Kate Mackenzie Saudi Arabia’s oil capacity and Copenhagen

Saudi Aramco has reached its target of increasing its oil production capacity to 12m barrels per day, which means it could produce record levels of oil. But it’s not going to, just yet anyway.

The 100,000 b/d expansion of the Nuayyim field and the 250,000 Shaybah expansion are already thought to have been completed, but Aramco’s chief executive Khlalid al Falih told the Saudi Newspaper Al Hayat that the 1.2m b/d expansion of Khurais had also been completed in June.

Saudi Arabia matters not just because it is the world’s biggest oil producer but because it is the key ‘swing producer’ – often contributing more than its share of Opec quota reductions.  But how significant might this capacity increase be for the debate over the future of fossil fuels?

There were several factors behind the big capacity increase – and claims that Saudi production had peaked certainly figured amongst them. As The National reports:

In 2007, amid predictions by “peak oil” theorists that Saudi output was about to decline, Aramco announced a bold plan to add more than 2 million bpd of new oil production capacity to bring the kingdom’s total capacity to 12.5 million bpd this year. The company said a further 2.5 million bpd of additions were possible next year and in 2011, potentially bringing output capacity to 15 million bpd.

Catherine Hunter at IHS Global Insight said the Saudi Arabian swing capacity was now ‘second to none, with a theoretical 4m b/d at its fingertips – essentially a “spare Iran”‘. But even with big limits on production, they may not have succeeded in allaying peak oil concerns: Hunter also notes that the new capacity may be used while Ghawar, the world’s biggest oil field, undergoes maintenance:

That leaves it well in excess of its planned spare capacity margin of 1.5-2 million b/d, albeit with the full 12 million b/d unlikely to be immediately available, given recent start-ups and with some workovers and maintenance work reportedly ongoing at older oilfields, including Ghawar, as the company takes advantage of the respite in demand.

Of course now, with oil prices well off their $147 high of a year ago and markets still extremely jittery over demand, those concerns are less evident. Hunter also notes that Aramco has low investment plans over the next five years as lower prices and weaker demand make further projects unlikely to pay off soon. However she also notes the wider goals behind the capacity increase: to boost Saudi Arabia’s credibility in both oil markets and diplomatic relations. This plays into the much broader issue of how fossil fuels are perceived:

While lower oil prices and increased availability have blurred some of the immediacy of that message, the point also has some resonance in the run-up to the planned talks in Copenhagen (Denmark) in December 2009 on a post-Kyoto settlement, where high and volatile oil markets—and a degree of producer intransigence—have previously acted as a de facto force in favour of low-carbon solutions, particularly on mandatory biofuels regulation.

Goals of reducing carbon emissions have long been boosted by energy security and price volatility concerns. Will Saudi Arabia’s revitalised capacity make fossil fuels weaken that convergence?

Related links:

What is happening to Saudi oil production as Khurais comes online? (FT Energy Source)