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Fri 30 Mar 2012 04:44 PM

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Saudi Arabia forecast to pump oil at record rates

Gulf kingdom seen increasing output to meet domestic demand, keep oil exports stable

Saudi Arabia forecast to pump oil at record rates
Saudi Arabian Oil Minister Ali Al Naimi

Saudi Arabia will probably need to pump crude at a record rate this summer to meet rising domestic power demand and keep oil exports stable, according to Barclays Bank and the Economist Intelligence Unit.

The world’s largest crude exporter may have to tap its surplus capacity and produce as much as 10.8 million barrels a day in August if its power stations and water-desalination plants burn a similar amount of oil to what they used in the same month of 2011, analysts at Barclays and the EIU said in separate forecasts.

Saudi Arabia pumped 9.85 million barrels a day last August, the seasonal peak for domestic electricity demand, according to data compiled by Bloomberg.

Saudi Arabia can easily produce the additional 1 million barrels a day it may need, though doing so will erode its spare capacity to around 1.5 million barrels a day, Barclays’ Amrita Sen said in an e-mailed response to questions on March 27.

The kingdom would probably need to raise output by about 1 million barrels to maintain exports at existing levels, as any new production would go toward meeting local power needs, she said.

“While Saudi output may indeed rise in coming months and be interpreted by the market as action to calm oil markets, the reality is likely to be that Saudi oil production increases seasonally but exports remain unaltered,” Sen said.

“Thus Saudi output close to 11 million barrels a day may actually mean little extra trickles to the world market in coming months.”

Saudi oil minister Ali al-Naimi told reporters last week in Doha, Qatar, that his country has 2.5 million barrels a day of spare capacity. Saudi Arabia has dipped into this surplus several times in recent years to help cushion global markets against real or potential surges in crude prices.

The country pumped 9.69 million barrels a day in February, data compiled by Bloomberg show, and produced 10.05 million barrels last November, its highest average monthly output since at least 1981, according to data from the US Energy Information Administration.

“Al-Naimi seems to think that Saudi Arabia can quickly produce well over 11 million barrels a day, but markets will worry about the lack of spare capacity,” Caroline Bain, senior commodities economist at the EIU, said in an e-mail on March 27.

The kingdom is trying to free up more crude for export by replacing it where possible with natural gas as a fuel for generating power and treating water.

It boosted gas supplies last summer with output from the Karan field and plans to add 500 million standard cubic feet a day this summer.

“Additional gas supplies would reduce oil burning, but between replacement and increasing demand, the impact is relatively limited,” NGP Energy Capital Management’s chief economist Anas Alhajji said in a March 27 e-mail.

“If Saudi cities start experiencing blackouts, what is the fuel that will be used to meet peak demand? It is going to be oil,” he said from his office in Irving, Texas.

Saudi Arabia used 701,000 barrels a day of oil on average to produce power and desalinate water from June to September last year, down 6.2 percent from the same four months of 2010, according to official data posted March 18 on the website of the Riyadh-based Joint Organisation Data Initiative.

Saudi peak-season power demand is growing at 8 percent a year, with air-conditioners consuming about 60 percent of electricity produced in the nation, according to the government.

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