x Abu Dhabi, UAESunday 21 January 2018

Confident outlook for Saudi Arabia oil

Citigroup sees saudi oil disruptions as unlikely.

Gas is flared at Khurais oilfield in Saudi Arabia.
Gas is flared at Khurais oilfield in Saudi Arabia.

Like the heart of a conditioned athlete, the Saudi Arabian oil machine will go on pumping amid regional strife, one of the biggest US financial groups predicts.

The potential for supply disruptions in the biggest Arab oil state was "the million-dollar question" hanging over international markets, Farouk Soussa, the Middle East chief economist at Citigroup, told a Platts oil forum in Abu Dhabi.

But fears of dwindling Saudi Arabian output were overblown, Mr Soussa said.

"The markets are worried about sectarian unrest in Bahrain spreading to Saudi Arabia," he said. "But so what if we did see people marching in the streets there?"

That was unlikely, in part because the close relationship between the government and clerical establishments in the kingdom tended to stabilise Saudi society, Mr Soussa argued.

He also downplayed "a general kind of fear" that Saudi Arabia would become the next Libya: "To me, that's unthinkable."

The Arab pro-democracy movement that began last December in Tunisia and Egypt has spread to some Gulf and southern Arabian states.

Limited anti-government protests have also occurred in and around the main Saudi Shiite centre of Qatif, in the eastern province that also contains the kingdom's biggest onshore oilfields.

But Saudi Arabia's oil infrastructure is guarded by a special government force of about 20,000 armed servicemen, the regular soldiers of the Saudi National Guard and about 5,000 Saudi Aramco security officers, Mr Soussa said.

Last month, Aramco officials at the control centre for the Khurais oilfield, about a two-hour drive north east of Riyadh, revealed the computerised system monitoring the field was protected from cyberattacks by several backup systems, and was carefully isolated from the internet and other public communications networks.

The mainly Saudi workforce staffing the Khurais facilities live in a self-contained community at the desert site, minimising the need for interaction with the sparse local populace.

They are also handsomely rewarded, with bonuses equal to six months' wages paid after each year completed on the job.

Last week, Khalid al Falih, the chief executive of Saudi Aramco, said an additional two-month bonus would be paid to all Aramco employees and trainees, in line with the US$93 billion (Dh341.58bn) of benefits announced last month by King Abdullah. The chemicals producer Saudi Basic Industries Corporation announced a similar bonus.

Saudi oil infrastructure was spread over "a very large area", making it difficult for saboteurs to cause serious physical harm to the network, Mr Soussa said.

A vast web of pipelines carried crude to several export points spread along the kingdom's Gulf and Red Sea coasts. It would nearly always be possible to re-route oil flows around any damage, he said.

"If we were really worried about Saudi production, $115 a barrel looks cheap," Mr Soussa said, referring to the recent price of the European benchmark crude North Sea Brent.

By contrast, the escalating violence in Yemen posed a significant threat to oil consumers and the world economy, Mr Soussa said. "It's important that Yemen not be allowed to descend into a failed state … this would be a great threat to the global oil industry."

If that happened, Yemen's location opposite Somalia on the Gulf of Aden would provide an extended base from which pirates already plaguing the region could expand their activities, he predicted, meaning insurance rates for shipping much of the world's sea-borne oil supply would soar.