JEDDAH, 30 November 2004 — Saudi Arabia plans to raise its oil production capacity to 12.5 million barrels per day from the current 11 million bpd over the next few years, Petroleum and Mineral Resources Minister Ali Al-Naimi said yesterday.

Addressing a conference in London, the Saudi minister also said that OPEC would not consider switching from dollar-denominated oil sales despite the decline in the value of the American currency.

Naimi emphasized the Kingdom’s resolve to expand gas exploration and production with the support of international oil giants. “By the year 2025, the Kingdom will require 12 to 14 billion cubic feet of gas daily to meet local needs,” he pointed out.

“This year, we increased our total production capacity from 10.5 to 11 million barrels per day,” Naimi told the conference.

“We have also recently developed plans to increase Saudi Arabia’s sustainable production capacity to 12.5 million barrels per day over the next few years,” he told the conference, entitled: Oil, Economic Change and the Business Sector in the Middle East.

As for the long term, “scenarios to raise the capacity to 15 million barrels per day can be set in motion if the global demand requires it”, said Naimi, representing the world’s biggest producer of crude.

“The decision to invest in added production capacity on this scale reflects our belief that demand for Saudi oil will continue to increase through the coming years,” the minister told a group of business representatives and journalists. “It also demonstrates our desire, at the same time, to maintain a reasonable spare capacity of no less than 1.5 million barrels per day.”

“As in the past, the spare capacity helps assure the continuity of stable oil markets by making more oil available in times of supply dislocations or any unusual surge in demand,” he added.

World oil prices have rocketed to record high points during 2004, largely because of an upsurge in global demand, notably from China and India. In October, prices struck more than $55 a barrel in New York and over $51 in London trading.

Yesterday, New York’s main oil contract, light sweet crude for January delivery, was steady at $49.44 per barrel in electronic deals and North Sea Brent blend added 93 cents a barrel to $45.50.

Speaking at a conference at Catham House in London, Naimi said Kingdom’s Qatif and Abu Safah projects had increased capacity by 800,000 bpd ahead of schedule.

Naimi declined to give specific dates for the rollout of the extra production, adding that market demands would dictate a timetable. “Can you tell me what demand is going to be?” the minister said to reporters.

Naimi also said that Saudi Arabia is going to be using more of its heavy sour crude in domestic refineries to free up more-in-demand light sweet crude for export. Light crude is relatively easy to refine into gasoline, heating oil and jet fuel.

The minister restated the Kingdom’s commitment to keeping spare capacity of 1.5 million bpd.

OPEC will meet Dec. 10 in Cairo to discuss its output strategy in light of a recent downturn in crude prices.

Naimi said OPEC would not consider switching from dollar-denominated oil sales despite the decline in the value of the US currency.

Cited by OPEC earlier this year as justification for keeping oil prices high, the weak dollar has sliced heavily into the purchasing power of OPEC countries for goods and services from non-dollar economies like the euro zone.

“We do not see much difference in changing to another currency or going to a basket of currencies. Every strategic team has said there is no reason to change,” Naimi added.

“The dollar is still used in international trade and countries still use it to back up reserves ... there is nothing actively being considered to deviate (from the dollar),” he said.

A switch by oil producers to the euro would boost demand for the European currency from oil importers and possibly lead to it having a greater role in central banks’ foreign currency reserves.

Naimi said the strength of the world economy suggested there had been little or no impact on growth from this year’s 50 percent rise in oil prices, now near $50 for US crude.

“The price is not affecting growth significantly at all, the projection today is that world growth is increasing by 4-4.5 percent. That must say this price is not having a negative impact.”

He estimated oil prices were being inflated by about $10-$15 by fears of shortage and geopolitical tension.

“The fear premium, the fear from tension, fear from scarcity, fear from lack of spare capacity, all of this fear has put $10-$15 additional on the price of oil,” he said.

Worries about lack of investment in new production and the shrinking cushion of spare capacity to meet rising world demand have been major factors in this year’s price rise.

Asked to comment on the oil market ahead of OPEC’s Dec. 10 meeting, Naimi said world crude inventories were building comfortably.

Some in OPEC, including Iran, are worried that crude stocks will build heavily this winter and want OPEC to agree in Cairo to eliminate leakage above official quota limits.

But Naimi said global stocks of petroleum products, including heating oil remained below par.

“The (crude) supply is a little bit ahead of demand. Inventories are building comfortably. I recognize some of the products such as heating oil are not at the right level but as refineries come back from turnaround the market will be better balanced,” he said.

He said Riyadh would maximize exports of its premium Arab Extra Light grade to help ease the shortage of light crude on world markets.

“We will do our best to run heavy crudes because our refineries are more sophisticated. We are doing what we can, we are doing our best, but we are going to do some more,” Naimi added.

“Saudi Aramco is a true example of the capability of national oil companies to provide the world with the needed oil. Its performance during the last two decades speaks volumes. Saudi Aramco was able to increase production after the Iraq invasion of Kuwait in August 1990, from 5.4 million bpd to 8.6 million bpd within three months. It was able to advance its production capacity on a sustainable basis from 7 million to 10 million bpd during the first half of the 1990s, a permanent increase of some 3 million bpd, all the while finding new reserves to replace its production,” he added.

On Saudi economy, Naimi said: “Currently it is charging ahead with robust GDP growth of more than 7 percent this year and a stock market that has increased almost three-fold on both share prices and volume traded over the last 2 years. In fact, with share-price growing steadily, the Saudi stock market now ranks 11th in the world by share trading value. These gains are attributed to corporate fundamentals rather than speculation. Both national and international investments have been rapidly increasing in all sectors of the economy, especially the industrial and services sectors.”

He added that “Another indication of the structural reform under way is the ongoing privatization of government-owned enterprises and equity investments through public share offerings. The total number of such offerings through the Saudi stock market will show a continuous increase over the coming years. Certainly we intend to make maximum use of additional revenues coming our way to make major improvements in infrastructure, particularly transportation, and to promote the widespread growth of small and medium size businesses in all parts of the Kingdom. The government has already allocated about $11 billion this year to projects such as healthcare, education and housing.”

“Saudi Arabia and its economy are vastly more dynamic than is generally known or appreciated. We live in a very competitive world and have consistently worked on keeping both our country and our economy healthy and fit. There is no better example of this fitness than our petroleum policy and the industries which carry it out,” Naimi concluded. — Additional input from agencies