Pity the Saudi oil field engineer and accountant: Just as the kingdom enters the final stages of its massive, complex, expensive development programme to boost its production capacity to 12.5m barrels a day, the economic crisis hits and oil demand tanks.
For Saudi Aramco, the kingdom’s national oil company, this means the majority of work and expenditure was done while oil prices and costs of equipment and labour were astronomical and the world was breathing down their sun-burned necks, shouting, “faster, faster.” Now many of the projects are ready to come on stream, the company’s engineers are being told to keep the taps closed because no-one wants the oil, and Saudi Arabia is adhering to Opec’s reduced quotas.
That might be an easier order to swallow – especially for accountants back at Saudi Aramco’s headquarters – when prices are at $32 a barrel (the low they hit in February) but has become more difficult as prices have recovered to $72 a barrel – right where the Saudis want them.
All this has made it even more difficult to figure out exactly what is going on at Saudi Arabia’s fields than it usually is. Even the International Energy Agency, the rich countries’ watchdog, admits it. The IEA notes in the monthly oil market report it published today:
Assessing Saudi crude oil production has been increasingly complicated by the varying percentage cuts in customer crude allocations among the major regions as well as by conflicting statements about actual production levels from government officials and high‐level executives.
Complicating the issue further is the rather surprising lack of data on start‐up at new fields given Aramco’s high‐profile, massive capacity expansion programme underway
In today’s report, the IEA revised Saudi Arabia’s March production up a hefty 400,000 b/d after Saudi Arabia submitted volume data to JODI – the new-ish initiative of oil suppliers and producers to be more transparent. The revision was made even though the numbers ran counter to what Saudi officials have been saying, the IEA notes rather undiplomatically.
So far the best guess is that Aramco is on target to start the 1.2m b/d Khurais development by the end of this month and that the start-up of 100,000 b/d Nuayyim field and he 250,000 Shaybah expansion has already happened.
But, if the past is anything of an indicator, all this is far from certain. The start up dates of Saudi Arabia’s developments last year were repeatedly delayed and when the fields came on line it was totally unclear at what rate they were pumping.
Last year, that uncertainty was a big part of the reason oil prices spiked to $147 a barrel in July. This year, the unreliable drip, drip of information is unlikely to have such a powerful effect as Opec holds plenty of spare capacity: about 4 million barrels a day. But even that number is difficult to verify because it depends in a big way on how many of Saudi Arabia’s new fields are ready and raring to go, but are being kept shut because the demand for their riches is just not there…yet.