Giant Saudi field is key to boosting oil output

Giant Saudi field is key to boosting oil output
(AP)30 June 2008

KHURAIS OIL FIELD, Saudi Arabia - This massive oil field surrounded by the desolate sands of Saudi Arabia's vast eastern desert feels like the middle of nowhere.

But what happens over the next year at Khurais, one of Saudi Arabia's last undeveloped giant oil fields, could hold the key to what drivers will pay at the pump for years to come.

Under way at Khurais and two other smaller fields nearby is what Saudi Arabia calls the single largest expansion of oil production capacity in history.

With consumers howling over record fuel prices and the United States pushing Saudi Arabia to produce more oil, this patch of sand 100 miles west of the Saudi capital of Riyadh has become one of the most important places in the world economy.

Saudi Arabia's state-owned oil company, Aramco, is spending $10 billion to build the infrastructure to pump 1.2 million barrels of oil per day by next June from the Khurais field and its two smaller neighbors. That alone would be more than the total individual production of OPEC members Qatar, Indonesia and Ecuador.

The project forms the centerpiece of the Saudi plan to increase the total amount of oil it can produce to 12.5 million barrels per day by the end of 2009 — up from a little more than 11 million barrels per day now.

Consuming nations have pushed Saudi Arabia to boost production capacity even further and also want the world's top oil exporter to begin pumping more crude immediately to bring down record oil prices hovering near $140 a barrel. They say oil production has not kept up with increased demand, especially from China, India and the Middle East.

Saudi Arabia plans to produce 9.7 million barrels of oil per day, or 11 percent of the world's total, in July. It is the only nation with significant excess capacity that it could put on the market quickly.

But the kingdom has resisted calls to increase production further, saying financial speculators and the falling dollar are to blame for high oil prices, not a shortage of supply.

These disagreements came to a head June 22 at a rare meeting of oil producing and consuming nations hosted by Saudi Arabia. In the end, Saudi Arabia said it could increase oil production capacity to 15 million barrels per day if needed in future years. But it gave no indication that step, or an immediate increase in output, was necessary or planned.

The political tussle over output masks the challenge Saudi Arabia faces in boosting production capacity by developing giant fields like Khurais.

'That is what people don't appreciate,' said Manouchehr Takin, an oil expert at the London-based Centre for Global Energy Studies. 'These are major projects, and people don't realize they aren't that easy.'

The Saudis estimate Khurais and the nearby smaller Abu Jifan and Mazalij fields hold a total of 27 billion barrels of oil encased in solid rock 5,000 feet below the baking desert.

Saudi Arabia is no stranger to developing giant oil fields. Its massive Ghawar field, with an estimated 70 billion barrels of remaining reserves, is the world's largest.

But oil experts say Khurais, which was discovered in 1957, is geologically more difficult to tap.

Aramco is using hundreds of mostly South Asian workers to build a massive processing facility at the field. More than 150 wells will pump crude to the surface, where water and gas will be separated out. The oil then will be funneled to the country's east-west pipeline for delivery to ships in the Red Sea.

Workers are also building a huge sea-water injection system to pump more than 2 million barrels of water per day from the Gulf into 120 wells. That will maintain the necessary pressure underground to push the oil to the surface.

Disputes over Saudi's decisions aside, 'when you talk about the fields and the engineers and so on, I think you have to respect their technical ability,' Takin said.

With its twisting maze of metal, the half-finished facility rises out of the desert like a massive space station. Workers wear gloves and wrap bandanas across their faces to hide from the searing sun as they work 10-hour shifts in temperatures well above 100 degrees.

Aramco officials say that in addition to geological challenges, they also face difficulty finding enough qualified workers and equipment. The project will use 145,000 tons of steel — almost enough to build two Golden Gate bridges.

'We are trying to do it in a world market where contractors are in high demand,' said Muhammed al-Rubeh, head of Aramco's project department.

When completed, the processing facility also will be protected by two layers of fences, crash barriers, security cameras and government forces, Aramco says. Al-Qaida has called for attacks against Saudi Arabia's oil facilities to disrupt the flow of crude.

Aramco officials insist that despite the tight construction market, the Khurais project will be ready to produce 1.2 million barrels per day by next June.

But equipment and labor shortages have delayed production at another field, Khursaniyah, which was originally scheduled to begin pumping 500,000 barrels per day at the end of 2007. Aramco officials now say Khursaniyah will come online in August.

Also in the works is the development of the Manifa field, which sits offshore in the Gulf and is Saudi Arabia's only other giant oil field still untapped.

If all goes as scheduled, Aramco forecasts more than 50 billion barrels of fresh reserves from the giant fields by 2011. That amount alone would give Saudi Arabia the ninth largest oil reserves in the world, not even counting its existing reserves.

Outside analysts estimate the kingdom's total current reserves at about 260 billion barrels. But Saudi Arabia refuses to provide detailed data to allow independent verification.

Amin Nasser, senior vice president for production and exploration at Aramco, acknowledges the company sometimes faces criticism for that secrecy. 'We have a tradition of letting our actions and accomplishments speak for themselves,' he said.