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Saudi uneasy with high oil price, worried about economy
Aramco CEO sees oil markets well supplied; Aramco CEO says mulling 3 new JV refineries in Asia; Refining capacity to surpass 6 mln bpd, up from 4 mln bpd
April 26, 2011 2:54 by Reuters
Top oil exporter Saudi Arabia is uneasy with high oil prices and concerned about their impact on the global economy, the chief executive of state oil firm Aramco said on Tuesday.
Oil prices fell on Tuesday in part after the remarks from Aramco’s Khalid al-Falih. Brent crude fell 57 cents to $123.09 a barrel by 0153 GMT, just four dollars below a 2-1/2 year peak hit earlier in April at $127.02.
“We are not comfortable with oil prices where they are today…I am concerned about the impact it could have on the global economy,” Falih told an industry gathering in South Korea.
There was no tightness in global oil markets, Falih said. His comments echoed those of Saudi Oil Minister Ali al-Naimi, who said last week that the kingdom had cut oil output in March as the market was oversupplied.
Unrest and violence in North Africa and the Middle East and strong demand growth in Asia have pushed prices to their highest levels since 2008, triggering a series of warnings from consumers and producers that costly oil would harm economic growth, in turn eroding fuel demand.
Saudi Arabia and other OPEC producers warned last week of the strain of high energy prices on economies still fragile after the global financial crisis in 2008.
Saudi Arabia had enough capacity to meet any spike in demand and plug short-term outages in supply, Falih said.
OPEC’s largest producer boosted supply in February to above 9 million bpd to plug the gap in global markets left by fellow OPEC member Libya, where civil war cut exports. The kingdom is the only oil producer with significant spare capacity to meet large supply outages such as that experienced in Libya.
Without that spare capacity, oil price volatility would have been a lot worse when Libyan supply was lost, and more recently when violence wracked Nigeria following elections, Falih said.
Saudi Arabia boosted capacity to 12.5 million barrels per day (bpd) in 2009, just as the global economic downturn cut demand. This left it with a supply cushion of over 4 million bpd, more than twice the cushion it targets of 1.5 million bpd to 2 million bpd. Output stood at 8.292 million bpd in March, down from 9.125 million bpd in February.
“People need to know that there are millions of barrels per day of spare capacity available,” Falih said.
Two out of every three barrels that Saudi Aramco exports go to Asia, Falih said. The state oil giant is expanding its presence in the refineries that process its oil.
Aramco is considering building new joint-venture refining projects in China, Vietnam and Indonesia, as well as another plant at home in Jizan, Falih said.
Aramco signed last month a memorandum of understanding with PetroChina, a subsidiary of China’s state-owned oil giant CNPC , to develop a 200,000 bpd refinery in the Chinese province of Yunnan. Aramco would supply the crude. China is the world’s second-largest oil consumer and is surpassing the United States as Riyadh’s largest crude buyer.
Aramco has already partnered with Sinopec, another Chinese oil giant, and Exxon Mobil at a joint venture refinery at Fujian in China.
Also in March, Aramco and Sinopec announced they would build a $10-billion, 400,000 bpd joint refinery at Yanbu in Saudi Arabia, one of two new refineries the kingdom is building at home.
Combined, the new plants and those underway would boost Saudi global refining capacity to over 6 million bpd from around 4 million bpd, Falih said.
Aramco would also expand and upgrade existing refining centers, he added.
Aramco also continued to expand its domestic gas system, which would have capacity to pipe above 14 billion standard cubic feet per day in the next five years, he said.
The kingdom plans to spend more than $450 billion on capital projects over the next five years, he said. Aramco would account for over a quarter of that, spending a total capital budget of roughly $125 billion on domestic and international projects over the same period.
This spending includes new crude increments, refining and petrochemical facilities, Falih said.
Saudi Aramco is a major shareholder of South Korea’s third-largest crude oil refiner S-Oil with a 35 percent stake in the refiner, which has capacity of around 650,000 bpd.
Aramco executives are in Seoul for a board meeting on Thursday.
By Cho Mee-young and Miyoung Kim
(Editing by Simon Webb)