Who can boost crude supply to offset attack on Saudi Arabia?

LONDON (Bloomberg) - Here is a list of countries that could boost crude production to offset losses from Saudi Arabia in the event that the disruption to supplies from the attacks on its Abqaiq and Khurais processing facilities lasts longer than initially expected. It’s not a long list and much may not be accessible.

The attacks cut Saudi production by 5.7 MMbpd and officials at state oil company Saudi Aramco have become less optimistic on the pace of output recovery. The maximum spare capacity that could be brought into production in the coming weeks is estimated at about 3.9 MMbpd.

That figure should be treated as a exercise in optimism, though. It includes restarting production from the Neutral Zone shared by Saudi Arabia and Kuwait, as well as tapping Saudi Arabia’s own spare capacity, much of which may also have to be processed at the Abqaiq or Khurais facilities and therefore be unusable.

Saudi Arabia

• August production: 9.83 MMbpd
• Production capacity: 11.5 MMbpd
• Usable spare capacity: up to 1.67 MMbpd

On paper, Saudi Arabia has about 1.7 MMbpd of spare production capacity, but the precise location of that reserve is unclear. If it is in the giant Ghawar, Shaybah or Khurais fields, it’s unlikely to be of any use, as crude from those fields is processed at Abqaiq.

There is some spare capacity at offshore fields, such as Manifa and Safaniyah. Offshore crude is not processed at Abqaiq, so these fields could be pressed into service.

United Arab Emirates

• August production: 3.07 MMbpd
• Production capacity: 3.4 MMbpd
• Usable spare capacity: 200,000 to 330,000 bpd

U.A.E. output peaked at 3.27 MMbpd in November 2018 and levels beyond that have not been tested on an on-going basis. This suggests the country could boost output by somewhere between 200,000 and 330,000 bpd.

Kuwait

• August production: 2.68 MMbpd
• Production capacity: 3.15 MMbpd
• Usable spare capacity: 470,000 bpd

Kuwait’s reported crude production capacity is 3.15 MMbpd, excluding its share of the Neutral Zone that it shares with Saudi Arabia, but it has not produced more than 3 million since the 1970s. Current production of 2.68 MMbpd suggests it could increase output by at most 470,000 bbl.

Neutral Zone

• August production: Zero
• Production capacity: 500,000 bpd
• Usable spare capacity: 500,000 bpd

Shared by Kuwait and Saudi Arabia, the Khafji and Wafra fields in the Neutral Zone have been shut since 2015 as a result of a dispute between the two countries. They have the capacity to pump as much as 500,0000 bpd of heavy oil. Khafji is a northern extension of Saudi Arabia’s Safaniyah field.

Restarting production in the Neutral Zone cannot be done overnight, though. Saudi Energy Minister Abdulaziz bin Salman said in Dubai last week that issues on the Neutral Zone are mostly technical and that he expects to have a “clear picture” on them within the next couple of months.

Russia

• August production: 11.29 MMbpd
• Production capacity: 11.45 MMbpd
• Usable spare capacity: 160,000 bpd

Russia has been cutting oil production as part of the OPEC+ deal. Output reached a peak of 11.45 MMbpd in December, before the latest cuts came into effect in January. The country’s oil companies can certainly restore output to that level and may be able to go beyond it. Winter often sees an increase in Russian oil production, as increased domestic natural gas use results in a boost to flows of condensate, a light form of crude pumped from gas fields, although this is not a good substitute for most Saudi export grades.

Kazakhstan

• August production: 1.85 MMbpd
• Production capacity: 2 MMbpd
• Usable spare capacity: 150,000 bpd

Although Kazakhstan is a member of the OPEC+ group, its only supply reduction this year has been the result of planned maintenance at its largest oil fields. August oil production was restricted by maintenance at the country’s largest field, Tengiz, where works were completed in early September. Planned maintenance is now underway at the Karachaganak field until mid-October, which has taken output back down to the average August level. Kazakhstan will not be able to boost crude production until that work is completed.

Angola

• August production: 1.4 MMbpd
• Production capacity: 1.53 MMbpd
• Usable spare capacity: 65,000 bpd

Angola’s oil production has been crimped by maintenance and by steep decline rates at its offshore fields that have not been offset by new prospects being brought into production. August output was 1.4 MMbpd, down from 1.53 million in October, but the country would probably struggle to lift output back to that higher level and keep it there for any length of time.

Algeria

• August production: 1.02 MMbpd
• Production capacity: 1.07 MMbpd
• Usable spare capacity: 50,000 bpd

Algeria has cut output as part of the OPEC+ agreement, although it remains unclear how much of the reduction of about 50,000 bpd since November is voluntary and how much, if any, is the result of natural decline at the country’s oil fields.

Oman

• August production: 970,000 bpd
• Production capacity: 1 MMbpd
• Usable spare capacity: 30,000 bpd

Oman’s Ministry of Oil and Gas reported production at 970,000 bpd in August. That puts its spare capacity at just 30,000 bpd, a little more than the 25,000 bbl it agreed to cut under the current OPEC+ deal.

U.S.

• August production 12.37 MMbpd
• Production capacity: 12.5 MMbpd
• Usable spare capacity: 130,000 bpd

U.S. oil production has plateaued at an average level of 12.37 MMbpd since recovering from the impact of Hurricane Barry at the end of July. A jump in weekly production numbers to 12.5 million bbl was not sustained and output slipped back to 12.4 million the following week - production is now reported to the nearest 0.1 MMbpd. U.S. crude exports have been back up above 3 MMbpd since mid-August.

More than 10 new export terminals have been proposed for U.S. crude, capable of handling about 8 MMbpd, but the first of these is unlikely to be operational before 2022 at the earliest. Export infrastructure may be the limiting factor in any U.S. output boost in the coming weeks and that could restrict the upside to about 475,000 bpd.

Iran

• August production 2.21 MMbpd
• Production capacity: 3.83 MMbpd
• Usable spare capacity: Zero

With exports crippled by U.S. sanctions, Iran could theoretically boost production by about 1.6 MMbpd. But with the U.S. blaming it for the attacks curbs on the country’s oil sector are likely to get tougher, rather than ease.

Other OPEC+ countries

None of the other OPEC countries has any significant spare production capacity.

Iraq, which increased its oil production to a record 4.78 MMbpd in August, agreed at the OPEC Joint Ministerial Monitoring Committee meeting in Abu Dhabi last week to rein in supply. Oil Minister Thamir Ghadhban says he gave orders to start cutting crude exports, with a reduction of at least 125,000 bpd from September. Those cuts will now probably be reversed, but output is unlikely to rise much above August’s level.

Other OPEC countries are pumping at, or very close to capacity levels. Output from Libya remains hostage to the security situation in the country, but is close to the highest levels achieved since the toppling of Moammar Al Qaddafi in 2011. Production from Nigeria has been rising with the start-up of new fields and a reduction in the number of attacks on oil pipelines in the Niger River delta region. Production is now back close to levels last seen in 2015, with little scope for further quick increases.

Other non-OPEC members of the OPEC+ group - Azerbaijan, Bahrain, Brunei, Malaysia, Mexico, South Sudan and Sudan - have, for the most part, offered up natural decline as output cuts. As a result, they are all producing as much as they are able and have no spare capacity that they could use to boost output.

The bottom line, though, is that much depends on Saudi Arabia itself. If the kingdom’s extra capacity needs to pass through Abqaiq then it may be spare -- just not necessarily available.