The Oil Drum

Khurais. It is the best of fields. It is the worst of fields. It is another chip off the old block, destined to prolong Saudi Arabia's dominance as an oil producer. It is a chink in the armor of the Saudi Oil Miracle, a symbol of a lesser future. Do tell, which is it? Amidst a lot of speculation, there are a few knowns. The Khurais Megaproject is the largest integrated development project in Saudi Aramco history. Slated for completion at the end of 2009, it includes the expansion of oil production in the Khurais, Abu Jifan, and Mazalij fields. These fields lie approximately midway between Riyadh and the Ghawar oil field, and sea water for injection will be piped in from the Arabian Gulf near Dharahan. The completed project is stated to have a capacity of 1.2 million barrels of oil per day. This article will present an early look at the Khurais development using satellite images and a review the scant data available for Khurais in an attempt to assess its prospects in light of much skepticism.

When I wrote about some of the stories that are likely to be discussed over the next year, one of those that I mentioned is the delay before we see further increases in production from KSA. In the piece I quoted from the Arab News about the latest projections of Aramco production increases over the next two years. While there has not been much change in the total projected production over the last eighteen months, there have been some, as the Kingdom has moved toward a goal of 130 rigs operating there by May of this year. Over the time we have posted here, we have quite often revisited the planned production increases from the Kingdom, and so I thought it worth having a quick look to see how things are going.

In recent posts I have talked about the major oilfield in Saudi Arabia that is closest to exhaustion. Perhaps it is now time to move to their oilfield of the future. Khurais. As we look to where the oil is going to come from tomorrow, there have been only very few places where production levels above 1 mbd have been projected. In fact a quick skim through Chris Skrebowski's Megaproject list (pdf file) shows that production of this level is going to get rather scarce. Counting only production above quarter of a million bd, in 2006 he has Haradh coming on line at 300,000 bd (it is), and the Azeri-Chirag-Gunashli (ACG) Phase 2 coming on stream in Azerbaijan at 300,000 bd. In 2007 there will be the Abu Hadriyah, Khursaniyah. Fadhili complex in KSA at 500,000 bd; The Khursaniyah NGL's at 300,000 bd; and another 300,000 bd from the ACG project. In 2008 there will be the Hawiyah NGL's at 370,000 bd; the Shaybah phase 2 at 300,000 bd or more; and Kashagan at 450,000 bd from Kazakhstan. In 2009 there will be Khurais at 1,200,000 bd. In 2010 there will be the Al-Shaheen expansion in Qatar at 300,000 bd; the combined Kushk-Hosseineh field in Iran at 300,000 bd; the Kuwaiti expansion at 450,000 bd; and the Kashagan Phase 2 at 450,000 bd. Looking further out there is Kashagan Phase 3 (300,000 bd), and Manifa (700,000 bd in total).

In terms of major developments Khurais stands out as being considerably bigger than the rest.

It was a relatively minor note in the news that Gazprom has taken a majority holding in the gas pipelines that form the North European Gas Pipeline. At this rate they are going they will be scratching their heads, this time next year, to try and find anyone left that they can take over. But the gilt is off that gingerbread. As was noted in the Guardian the time when Europe foresaw `the great prospect of the 21st Century" being the energy partnership between them and Russia, has started to reveal "the dark side of the force." We are at the point that

In a direct reference to the Russian president, Mr Barroso (head of the European Commission) last week complained that the Kremlin was increasingly resorting to a very blunt, but potent weapon in its dealings with Europe - "the use of energy resources as an instrument of political coercion". . . . . In short, to mix the energy metaphor, Gazprom appears to have Europe over a barrel.

However, given that companies have to be assured of their investments before they commit to large energy construction, it is worth noting that the pipelines and infrastructure are going to cost around $11 billion. Since it will take four years to get the pipes in, is it fair to ask those who demand windfall profits taxes from the energy companies, what they would consider a fair return on that investment?