Two weeks ahead of the regular biannual meeting of the Organization of Petroleum Exporting Countries (OPEC) in Vienna, Riyadh opted for sending an assuring message that it is not very much concerned with the outburst of the shale oil and gas production in North America. Rather this new development is seen by the Kingdom as an addition to long-term stability of the market.

"The world economy over the long term will need every contribution of every source of energy available," Prince Abdulaziz bin Salman, deputy minister of petroleum and mineral resources declared in Dubai. "The Kingdom welcomes new resources of energy supplies as they are needed."

The prince added: "We need to make sure that the world economy comes out decisively on a growth pattern and if that can be established I think that the world economic growth will be sufficient to handle growth from all sorts — shale oil, shale gas and tight oil, including renewable."

The statement is significant as it comes days after OPEC released its World Oil Outlook (WOO) for this year, where it expects that call on the organization’s crude is expected to drop during the five years’ period up to 2018. Call on OPEC crude is expected to drop from 30.3 million barrels per day (bpd) this year to 29.2 million bpd in 2018. And that despite the fact that demand is expected to show incessant rise during this period.

The WOO expects that demand on oil will rise from 89.7 million bpd last year to 92 million bpd to 96.5 million bpd in 2020. And most of that demand will be met by rising supply from OPEC, including the North American shale oil and gas growing production.

The Saudi solid conviction seems to be based on a number of factors. One, as the demand in the United States for foreign oil drops, that in China and India continues to rise, which will more than compensate the decline in demand. Because of this, every new source of supply, including shale oil and gas, is more than welcome.

Moreover, the new fracking revolution that allows the shale oil to reach the market depends on a high level of crude price. The fracking technology has been around for years, but only when crude prices jumped in the past few years producing shale oil would become commercially viable.

In some calculations, the shale oil production is putting a floor of $80 a barrel to continue to worth pumping. That barrel price level, was originally suggested by Riyadh, as a fair price for both producers, consumers and more important to allow for investment in new energies.

However, there is an added reason as far as the Kingdom is concerned. That is, its growing downstream facilities and ability to refine more crude. Last year, Saudi Aramco upgraded its Motiva joint venture with Shell in the United States after investing some $10 billion, adding to the established refinery new units equal to setting up a new one. That is regarded by many in the industry as the first addition to the US refinery market in three decades. The new upgraded refinery is regarded as one of the 10 biggest refineries in the world in terms of ability to refine.

This upgrade to 600,000 bpd is part of an ambitious $200 billion spending program that aims at refining some 8 million bpd within its global refining system within 10 years. Part of that plan is to build refineries in China and Indonesia so as to address the growing Asian market.

In five years’ time, refining capacity is planned to increase by 50 percent in projects that have been identified more or less like the $8.8 billion, 300,000 bpd in Indonesia that is expected to come on-stream in 2018.

There is also the agreement with Sinopec, Saudi Aramco’s largest Chinese customer, who agreed to take a 37.5 percent stake in the Yanbu, Yasref plant. In addition, the two companies are in early talks to add a new refinery in China that can process as much as 300,000 barrels a day.

This drive in a refining program will start to bear fruit as early as 2016 when refining capacity in the Kingdom itself will rise from 2.26 million bpd to 3.46 million bpd.

The aim is to add value, sell directly to the customers and reduce the volatility of crude market.

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