SAT, SEP 14, 2019 Attacks Knock Out Over Half of Saudi Oil...

SAT, SEP 14, 2019

Attacks Knock Out Over Half of Saudi Oil Output

Aerial attacks knocked out more than half of Saudi Arabia's crude oil production on Saturday and it was unclear how long the outage would last.

National oil company Saudi Aramco and Oil Minister Prince Abdulaziz bin Salman both said an estimated 5.7 million barrels per day of crude oil output had been taken out by the attacks.

"Work is underway to restore production and a progress update will be provided in around 48 hours,” Aramco said in a statement issued late on Saturday.

Neither Aramco nor the minister provided an estimate of how long it would take to restore production.

In Washington the White House said the US "strongly condemns" the attacks and that President Donald Trump had spoken to Crown Prince Mohammed bin Salman to "offer his support for Saudi Arabia’s self-defense."

The Department of Energy said the US stands ready to release oil from the Strategic Petroleum Reserve if it is needed "to offset any disruptions to oil markets" as a result of the attacks. The reserve holds some 630 million barrels of oil.

Prince Abdulaziz told the official Saudi Press Agency (SPA) that attacks on two major oil installations "resulted in the temporary suspension of production operations."

The minister told the agency that Aramco will seek to keep up oil deliveries to its customers by drawing down oil it holds in storage.

The strikes against the crucial Abqaiq processing complex and the country's second-biggest oil field, Khurais, were claimed by Yemen's Iran-aligned Houthi rebels.

A Houthi spokesman told the movement's al-Masirah television channel that 10 drones were deployed and that further strikes could be expected in the future.

Official Saudi statements did not mention drones. Aramco spoke of "attacks with projectiles."

The events on Saturday highlight the kingdom's vulnerability to attacks by drones or missiles, which have struck Saudi infrastructure several times this year, including the country's East-West crude oil pipeline in May (IOD Aug.20'19).

They also come at a sensitive time for Saudi Arabia which has recently replaced its oil minister and the chairman of Aramco as it presses ahead with the company's long-delayed initial public offering (IPO).

Saudi Arabia has a total production capacity of 12 million b/d but has recently been producing around 10 million b/d, all of which is operated by Aramco.

The kingdom is the world's top exporter of oil and one of its top three producers. Global production and consumption of oil are currently running at just over 100 million b/d.

Prince Abdulaziz said the attacks in the early hours of Saturday morning caused explosions and fires that were brought under control. No injuries were reported.

Past attacks on Saudi infrastructure were also claimed by the Houthis, who have fought a grinding war against Saudi forces in neighboring Yemen since Riyadh launched its military campaign in 2015.

The objective of that campaign was to reinstate the internationally recognized government of President Abed Rabbu Mansour Hadi which was ousted by the Houthis in late 2014.

The twin attacks on Saturday targeted some of Saudi Arabia's most important oil facilities and demonstrated again the difficulty of defending them against attacks from the air.

The massive Abqaiq oil processing and stabilization facility, located in the hydrocarbon-rich Eastern Province about 70 kilometers southwest of Aramco's headquarters in Dhahran, is probably the most important piece of Saudi oil infrastructure. It processes some 7 million b/d of crude, making it the largest complex of its kind in the world.

Abqaiq receives sour crude from several gas-oil separation plants and upgrades it into sweet crude. The oil is then pumped to export terminals on the Mideast Gulf or the Red Sea coast (via the East-West pipeline). The complex is the main processing hub for Arabian Extra Light and Arabian Light crude.

Prince Abdulaziz said that in addition to taking out a big chunk of the kingdom's oil production, the attacks also led to the suspension of 2 billion cubic feet per day of associated gas production, from which 700,000 b/d of natural gas liquids (NGLs) are extracted. Saudi Arabia uses gas for power generation and uses gas and NGLs as petrochemical feedstock.

In February 2006, the Abqaiq facilities were attacked by Al-Qaeda militants but that incident did not cause any major damage or disruptions (IOD Feb.27'06)

Saturday's attacks also targeted the giant Khurais onshore oil field, located about 180 kilometers east of Riyadh, which has crude production capacity of around 1.5 million b/d (IOD Oct.2'18). Four oil-processing trains -- each with a capacity of 300,000 b/d -- were hit.

The attacks on Saturday come as the kingdom has put the Aramco IPO back on a fast track, with a potential domestic stock market listing now targeted as early as November or December (PIW Sep.13'19).

They also follow a major shakeup in the kingdom's energy sector in recent weeks that saw Prince Abdulaziz appointed as energy minister, replacing Khalid al-Falih, who was also removed form his role as chairman of Aramco's board (IOD Sep.10'19).