MANAMA, May 25 (Reuters) - Saudi Arabia’s Khursaniyah oilfield expansion project is not yet pumping, but large parts of its 500,000 barrels per day capacity are ready, an official at state oil giant Saudi Aramco said on Sunday.
The world’s top oil exporter had planned to bring Khursaniyah online in December. The expansion is the largest single boost to global oil capacity for several years.
But delays in construction of a plant to process gas produced at the oilfield have prevented the start up, Khalid al-Falih, Aramco’s executive vice president of operations, told Reuters.
“The gas plant is a major delay. It’s really a disappointment,” Falih said. “All of it will be ready in a few months.”
Aramco could bring on most of Khursaniyah’s capacity if needed, Falih said. But gas would have to be burnt off, which Aramco wanted to avoid, he added.
The field produces light crude, and Falih said Aramco had seen little increased demand for that type of oil from its customers. Most recent demand growth was for medium and heavy grades, he added.
Saudi Arabia boosted crude output of 300,000 bpd earlier this month and is targeting total output of 9.45 million bpd in June. That increment came from several fields including Ghawar and Safaniyah, Falih said.
The Khurais oilfield project to expand output by 1.2 million bpd would be completed in June and output would start in July next year, he said. Drilling there was ahead of schedule, he added.
Saudi Arabia is on track to boost output capacity to 12.5 million bpd by the end of 2009, but sees no need to go any further for now, Falih reiterated.
The kingdom will have spare oil capacity of more than 2 million bpd next year, he said. Saudi Arabia is the holder of most of the world’s spare crude capacity and has a long-held policy of keeping that cushion at 1.5 million bpd to 2.0 million bpd to meet any surprise disruption in global supplies.
“The way we look at the market now, next year we are going to have well in excess of 2 million barrels of spare capacity,” Falih said. “So unless we see a major pick up in demand in the years to come, we don’t see a need to think other than to offset decline.”
When demand eats into the supply cushion, Saudi will boost capacity again as it did when Chinese demand surged in 2004, Falih said.
There was uncertainty about how both supply and demand will react to record pries, he added. U.S. crude CLc1 hit a record above $135 a barrel last week and high prices have cut demand in industrialised countries.
Shaybah, Safaniyah, Berri, and Khurais oilfields could all provide more capacity, he added.
“We have a number of increments that we have prepared but we will not disclose them, we will not execute them unless we see the market,” he said.
Concern that long-term oil supply will struggle to keep up with demand has added momentum to the price rise. Saudi reluctance to announce any more expansion plans has played into fears that global oil output may be at or near its peak.
“They (peak oil theorists) can say what they want to say,” said Falih. “But nobody else is putting money in at these costs to have 2 million barrels of spare capacity. We don’t talk. We let our actions do the talking for us. If demand for our oil eats up into our 1.5-2.0 million bpd capacity, we will again answer with our actions.”
Editing by Leslie Gevirtz