Oil Scene: Oil Capacity Expansion’s Exigencies and Rhetoric

An estimate of the hectic activity in Saudi Arabia could be gauged form the fact that Saudi Arabia drilled 382 new wells last year, the highest number for any year since 1980. The number of rigs in operation in the Kingdom was reported to be around 120 by the end of last year.

The Kingdom is currently investing billions of dollars to boost its production capacity to 12.5 million barrels a day by 2009, up about 11 percent from current levels. 10 major projects are under execution within the Kingdom.
The ongoing work in Khurais is believed to be the largest development in Saudi Aramco’s history. Khurais is thought to contain 23 billion barrels of oil reserves, most of it is light, sweet crude that’s easy to refine. The adjacent Abu Jifan and Mazalif fields hold an estimated 4 billion barrels.

The project required 310 horizontal wells to access all of the reservoirs, but together the fields should produce an extra 1.2 million barrels of oil per day by 2009.

The Kingdom is reportedly endeavoring to make wells reach more extensively than ever into oil bearing formations through Extreme Reservoir Contact (ERC) wells. This technology entails a quantum leap forward in multilateral drilling.

According to a recent report, other OPEC members have also embarked upon significant expansion plans to increase their capacity, so as to ensure regular and secure oil supplies.

In the medium term, over 100 projects with an estimated cost of some $120 billion are being undertaken by OPEC member countries (excluding Iraq). These projects are in addition to all energy infrastructure projects, such as pipelines, export terminals and downstream expansion.

As a result of all these projects, the OPEC crude capacity is projected to reach 39.7 million barrels per day by 2010, from the current 35.7 million bpd. Excluding Iraq, the OPEC capacity is projected to increase to around 36.9 mbd by 2010 from 31.7 mbd in 2005.

However, in view of the ongoing and constant rhetoric in the market of finding alternatives to crude oil so as to lessen dependence on the Middle Eastern oil, Saudi Arabia and other producers are being forced to look at their expansion programs closely once again. Capacity expansion is a costly affair, especially when undertaken in an era of galloping project costs. In the light of the ongoing rhetoric, some of those projects may become practically unfeasible and may make investors shy to get into a risky venture.

MENAFN