MOSCOW: Russia’s No.2 oil producer Lukoil plans to start natural gas production in Saudi Arabia next year, the company’s vice president Leonid Fedun said.

“We made a discovery of 400 billion cubic meters... This would be large enough and the first gas-producing project in Saudi Arabia,” Reuters quoted him as saying.

Lukoil secured a deal to find and pump gas in Saudi Arabia from the project known as Block A last decade.

The project is small by the standards of Saudi Arabia’s immense hydrocarbon reserves, but it creates a potentially useful new link between producer OPEC’s leading member and Russia, the world’s number one oil exporter.

Leading US energy consultancy PIRA said earlier Saudi Arabia was set to pump 10.5 million barrels a day of crude in the third quarter, a million bpd increment over the second quarter and its highest quarterly level of production ever.

“The reason they’re producing that much is simple — the world needs the oil,” said PIRA CEO Gary Ross.

“This is the tightest physical balance on the world oil market I’ve seen for a long time.” PIRA reported its estimate to clients late last month.

Libyan oil output has fallen from 1.4 million bpd to just 250,000 bpd after protesters shut oilfields.

Saudi Arabia is the only oil producer with any significant spare capacity.

Ross said about 400,000 bpd of the incremental supply would go to feed domestic Saudi power usage during peak summer demand for air conditioning.

Without another increase this year from US shale oil, he said the world would need be short of crude and oil prices much higher.

“Without US shale we’d be short about 1.5 million barrels a day in the third quarter and prices would have gone up dramatically to ration demand,” said Ross.

US shale oil production was now about 2.5 million bpd, up 900,000 bpd in a year, he said.

Saudi Arabia has boosted output last month to a record high, a Reuters survey found.

Saudi Arabia, industry sources say, has produced 10.05 million bpd in August, adding to earlier increases due to higher use in refineries and domestic power plants to meet demand for air conditioning.

A Saudi official did not respond to a Reuters request for comment.

Bloomberg reported that Saudi output climbed 150,000 barrels to 9.95 million barrels a day last month, the sixth straight gain and the most for Opec’s biggest supplier in monthly data going back to 1989.

It was the largest gain of any Opec member this month.

“The amount of oil the Saudis are pumping is impressive,” Sarah Emerson, managing principal of ESAI Energy in Wakefield, Massachusetts, was quoted as saying in the Bloomberg report.

“We could be looking at an historic bull trap. Market sentiment may turn bearish by October and November.”