Seoul: 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 recovered from early losses on Tuesday, with Brent crude trading up 16 cents at $123.82 a barrel at 4.30pm. Aramco chief executive Khalid al-Falih’s comments at an industry event in South Korea had weighed on sentiment earlier, when prices fell amid a wider decline in commodities.
“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 in North Africa and the Middle East and strong demand growth in Asia have pushed oil prices to their highest levels since 2008, triggering concern among consumers costly oil would harm economic growth and crimp fuel demand. OPEC producers also warned last week of the strain of high energy prices on economies still fragile as they emerge from the global financial crisis.
The kingdom has enough capacity to meet any spike in demand and plug short-term outages in supply, Falih said, adding that without Saudi spare capacity, oil price volatility would have been a lot worse when Libyan supply was lost.
OPEC’s largest producer boosted supply in February 2011 to above 9 million bpd to plug the gap left by fellow OPEC member Libya, where civil war cut exports. Saudi Arabia is the only oil producer with significant spare capacity to meet large supply outages such as that experienced in Libya.
Riyadh 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 spare capacity 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.
Aramco is considering building three new joint venture refineries in Asia as part of plans to boost its global refining capacity by 50% to over 6 million barrels per day (bpd), Falih said. Asia is Aramco’s largest and fastest growing oil market.
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 in the region that process its oil, locking in market share and long-term demand.
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 in March a memorandum of understanding (MoU) 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.
The Saudi oil giant has long been linked with a refinery deal in Indonesia, although no deal has been publicly announced.
Indonesia’s energy minister said earlier in April that Saudi Arabia was among Middle East energy giants that had expressed interest in participating in two new oil refineries. Iraq, Iran and Kuwait are also in the running.
Petrovietnam and Aramco signed an MoU in February 2009 for Aramco to supply crude to the country’s 130,000 bpd Dung Quat plant, its only refinery. Hanoi plans a second, larger refinery with 200,000 bpd capacity, but Kuwait is the crude supply partner in that venture.
Combined, the new plants Aramco is considering and those underway would boost Saudi global refining capacity to over 6 million bpd from around 4 million bpd, Falih said.
Aramco also continued to expand its domestic gas system, which would have capacity to pipe above 15 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 roughly $125 billion on domestic and international projects.
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% stake in the refiner, which is one of the world’s largest with capacity of around 650,000 bpd. Aramco supplies around 30% of South Korea’s crude.
Aramco executives are in Seoul for a board meeting on Thursday.