With unrest continuing to disrupt oil production in the region, Saudi Aramcos role as the global swing producer is more important than ever before
As unrest across the Middle East continues unabated, Saudi Aramcos role as the global swing oil producer of crude oil is again being tested by civil war, sanctions and militant activity in Iraq.
This year, the oil majors output is hovering at about the 9.7 million barrels a day (b/d, which is about 300,000 b/d more than in mid-2013 and would mean a record year of production if maintained until December.
Several factors have contributed to this increased output, including: continued outages in the Middle East; slower growth in production from other Opec members; a faster-than-expected upturn in the US economy, resulting in greater demand for crude; and rising domestic consumption in Saudi Arabia itself.
The kingdoms current production rate still leaves 2.3 million b/d of extra capacity should there be any further issues regarding crude supply from the worlds major producers.
It also means additional care must be taken to make sure all Aramcos oil assets are closely monitored. This will ensure the maximum yield is taken without putting undue pressure on any particular field.
Investment in capacity
Many of Saudi Arabias super-giant fields are mature and have been in production for several decades. This means that to continue with a 12 million b/d capacity, Aramco must maintain these fields by drilling new wells and using enhanced oil recovery (EOR) techniques.
It must also continue to investment heavily in new capacity and exploration if it wants to boost its 260 billion barrels of reserves.
|Saudi Aramco output (billions of barrels)|
|Crude oil exports||2.521||2.489|
|Refined products exports||0.126||0.121|
|Source: Saudi Aramco|
Aramcos CEO has said $40bn needs to be spent over the next decade to maintain current capacity and double gas output. This strategy has been clear from recent investments.
Most of the firms upstream schemes over the past five years have focused on increasing gas production with several non-associated fields being developed both on and offshore.
However, one of the main drivers of higher gas production stems from a desire to free up more oil for export and downstream development.
Domestic downstream operations have also seen huge injections of capital, with well over $50bn-worth of investment in refining and petrochemicals schemes.
Aramcos remit is now much more diverse than its historical role of being an exporter of crude, says the companys former head of exploration and production, Sadad al-Husseini. But, oil exports remain Riyadhs main source of income and this is not going to change in the near future.
The most significant recent addition to Aramcos crude inventory is the offshore Manifa field, which is currently ramping up capacity to 900,000 b/d. The field cost $9bn to develop and is located in shallow waters just off the Gulf coast. It started commissioning in 2013 and is expected to be fully operational by 2015.
The crude from Manifa is heavy and much will be utilised in Aramcos new refineries at Jubail and Yanbu. The company has also said the extra 900,000 b/d will allow it to ease production at some of its more mature fields rather than add to current capacity.
Another 550,000 b/d will be taken off the output of mature fields when new crude increment programmes are completed at two of Aramcos newer onshore fields.
South Koreas Samsung Engineering is carrying out the $410m engineering, procurement and construction (EPC) contract for Aramcos Shaybah Arabian Light crude increment project in the Empty Quarter.
Samsung will carry out works to expand the handling facilities at Shaybah to process an additional 250,000 b/d. The expansion is due to be completed by 2016 will push Shaybahs capacity to 1 million b/d.
An additional 300,000 b/d will also come from the Khurais expansion, now at the main tender bid phase. Khurais started production in 2009 from three fields in the Eastern Province: Khurais; Abu Jifan; and Mazalij. The have a combined capacity of 1.2 million b/d of crude, as well as 320 million cubic feet a day of gas and 80,000 b/d of natural gas liquids.
The $3bn project will see the expansion of the processing facilities and additional pipelines from the Abu Jifan and Mazalij fields. Main contract awards are due in early 2015 and completion is expected in 2018.
Despite decades of production much of Aramcos existing oilfields have proved to be remarkably enduring with very little EOR being carried out, even on the worlds biggest oilfield, the 4.5 million b/d Ghawar.
Long-established maintenance programmes have proved effective and Aramco is known as a more forward-thinking national oil company when it comes to preventative maintenance programmes.
[Aramco] has a good reputation in the area of maintenance and it knows that investing in preventative measures early save a lot of money in the long term, says a senior executive from an oil and gas company specialising in brownfield maintenance works.
Several major oilfield services companies assist Aramcos maintenance department at a number of its onshore fields. Aramco has long-term arrangements with the US Baker Hughes and Halliburton, which involve activities such as 3D mapping of onshore fields, as well as identifying areas where EOR could be best deployed.
There will come a time when all of Aramcos fields will require extensive EOR techniques to maintain production and this is why these partnerships are being developed now, says Al-Husseini. Forward planning is vital when dealing with mature fields.
All Aramcos offshore activities are in the Gulf and the company is now on the brink of awarding a series of contracts to companies aimed at ramping up maintenance spending at its fields.
Two long-term contracts being planned are currently at their respective main bid phases. The first is the Maintain Potential Programme (MPP), an engineering services and project management contract, currently held by Australias WorleyParsons.
The MPP has traditionally been one of the largest single-source engineering services contracts to be awarded in the kingdom, but the new scope will be even more expansive and includes two companies.
Aramcos Gulf coast operations include the Safaniya, the worlds largest offshore field. This, along with several others, is extremely likely to require extensive rehabilitation over the next decade to maintain production. Hundreds of new wells need to be drilled every year to maintain operations in shallow-water fields.
The new MPP contract will also be back up with a similar long-term award to four EPC contractors, which is intended to give Aramco the flexibility to swiftly execute its offshore maintenance programme. At least $6bn-worth of work is expected to be awarded in the next five years.
Red Sea breakthrough
Despite Aramcos 1.45 million b/d of new crude capacity that is planned to be on stream by the end of the decade, the company is still carrying out seismic surveying and testing.
In its 2013 annual report, Aramco said it had made a breakthrough in one of its last great frontier areas, the Red Sea.
After drilling test wells, two fields were discovered in Saudi Arabias northern Red Sea areas. They were at Al-Haryd and Duba-1, where tight reservoirs were discovered after drilling at 2,127 feet below sea level.
The discoveries end years of speculation that the Red Sea has economically viable levels of hydrocarbons. However, it is not conclusive that the 100 billion barrels of reserves estimated by some commentators are present. Significantly, there are no plans to develop any of these discoveries in the short or medium term.
Aramcos core market for crude oil remains Asia and almost 54 per cent of its exports go East to countries such as China and South Korea.
This is not expected to change and Riyadh has forged strong links with is main trading partners across several sectors, including joint-venture refining and petrochemicals facilities in the key markets of China, South Korea and Japan.
This means that Riyadh has a permanent market for its natural resources, especially important as non-conventional hydrocarbons output in the US begins to hit more conventional producers.
Alongside this is a strategy to ramp up domestic refining and petrochemicals operations to create more job opportunities and wealth in the kingdom.
This is also driving Aramcos gas initiative, as replacing crude with gas in power production would enable both oil export commitments to be met and domestic industrial diversification.
Saudi Aramco plays a vital role supporting the liquidity of the global oil market as well as being committed to servicing domestic needs. Operating some of the worlds largest oil fields will grow more challenging as they mature and billions of dollars of investments will be required just to keep production at current levels.
While being the global oil industrys safeguard can be incredibly lucrative, it comes with equal responsibility.
About $40bn of investment is needed to maintain oil capacity and double gas output in the kingdom
Source: Saudi Aramco