SAUDI ARAMCO STILL AIMING FOR 12 MILLION BARREL PRODUCTION

S E C R E T SECTION 01 OF 02 DHAHRAN 000089

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E.O. 12958: DECL: 4/20/2019
TAGS: SA EPET ENRG PGOV PINR
SUBJECT: SAUDI ARAMCO STILL AIMING FOR 12 MILLION BARREL PRODUCTION
CAPACITY BY JUNE 2009

REF: DHAHRAN 74

DHAHRAN 00000089 001.2 OF 002


CLASSIFIED BY: Joseph A. Kenny, Consul General, EXEC, DOS.
REASON: 1.4 (b),(d)

1. (S/NF) KEY POINTS:

-- Saudi Aramco's Senior Vice President for Exploration and
Production, Amin Nasser (protect),says that Saudi Aramco will
achieve 12 million barrels per day (bpd) of production capacity
by June 2009.

-- However, a long-serving Aramco employee does not believe that
they can maintain production at that level for more than two
months or so. He asserted that Saudi oilfields are "sick" and
in worse shape than commonly assumed.

-- Aramco's new CEO, Khalid al-Falih, has begun to take a closer
look at the health of the oil fields and ordered regular reviews
of the reservoirs.

-- Nasser says that Aramco will never be able to keep up with
demand for cheap gas feedstock at current discounted prices of
US $0.75 per million British thermal units (Btu).

-- Aramco's Executive Management have been troubled by the new
U.S. administration's "addiction to foreign oil" rhetoric.

End key points.

SAUDI ARAMCO: WE WILL REACH 12 MILLION BPD CAPACITY


2. (S/NF) In a March 31 meeting, Saudi Aramco Senior Vice
President for Exploration and Production Amin Nasser (protect)
told Consul General Kenny (CG) that as of June Saudi Aramco will
reach 12 million bpd of crude oil production capacity. However,
a long-serving Western expatriate Aramco employee claims that a
daily production rate at or near 12 million bpd is just "smoke
and mirrors." He asserted that the Saudi oil fields are "sick"
and said that Saudi's Ghawar oil field (the world's largest) "is
in bad shape." He said that current Saudi Aramco President and
CEO Khalid al-Falih (an engineer by training) has become aware
of these problems and has begun to take a closer look at the
health of the oil fields. In fact, shortly after he became
aware of some of the oil field deficiencies, he ordered regular
oil field reviews (similar to an audit) for every field. He
contrasted this with the more hands-off management style of
al-Falih's predecessor, Abdullah Jum'ah.


3. (S/NF) Nasser explained that Aramco will only bring online an
oil reserve if it can maintain at least a "30-year plateau" at a
given rate of daily oil production. For example, if an oil
field's recoverable assets would be exhausted after 25 years at
an average production rate of 1.5 million bpd, then Aramco
lowers the rate enough to stretch the life of the field to at
least 30 years. Nasser said that in order to maximize
recoverable oil reserves, Aramco "produces oil on the flanks of
the fields, and then move towards the crest." However, our
Western expatriate source said that over the last two years
Aramco has been pumping straight from the crest to meet what was
at the time rising demand for oil. He also said that the
prevalence of horizontal wells, as opposed to vertical wells,
increases the reservoir's exposure to water damage.

ARAMCO WANTS SAG TO RAISE PRICE ON GAS FEEDSTOCK


4. (S/NF) In an April 4 meeting, former Aramco President and
CEO, Abdullah Jum'ah, told CG and EconOff that demand for cheap
gas feedstock is unlimited in the petrochemical and power
generation industries (ref A). Echoing Jum'ah's comment, Nasser
said that at the current discount rate of US $0.75 per million
Btu, Saudi Aramco could never find enough gas to meet all of the
demand. Nasser said, "As soon as we find non-associated gas, we
build the platforms [to produce it]," since they know that there
is already demand for the gas. Jum'ah noted that in 1984 Saudi
Aramco asked the SAG to raise the price from US $0.50 per
million Btu to US $1.00. The SAG split the difference raising it
to US $0.75; the price at which it remains today. Jum'ah
commented that Aramco has been asking the SAG to increase the
price for a long time, but Saudi decision-makers "above the
Ministry of Petroleum" consistently deny their requests.

ARAMCO UPSET BY THE U.S. ADMINISTRATION'S ANTI-FOREIGN OIL
RHETORIC


5. (S/NF) On Apr 6, Jack Moore (protect),Director of Aramco's
Washington office, told the CG and EconOff that Aramco's
Executive Management have grown increasingly concerned about the
new U.S. administration's pledges to end America's dependence on
foreign oil imports. He said that al-Falih once angrily
asserted to him, "We [Aramco] can take care of their addiction!"
(Note: This statement was meant as a threat to cut off Saudi
oil supplies to the U.S. End Note.) However, Moore said that
he has tried to reassure the Executive Management that this was
merely domestic political rhetoric and that the U.S. will
continue to be a strong market for Saudi oil for a long time to
come. In a paper that he was tasked to write for senior Aramco
management on the topic, he said he noted that despite a likely
decrease in U.S. aggregate demand for oil, Saudi imports will
likely maintain current levels, as they have to pick up the
slack on ever-decreasing oil production capacity in Mexico, the
North Sea, and Venezuela. (Note: According to DOE figures,
during January 2009 the U.S. imported 1.36 million bpd from
Saudi Arabia, the third largest source of U.S. oil imports after
Canada (2.54 million bpd) and Mexico (1.43 million bpd) and
followed closely by Venezuela (1.35 million bpd). End Note.)


6. (S/NF) Moore said that al-Falih and other senior Executive
Management appear to take the U.S. administration's anti-foreign
oil comments "personally." He said that regardless of this,
Aramco understands that they cannot simply abandon supplying the
U.S. market. He said that Aramco knows that Asian markets are
where the growth is, but they "don't trust China as an
alternative market to the U.S." He added that in any case the
decision to restrict oil supplies to the U.S. is "not
al-Falih's, not Naimi's [Minister of Petroleum and Minerals],
but the King's." (Comment: The previous U.S. administration
put significant pressure on the SAG to increase oil production
capacity, which they have acted on with questionable results as
noted in para 2. The SAG and Aramco executives are therefore
predictably upset to hear the new administration talk about
reducing oil imports from the Middle East. End Comment.)
KENNY