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Saudi Arabia to Burn Less Crude Oil, Gas Output up

Source: Reuters 3/30/2012, Location: Middle East

Saudi Arabia is likely to burn less crude in its power plants this summer thanks to rising output from dedicated gas fields and gas that would be associated with any increase in oil output to make up for lower Iranian production. Last summer the world's leading oil exporter burned an average of 730,000 barrels a day (bpd) of crude for electricity to keep the population cool in the hottest months from July to the end of September, official figures indicate.

Hundreds of thousands of barrels of the kingdom's biggest export will again go up in smoke at power plants each day this summer, but the volume of oil used for power is likely to fall.

More supply from the Karan gas field and a likely rise in crude output, which would bring a bonus benefit of more gas as well, should save at least 100,000 bpd in crude use.

"We have spent a lot of money on gas ... and we have many tricks in our pocket in the summer. When we peak in summer, we will surge our gas," Saudi Oil Minister Ali al-Naimi said last week.

Naimi said some 500 million cubic feet a day (mcfd) more gas, or around 90,000 barrels of oil equivalent (boed), would be made available for three or four months.

"So don't think we are just saying, 'OK, the crude demand is going to go up'," he told reporters in Doha. "We are far more concerned about crude burn. Not because we want to export it, but because it is a shame to burn it."

Most countries outside the Middle East cut back oil-fired power generation long ago in favor of gas, nuclear and renewable energy sources.

But in a country sitting on the world's largest oil reserves, the consumption of oil for power rose by an implied 260 percent from 2004 to 2010, official figures available through the Joint Oil Data Initiative (JODI) indicated.

While crude output from Saudi oilfields is constrained by OPEC production limits, state-run Saudi Aramco aims to find gas that can be pumped independently to supply rapidly rising demand for electricity.

Saudi Aramco now manages known gas reserves of 279 trillion cubic feet, the fourth largest in the world, and hopes to increase its gross gas production from 10.2 billion cubic feet per day (bcfd) in 2010 to over 15 bcfd by 2015.

While it has raised output significantly over the past few years, the company has not been able to keep up with a 6 percent per year increase in demand, driven by population growth and a boom in petrochemicals and other industries.

"Whenever there is gas, we are utilizing it. We are always trying to use gas rather than other types of fuel. Gas is cleaner, cheaper and more efficient," Ali Bin Saleh Al-Barrak, the chief executive of Saudi Electricity (SEC), told Reuters.

"We are expecting more gas to come this year and in the future."

About half of Saudi power demand is now met with gas, but in a sign SEC does not expect to obtain enough gas to replace oil soon, SEC announced plans this month to build another big fuel oil plant.

Low fixed gas prices paid by industry of just $0.75 per million British thermal units are the major impediment to the unlocking of gas reserves.

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