Energy Forum In Dammam Is To Feature Huge Projects And Gas Investments In E&P/Downstream

*** Kuwait Is To Have A Major Refinery In Louisiana In Partnership With A US Major

The following are continuing extracts from the Shammas presentation in OMT. "Nawaf Obaid, managing director of the Saudi National Security Assessment Project, said in a presentation given to a US federal energy...the kingdom planned to increase crude oil production capacity to as high as 13.5 million b/d by 2012. The first phase, increasing output to 12.5 million b/d - from current capacity of 11.3 million b/d - has been placed on an accelerated timeline, while the second phase "is currently in preparation". Mr. Obaid added: "The goal is to minimize supply disruptions caused by domestic instability in Iraq and Nigeria, or by the use of oil as a political weapon, such as Venezuela and Iran".

"Iran has warned the US that it will use its crude oil production as a political weapon if the US uses military force to resolve a dispute over the country's nuclear programme. So far US officials, who fear the country wants to develop nuclear weapons, have tried to resolve the issue diplomatically.

"'By June 2007, Saudi Arabia is expected to have enough spare capacity to offset all Iranian exports', Mr. Obaid said, adding: 'By 2009-2010, the goal is to satisfy global demand during a period of potential disruption from Iran and one of the three other major OPEC exporters, Venezuela, Nigeria or Iraq'.

"With the world's largest conventional, proven oil reserves and production capacity, Saudi Arabia has long been the de-facto leader of OPEC. As part of the accelerated near-term output increases, Mr. Obaid said the Khursaniyah field was expanding production to 500,000 b/d by June 2007 at a cost of $4 billion. The Shaybah field of sweet oil will increase 250,000 b/d to around 800,000 b/d by April or May 2008, nearly a year ahead of schedule, and by another 250,000 b/d by 2012.

"The Nuayyim field, currently offline, is expected to be on stream by February 2009, adding another 100,000 b/d. The Khoreis project, currently estimated to cost around $8-9 billion, will bring an additional 1.2 million b/d of output. Costs may increase, he added, because of the accelerated timetable.

"Beyond 2009, Mr. Obaid said three fields would be most likely to provide the boost in capacity, with two already approved: the Shaybah and Manifa fields. Shaybah could produce between 200,000 to 300,000 b/d more light crude by 2010 with an $800 million investment.

"The Neutral Zone upgrade, a $400m project to bring 300,000 b/d of heavy crude oil, is also seen online in 2010, with final approval expected soon. The $6-7 billion Manifa field development, which would produce 900,000 b/d of heavy crude oil, is expected to be on stream in 2011, two years earlier than Saudi Arabia had previously said.

"Besides its refinery expansion projects and other export expansion operations, Mr. Obaid said the kingdom was also considering building an additional pipeline that would terminate in the Red Sea port of Rabigh, allowing Saudi Arabia to switch most of its exports from the Persian Gulf to the Red Sea. That would give the country a strategic alternative route.

"In September, the US Government Accountability Office said the US's Strategic Petroleum Reserve (SPR) could help substantially offset several real-life supply disruption scenarios such as an Iranian oil embargo or terrorist attacks on strategic oil producer Saudi Arabia, although impacts of up to $800 billion were possible as oil prices rise in response.

"In its report, the IEA questioned if Russia, which provides about 25% of Europe's natural gas, was investing enough just to maintain current gas export levels in the future. There are doubts, for example, about whether investment in Russia's gas industry will be sufficient even to maintain current levels to Europe and to start exporting to Asia

"According to the IEA Brazil will remain self-sufficient in crude oil through 2030 after becoming so on a net basis in 2006. It said this would still depend on whether Brazil can bring in the necessary investment for its upstream oil sector, especially in the area of exploration, adding: "The share of imports in natural gas use drops, despite rapidly rising demand, on the assumption that the country's gas reserves are developed quickly enough. This will call for more private investment and a more effective regulatory framework".

"Brazil is Latin America's largest energy consumer, accounting for over 40% of the region's use. Its energy mix is dominated by oil and renewable energy sources, such as biofuel and hydropower.

"Using the reference scenario, the agency forecasts Brazilian crude oil production will reach 3.1 million barrels per day in 2015 and 3.7 million b/d in 2030. The IEA projects Brazil's primary energy demand will rise by 2.1% annually in the reference scenario, from 200 million tons of oil equivalent in 2004 to 352 million tons oe in 2030.

"In alternative fuels, Brazil is already the world's second-largest producer of ethanol mostly made from sugar cane and expanding its production and use of biodiesel from vegetable oils such as soy. IEA's reference scenario suggests Brazil's share of biofuels in road-transport fuel will climb from 14% in 2004 to 23% in 2030. In the alternative policy, the share is forecast to rise to 30%.

"The agency also forecast that as Brazil will continue to rely on hydropower for the majority of its power-generation needs, the country will install about 66 gigawatts of new capacity between 2004 and 2030 in the reference scenario. "Dams are likely to be located far from centres of demand, requiring large investments in transmission lines to connect them to the national grid", the IEA said.

"The agency estimates that the total investment needed to meet the projected growth in energy supply in the reference scenario at some $470 billion. "The power sector alone needs over $250 billion, half for generation and half for transmission and distribution", the IEA report said. "Cumulative upstream oil investment totals over $100 billion".

"It is interesting to point to a projection by Michael R Smith, head of the forecasting company Energyfiles, who says world oil liquids output will hit a plateau in the next five to 10 years and then permanently decline, while global gas production will keep on rising through to 2020 and beyond. He says even with high oil prices, offshore exploratory drilling in South East Asia, where the majority of exploration expenditure is directed, is not increasing substantially.

"Deep-water oil drilling is only growing modestly compared to several other parts of the world and shallow-water oil drilling is projected to begin to decline as good prospects are exhausted. Conversely, growth in gas activity is expected from all the gas producing countries in South East Asia.

"South East Asian oil production is expected to rise only modestly to a peak of around 3.2 million b/d in 2012 - at which time it will represent just 3.6% of global production - before beginning its permanent decline.

"Gas output has been increasing rapidly every year since 1980 and will continue to do so, reaching a peak between 2015 and 2020 at over 7% of global output.

"Global offshore investment of around $560 billion is forecast in capital expenditure for upstream activities over the next five-year period, of which around 10% will be required in South East Asia to pay for this growth. But the capital will only be forthcoming if governments, national oil companies and private oil and gas companies act together to create a stable and profitable environment, especially for gas distribution, including reducing oil vulnerability in the transport sector wherever possible.

"Smith says offshore gas still has considerable potential in Asia-Pacific related to the advent of new gas production and conversion technologies, the forced development of gas markets and pressures by all governments to eradicate wasteful flaring.

"In the right environment, Smith says, LNG projects and the beginnings of a gas-to-liquids industry should kick-start the development of stranded gas fields that have been lying fallow for years".