ARAMCO RACES TO RESTORE OIL OUTPUT
Saudi energy group will draw on global storage network to keep customers supplied for several weeks
SAUDI Arabia is racing to restore oil production after a brazen drone strike on a key Saudi Arabian Oil Co (Aramco) facility slashed its output by half, or about five per cent of world supply, an assault that the United States has blamed on Iran.
State energy producer Aramco lost about 5.7 million barrels per day of output after 10 unmanned aerial vehicles on Saturday struck the world’s biggest crude-processing facility in Abqaiq and the kingdom’s second-biggest oil field in Khurais, said the company.
The attack will likely rattle oil markets and cast a shadow on Aramco’s preparations for what could be the world’s biggest stake sale. It’s also set to escalate a showdown pitting Saudi Arabia and the US against Iran, which backs proxy groups from Yemen to Iran and Lebanon.
The disruption is “quite significant”, Mele Kyari, chief executive officer of state producer Nigerian National Petroleum Corp, told Bloomberg Television yesterday. “If it’s protracted it
could be a big challenge for the oil markets.”
The attack is the biggest on Saudi Arabia’s oil infrastructure since Iraq’s Saddam Hussein fired Scud missiles into the kingdom during the first Gulf War. The damage highlights the vulnerability of the Saudi industry that supplies 10 per cent of the world’s crude oil.
The kingdom’s benchmark stock, the Tadawul All Share Index, fell as much as 3.1 per cent at the open, here, yesterday.
Houthi rebels in Yemen claimed responsibility for the attacks, but US Secretary of State Michael Pompeo blamed Iran directly without offering evidence for that conclusion. Iran’s Foreign Ministry described Pompeo’s remarks as “blind and fruitless accusations”.
Saudi oil facilities as well as foreign tankers in and around the Persian Gulf have been the target of several attacks over the past year. The escalation coincided with the President Donald Trump’s decision to pull the US out of the 2015 nuclear agreement with Iran and re-imposed crippling economic sanctions against the republic.
The Houthis, who are fighting Saudi-backed forces in Yemen, have claimed responsibility for most of the strikes against Aramco installations.
“Work is underway to restore production and a progress update will be provided in around 48 hours,” said Amin Nasser, Aramco’s president and chief executive officer. Aramco is working to compensate clients for some of the shortfall from its reserves.
Aramco, which pumped about 9.8 million barrels a day last month, will be able to keep customers supplied for several weeks by drawing on a global storage network.
The Saudis hold millions of barrels in tanks in the kingdom itself, plus three strategic locations around the world — Rotterdam in the Netherlands, Okinawa in Japan, and Sidi Kerir on the Mediterranean coast of Egypt.
The US Energy Department said it was prepared to dip into the Strategic Petroleum Oil Reserves if necessary to offset any market disruption.
Saudi Arabia, the biggest producer in the Organisation of Petroleum Exporting Countries, has been leading the group in production cuts to mop up a surplus of crude in the market. So when half of Saudi production is knocked out, the question is how long the disruption lasts.
“The global economy can illafford higher oil prices at a time of economic slowdown,” Ole Hansen, head of commodities strategy at Saxo Bank A/S in Copenhagen, said in an email. So, while a surge in prices driven by lower supply “may temporarily remove the focus on slowing demand, it could, if prolonged, potentially reduce demand growth expectations even more”.
Meanwhile, Eurasia Group said the attacks on the oil facilities may impact Aramco’s valuation but are unlikely to derail the kingdom’s plan to sell shares in the oil giant.
“Crown Prince Mohammad Salman (Saudi de facto ruler) will push the company to demonstrate that it can effectively tackle terrorism or war challenges,” analysts led by Ayham Kamel, head of Middle East and North Africa research, said in a research report. “The attacks could complicate Aramco’s IPO plans given rising security risks and potential impact on its valuation.”
The attack came as Aramco is speeding up preparations for the IPO. It has selected banks for the share sale and may list as soon as November, said people familiar with the matter.
Eurasia said the latest attack would have only a limited impact on interest in Aramco shares as the first stage of the IPO would be local. “The international component of the sale would be more sensitive to geopolitical risks.”
It said a small US$2 to US$3 (RM8.34 to RM12.51) premium to oil prices would emerge if the damage to Aramco’s facilities could be resolved quickly, and US$10 if the damage is significant.
Prince Mohammed has said he expects Aramco to be valued at over US$2 trillion, but analysts see US$1.5 trillion as more realistic