Saudis Scramble to Restore Lost Output

Saudi Arabia is scrambling to get back on its feet as quickly as possible after strikes against crucial infrastructure over the weekend knocked out more than half of its crude oil production. Industry sources said a significant chunk of the lost production was restored Monday, but that still left a huge outage with no official estimate of when full production would be restored. The Saudis said aerial attacks on Saturday took 5.7 million barrels per day of its crude oil production off line, which equates to almost 60% of the kingdom's recent output of around 10 million b/d. Crude oil prices soared on Monday, posting double-digit percentage increases, as the market reacted to the audacious strikes against the world's largest oil exporter. Responsibility for the attacks was claimed by Yemen's Houthi rebels, who are backed by Iran. However, Washington suggested that Iran may have played a direct role. Industry sources told Energy Intelligence that 40% of the lost production had already been restored by Monday, while one source said national oil company Saudi Aramco expects most of the rest -- more than 3 million b/d -- to be brought back on line by the end of September (related). The company has moved quickly to hire local and international contractors to assess and repair the damage, essentially adopting an open checkbook approach. The strikes targeted some of Saudi Arabia's most important oil facilities and demonstrated once again their vulnerability to attacks from the air. It was unclear whether the targets -- the giant Abqaiq processing complex and Khurais, the country's second-biggest oil field -- were struck by drones, missiles or some combination of the two. Industry sources said that by Monday a combined 2.3 million b/d of oil production had been brought back on line -- 2 million b/d at Abqaiq and 300,000 b/d at Khurais. Industry sources said Aramco would seek to keep up oil deliveries to its customers by drawing down oil it holds in storage, while also offering crude grade swaps and maximizing output from its offshore fields. The Department of Energy said the US stands ready to release oil from its Strategic Petroleum Reserve if needed "to offset any disruptions to oil markets" as a result of the attacks. The reserve holds more than 600 million barrels of oil. A Houthi spokesman told the movement's al-Masirah television channel that 10 drones had been used in the strikes, but industry sources said there was evidence that missiles had been deployed. Security experts said satellite images of the damage indicated that they had been struck with a high degree of precision. US Secretary of State Michael Pompeo suggested via Twitter that Iran was to blame, but Tehran denied involvement. Foreign Minister Mohammad Javad Zarif said the accusation was part of a campaign of deceit by Washington. The Saudi foreign ministry later issued a statement saying "initial investigations have indicated that the weapons used in the attack were Iranian weapons." Investigations were continuing to determine the source of the attack, it added. The Houthis' military spokesperson, Yahya Sarea, warned in a tweet on Monday that Aramco's oil processing plants could be targeted again at "any moment" and warned foreigners to leave Saudi Arabia. Past attacks against Saudi infrastructure have also been claimed by the Houthis, who have fought a grinding war against Saudi forces in neighboring Yemen since Riyadh launched its military campaign there in 2015. That campaign seeks to reinstate the internationally recognized government of President Abed Rabbu Mansour Hadi, who was ousted by the Houthis in late 2014. The events on Saturday highlight the kingdom's vulnerability to attacks by drones or missiles, which have struck Saudi infrastructure several times this year, including the country's East-West crude oil pipeline in May (IOD Aug.20'19). Energy Intelligence understands that immediately before the latest attacks Saudi Arabia was producing around 10.5 million b/d, which then dropped to 4.8 million b/d. The country has a total production capacity of around 12 million b/d but has recently been producing around 10 million b/d, all of which is operated by Aramco. It is the world's top exporter of oil and one of its top three producers. To put those numbers in perspective, global production and consumption of oil are currently running at just over 100 million b/d. Recently appointed Energy Minister Prince Abdulaziz bin Salman said that in addition to taking out a big chunk of the kingdom's oil production, the attacks also led to the suspension of 2 billion cubic feet per day of associated gas production, from which 700,000 b/d of natural gas liquids (NGLs) are extracted. Saudi Arabia uses gas for power generation and uses gas and NGLs as petrochemical feedstock. Several listed petchem makers, including Saudi Basic Industries Corp., told the local stock exchange that some of their feedstock supplies would be curtailed as a result of the attacks. The weekend attacks come at a time when the kingdom has put Aramco's long-delayed initial public offering (IPO) back on a fast track, with a potential domestic stock market listing targeted as early as November or December (PIW Sep.13'19). However, the latest attacks on Aramco infrastructure might delay such plans or at least make Aramco less valuable in the eyes of international investors. The attacks also follow a major shake-up in the kingdom's energy sector in recent weeks that saw Prince Abdulaziz appointed as energy minister, replacing Khalid al-Falih, who was also removed from his role as chairman of Aramco's board (IOD Sep.10'19). Staff reports