Bush to press Saudis on oil production capacity in Texas talks

Dubai (Platts)--25Apr2005

A member of the Saudi Arabian delegation accompanying Crown Prince Abdullah to
Crawford, Texas, for Monday's meeting with President George W. Bush suggested
the two sides, the world's top oil exporter and the biggest consumer, set up a
joint study on the availability of energy supply. 

Hassan Yassin, former head of the Saudi Information Office in Washington and
an advisor to foreign minister Prince Saud al-Faisal, wrote in Sunday's Arab
News newspaper that the talks would focus on the Arab-Israeli issue and the
fight against terrorism with energy the second item on the agenda. "The second
issue, the viability of world energy resources, must equally be addressed
without delay. Energy resources are stretched to the limit," wrote Yassin. "In
the present state of affairs, and if current growth in China and India
persists, additional oil production will not be sufficient to meet global
demands. Now is the time for President Bush and Crown Prince Abdullah to take
a joint and noble stand by launching a major study into the availability of
world energy resources."

Crown Prince Abdullah is de facto ruler of Saudi Arabia, which holds about a
quarter of the world's proven crude oil reserves estimated by Riyadh at
261-bil bbl. The kingdom is also among the top five suppliers of crude oil to
the US while Saudi Aramco has a strong presence in the US refining and
retailing sector through joint ventures with Shell and ExxonMobil. Saudi
Arabia's oil minister, Ali Naimi, joined the Saudi delegation at the last
minute, apparently in response to remarks made by Bush in an interview last
week with CNBC. Bush, in the interview aired last Tuesday, said he did not
think the Saudis were pumping "flat out" to meet demand and that he would seek
a straight answer from the Saudis as to their excess capacity. Bush, who has
pushed for swift passage of his energy bill to wean the US off foreign crude
imports, said that would not provide a quick fix in the short term. Bush was
asked if there was anything he could do to prevent gasoline prices from rising
to $3 or $4/gallon as the US gears up for the summer driving season.

"A couple of points on that. First, you know, it took us a while to get to
where we are today and it's going to take us a while to become less dependent
on foreign sources of energy. Even signing an energy bill, you don't have an
instant fix," Bush said in the interview. "Secondly, I fully understand high
gas prices [are] beginning to really pinch a lot of our fellow citizens, and
that's troubling. There are some things that we need to do in the energy bill,
which is encourage more exploration, we need to look at refining capacity--how
do we help put regulations in place that will encourage construction of
refineries so, at the very minimum, there's a steady source of supply of
gasoline. Thirdly, obviously, internationally I'll be talking to our friends
[the Saudis] about making sure that they understand that if they pinch the
world economy too much, it'll affect their ability to sell crude oil in the
long run."

Naimi, speaking at an energy conference in Paris last week, repeatedly
stressed Saudi Arabia's plans to expand crude production capacity to 12.5-mil
b/d by 2009 from a current 11-mil b/d and described at length plans to expand
capacity to 15-mil b/d if there was demand for Saudi crude oil. He put current
production at over 9.5-mil b/d and offered in an interview with al-Hayat
newspaper to raise crude oil production starting the third quarter to meet
anticipated higher demand in the fourth quarter. But what markets have focused
on was Naimi's refusal to confirm whether he still backed his own proposal,
made before an OPEC meeting in Isfahan, Iran, Mar 16, to raise OPEC production
by a further 500,000 b/d from May. Naimi issued a statement a day before the
Isfahan meeting saying Saudi Arabia believed OPEC needed to raise production
by 1-mil b/d in order to meet the 2-mil b/d surge in demand in the fourth
quarter. OPEC agreed to raise its production by 500,000 b/d immediately and
left the other 500,000 b/d increase to the discretion of its president.

This story was originally published in Platts Global Alert
http://www.globalalert.platts.com

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