Analysis: Manifa project being fast-tracked. Why?

“Significant progress was achieved in 2010 on Manifa, the giant Arabian Gulf offshore field under development”, the report said, moving the full production date forward even further from recent comments by senior executives, which put the field’s completion to 2015. In the last few years the offshore field has been earmarked for a very staggered development, bringing it onstream slowly and in increments compensating for mature decline elsewhere in Saudi Aramco’s portfolio, with the culmination only envisaged for 2024.

It would now seem, however, that Manifa has been chosen as the main feedstock provider for Saudi Aramco’s two new 400,000-b/d heavy oil refinery joint ventures (JVs) with Total and Sinopec—provided Sinopec firms-up its participation in the Yanbu plant project to which it tentatively has stepped in following ConocoPhillips’s last-minute exit. The Yanbu plant and the Aramco-Total JV at Jubail are both due onstream in 2013, although delays on the Yanbu project, given the partner switch, are likely to push the facility’s start-up well into 2014.

In the meantime, Saudi Aramco has also announced a two-phased plateau extension and upgrade programme at the kingdom’s largest offshore crude oilfield, the Safaniya, which has a production capacity of about 1.3 million b/d. Few details were released about the programme and its schedule, apart from that it would include the installation of electrical submersible pumps and upgrades to the crude gathering facilities and the field’s power supply. The first phase should be completed in late 2013 and is currently in the design phase, while the second phase has yet to be hammered out, it has been understood.

The Safaniya project is in many ways part of Saudi Aramco’s ongoing efforts to maintain production capacity and manage decline, but its first phase gives a somewhat fast-tracked appearance, indicating that much of its decline compensation work might come from this field—and a host of other ongoing projects—further underlining the shift of Manifa from compensatory development to a capacity raiser.

Stepping on the Gas
Saudi Aramco also in its annual review said that it will deliver the Karan offshore non-associated gas development onstream nest year, ahead of its 2013 schedule. “When fully operational in 2012, the project will produce 1.8 billion cf/d of raw gas”, Reuters quoted Saudi Aramco as saying, adding that a 400-mmcf/d initial production “planned during peak summer demand [will be] starting in 2011”, meaning the production start would be imminent given that the peak summer demand season (June to early October) is virtually upon Saudi Arabia.

With its first offshore non-associated gas development delivered ahead of schedule, Saudi Aramco will be continuously optimistic about completion of its Hasbah and Arabiyah offshore gas projects, which it has also fast-tracked for completion in 2013, to be fed into the Wasit gas project.

From 2009 Saudi Aramco refocused its attention to gas, launching a fast-track programme for a host of projects in order to boost domestic supplies and meet spiralling demand in the kingdom, which continues to come in at levels of about 6-7% per year. In fact, a gas shortage has over the past five years forced Saudi Arabia to burn increasing amounts of crude and refined products to generate power, eating into its effective spare-capacity cushion as well. Lifting the power and fuel subsidies that lead to such spiralling energy demands is, however, looking increasingly impossible politically, following the recent unrest throughout the region and Saudi Arabia’s strategy of placating the population with generous subsidies, handouts and state-sponsored job creation.

Outlook and Implications
While Manifa’s output seems to have been almost fully allocated from 2014, the quick ramp-up will mean a significant boost of Saudi Arabia’s production capacity—currently at 12 million b/d—and of its spare production capacity; it is therefore not hard to connect the Saudi Arabian rethink with the rapid rebound in Asian demand growth following the recent recession. Such a rethink is likely to have been further amplified in the early months of this year when fears over production disruptions were rife, leading to—from a Saudi Arabian perspective—unwanted oil price fluctuations that had the potential to cause demand destruction, and culminating in the total shut-down of one of OPEC’s mid-size producers, Libya.

The massive shut-ins in Libya were likely to have been a culmination of growing Saudi Arabian fears that a failure to move forward with product capacity-boosting projects in several OPEC countries was going to leave the Saudi Arabians with a greater future call on their own production capacity and that quicker-than-previously-predicted risk would erode its spare-capacity cushion—the main source of its swing-production power within OPEC.

While neighbouring Iraq has managed to get some promising early results off the ground at its southern megafields, it remains increasingly clear for most onlookers that it might struggle to reach even half of its 12-million-b/d target (by 2017) before 2020, while efforts in Kuwait continue to be thwarted by the emirate’s political problems.

Libya’s efforts to reinvigorate its main producing and mature fields were not moving forward pre-war amid politically motivated problems to unlock foreign investment and massive amounts of red tape—the same could be said about most of Algeria’s efforts to defend its long-term crude production capacity amid a deepening maturity.

Since hostilities broke out in Libya, that nation’s oil production capacity might still be at risk of long-term or even irreversible reservoir damage, making uncertainties even deeper. Further afield, Nigerian political instability and lack of investor appeal in Venezuela mean that long-term capacity boosts are at risk of not materialising, leaving Saudi Arabia with an increased sense that it might be called upon to step up its capacity volumes again in the not-too-distant future. The rethink on Manifa, from that perspective, comes at quite a telling time.

About the Author: Samuel Ciszuk is Senior Middle East Energy analyst at IHS.