Saudi Arabia, the world’s energy powerhouse, moved again last week to reassure oil consumers that it would tap its vast spare capacity to make up for any supply shortfall as Libya’s production collapses, but industry sources say the kingdom is already nearing its comfortable operational production limits.The kingdom is now pumping oil near a 32-year high and says its total production capacity stands at 12.5 million barrels per day, which oil minister Ali al-Naimi repeatedly said could be brought on immediately should the market need it. Mr. Naimi has often said that it’s the kingdom’s policy to maintain spare output capacity of 1.5-2 million barrels a day at all times to cope with emergency shortfalls. “Saudi Arabia pumped already 10.19 million barrels per day last month and if we base our calculation on the oil minister’s previous statements, then it can only pump another 800,000 barrels extra if it wants to maintain its traditional spare capacity buffer,” one Gulf-based analyst said. “So with any other unexpected disruptions in the market, everyone is likely to get edgy and prices will shoot up especially that output of 11 million barrels per day for instance is an untested level for the Saudis,” the analyst added. A Gulf source familiar with the matter said the kingdom, which maintains the largest portion of spare capacity within the Organization of Petroleum Exporting Countries, can only sustain output of 12.5 million barrels per day for only a very short period. “Due to how fields operate and maintenance schedules, there is always about 10% of one country’s production down. So an increase in production in one area could be offset by lower or a shut down production elsewhere,” the source added.
Pumping beyond 11 million barrels per day may also involve extracting heavy crudes, which are generally more sour than, for instance, the Libyan grades that European refiners normally buy. “I don’t think Saudi Arabia can actually go much beyond the current level of 10.2 million barrels per day. Let’s say they can, they will be extracting very heavy crude which cannot fulfil shortages from African countries for instance,” said Kamel al-Harami, a Kuwait-based independent oil analyst. “Any new shortage in the market will have to be met by shale from the United States, and that’s why they were not that worried about the shortage in Libya last month because they know they can fill in the gap.” Energy watchdog the International Energy Agency, however, believes that Saudi Arabia still has more than 2 million barrels per day of spare capacity, a view echoed by Riyadh oil officials who argue that state-owned giant Saudi Aramco is slowly adding wells to maintain capacity. But industry sources wonder whether the kingdom would continue to invest billions of dollars to maintain its capacity, especially given the United States’ rising role in balancing markets.