Saudi Arabia Oil & Gas Report Q2 2013 - New Market Study Published

Saudi Arabia continued its role as the world's leading swing producer, maintaining historically high production of near 10mn b/d in support of the global oil market over much of 2012. However, a dramatic cutback towards the end of the year, send global prices higher just as sentiment turned bullish with regard to demand over 2013 from key crude importers in Asia. More than any other producer Saudi Arabia's production both reflects and is reflective of global supply and demand fundamentals, we therefore expect to see a slight decline from 2012 estimate 11.7mn b/d to 11.6mn b/d in 2013. We also anticipate strong growth in gas production, with a number of new projects in the pipeline brought forward in recognition of the threat growing domestic consumption poses to more lucrative oil exports.

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We highlight the following trends and developments in Saudi Arabia's oil & gas sector:

* Cutbacks production saw Saudi Arabia remove an estimated 700,000b/d in production from November to January 2013 in response to reduced demand at home and abroad. At the time of writing, production in crude oil production hovered near or above 9.2mn b/d according to widely available figures.
* For 2013, we expect crude oil production to rise to an average for the year of 11.6mn b/d, with natural gas liquids (NGL) and processing gains bringing total liquids production to 11.6mn b/d for the year. Total liquids supply by the end of the forecast period is set to rise to 12.8mn b/d by 2022. Domestic consumption will increase to 4.32mn b/d by the end of our 10-year forecast period, from an estimate of 3.29mn b/d in 2013. Rising consumption of oil as power feedstock, driven by low lifting costs and subsidies will drive much of the gains.
* Rising crude consumption has placed pressure on more lucrative oil exports necessitating efforts to boost both exploration and production of natural gas. Saudi Arabia has accelerated a number planned projects as it seeks to increase use of gas as feedstock for both power and the strategically important petrochemicals industry.
* While we expect Saudi Arabia to remain self-sufficient in natural gas, with production rising from an estimated 116.2bn cubic metres (bcm) in 2013 to 152bcm by 2022. However reports in November 2012 cited an unnamed source who suggested that Saudi Arabia was exploring potential LNG imports, such a move would be a psychological blow to the country's energy sector.
* Efforts to tap the Red Sea and continued efforts to extract tight gas could surprise to the upside, yet exploration in the Empty Quarter continues to yield disappointing results. Indeed a report that Saudi Arabia would consider state set gas prices from US$0.75/mmBTU to US$1.50 were unlikely sufficient to attract significant commercial interest but was notable momentum for energy sector reform.

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