Saudi Arabia faces weeks without full oil production after attack
Saudi Arabia faces weeks without full crude and gas production capacity after Saturday’s attack on the world’s most important oil facility.
While some officials in the kingdom have sought to reassure oil markets that production will come back quickly, people briefed on the matter say it could take far longer restore output to its maximum level.
“It will take weeks to ramp up and bring the complex to maximum capacity,” said one person close to the energy ministry.
While the full extent of the damage is still being investigated, the person said there was enough concern that the kingdom was in talks with several Opec countries. One option could be to call an emergency meeting of the oil producers’ cartel.
The kingdom, which is the de facto leader of Opec, is in the initial stages of assessing whether it will need to ask other member countries to temporarily raise production to calm markets until Saudi Arabia’s output can fully recover.
The discussions are at an early stage and may not materialise into action, the person said. But given that Saudi Arabia has previously led the group in reducing output to support prices, the talks illustrate the depth of concerns in the kingdom.
The US has blamed Iran for the attacks on Abqaiq, a vital crude processing centre south-west of Saudi Aramco’s headquarters in Dhahran, and the Khurais oilfield, that forced the world’s top crude exporter to suspend more than half its oil production.
The attacks have heightened concerns about the vulnerability of Saudi Arabia’s oil infrastructure as the stand-off between the US and Iran have ramped up tension across the Middle East.
Riyadh is the Trump administration’s closest Arab ally and has been a staunch backer of the US strategy of imposing “maximum pressure” on Iran in an effort to force it to renegotiate its 2015 nuclear agreement with world powers and curb its support for militant groups across the Arab world.
Iran-aligned Houthi rebels, who are fighting a Saudi-led coalition in Yemen’s four-year civil war, have claimed responsibility for that they said was an attack by 10 drones on the two oil facilities.
Mike Pompeo, US secretary of state, accused Iran of launching “an unprecedented attack on the world’s energy supply,” adding that there was “no evidence the attacks came from Yemen”
Iran on Sunday dismissed the US’s allegations, with the foreign ministry saying Washington’s claims were part of its policy of “maximum lies”.
Mohammad Javad Zarif, Iran’s foreign minister, said having failed at “max pressure” Mr Pompeo was “turning to “max deceit”
“US & its clients are stuck in Yemen because of illusion that weapon superiority will lead to military victory,” Mr Zarif said on Twitter. “Blaming Iran won’t end disaster.”
Pictures and video posted on social media showed large fires at Khurais, which lies more than 500km from the Yemen border.
Saudi Aramco chief executive Amin Nassir said that the company had extinguished the fire, which had caused no injuries, and was working on restoring production.
Saudi energy minister Prince Abdulaziz bin Salman said early estimates showed that the attack caused a suspension of crude oil supplies of 5.7m barrels or more than 50 per cent of daily production. But he added that part of the loss of supplies to customers would be offset from inventories. He also said gas production had fallen 50 per cent as a result of the attack.
“This terrorist attack is an extension of recent attacks that targeted oil and civilian infrastructures and pumping stations and oil tankers in the Arabian Gulf,” Prince Abdulaziz said.
“These attacks do not only target the kingdom’s vital installations but also international oil supplies and threaten their security.”
Saudi Arabia supplies more than 10 per cent of global crude and is the world’s largest exporter of oil. The loss of more than 5m barrels a day would be the equivalent of 5 per cent of global oil supply.
While Saudi Arabia has said it expects output to be restored in the near future, the size of the loss will still send shockwaves though global energy markets.
One person briefed by the Saudi Arabian energy ministry said part of the shutdown of output was precautionary and should be restored quickly.
The International Energy Agency, which co-ordinates global emergency oil stock releases, said: “The IEA is monitoring the situation in Saudi Arabia closely. We are in contact with Saudi authorities as well as major producer and consumer nations. For now, markets are well supplied with ample commercial stocks.”
Analysts warned that the size of the loss could trigger a sharp rise in oil prices when markets reopen after the weekend, potentially spreading fears to the wider economy.
The US Department of Energy said: “The secretary [of Energy] has been briefed on today’s drone attack in Saudi Arabia and stands ready to deploy resources from the Strategic Petroleum Oil Reserves (SPRO) if necessary to offset any disruptions to oil markets as a result of this act of aggression.
“The Secretary has also directed DOE leadership to work with the International Energy Agency on potential available options for collective global action if needed.”
Oil consumers hold emergency stocks in reserve and Saudi Arabia may be able to mitigate some of the loss from its own oil stocks or spare production capacity.
“Today’s attack on the Abqaiq processing facility constitutes a paramount oil bullish, equity bearish, and global growth negative risk,” said Bob McNally of the Rapidan consultancy, who previously advised the White House under George W Bush.
“Such a brazen attack by an Iranian proxy on the crown jewel of the Kingdom of Saudi Arabia’s energy system will raise the overall geopolitical risk premium. “Due to its complexity, size, and customised components, repairing Abqaiq could take months, depending on the extent of the damage, though workarounds can offset some of the loss.”
Saudi Aramco has been fast-tracking plans to launch an initial public offering as soon as later this year as part of the kingdom’s economic reform efforts. Security of supplies and management of Saudi barrels by the company are of utmost concern to potential investors.
Oil prices slipped this week after John Bolton, a noted Iran hawk, left his role as National Security Adviser to the White House and as US president Donald Trump had indicated he was willing to talk with Iran, which wants sanctions removed.
Reporting by Anjli Raval and David Sheppard in London, Najmeh Bozorgmehr in Tehran, Andrew England and Ahmed Al Omran in Riyadh, and Simeon Kerr in Dubai