As emerging economies begin to demand more energy, major suppliers like Saudi Arabia will continue to lead world production, with enough excess capacity to produce more oil to meet growing global markets.

Saudi Arabia, in partnership with Standard Oil of California, first discovered commercial quantities of oil in 1938 with the Dammam well No. 7. Now the country maintains the world’s largest crude oil production capacity, estimated by the US Energy Information Administration (EIA) at more than 12 MMb/d at year-end 2010.

The country has identified 264.5 Bbbl of proved oil reserves, the second largest proved reserve base in the world, and also has 2.5 Bbbl in the partitioned neutral zone (PNZ) with Kuwait for its 50% share. For 2010, the EIA estimates Saudi Arabia produced on average 10.2 MMb/d of oil, 8.4 MMb/d of crude oil, and 1.8 MMb/d of NGLs and other liquids not subject to OPEC production quotas.

In 2010, state-owned Saudi Aramco said it completed the largest oil production capacity expansion in the company’s history. According to its “2010 Facts and Figures” report, the company averaged production of 7.9 MMb/d with 2.9 Bbbl for the year. Saudi Aramco also reported 279 Tcf in gas reserves with an average daily production of 9.4 Bcf and annual production of 3.4 Tcf in 2010.

The company is developing some of the largest megaprojects in the industry, including the US $10 billion Manifa project in the Arabian Gulf. Construction on the offshore heavy oil field began in early 2010, and drilling began in March 2010. Saudi Aramco projects that Phase 1 will provide 500,000 b/d of production capacity by 2013. An additional 900,000 b/d of capacity will be added once Manifa is complete in 2015.

Saudi Arabia has the second largest reserve base in the world at 264.5 Bbbl. (Image courtesy of Saudi Aramco)

Saudi Arabia also boasts the world’s largest offshore field. The Safaniya field is the third largest oil field in terms of production, with capacity currently at 1.5 MMb/d, according to a global heavy oil analysis and outlook published by Hart Energy in 2011.

According to the EIA, other main producing and record setting fields in Saudi Arabia include the onshore Ghawar field, the world’s largest oil field, which accounts for about half of Saudi Arabia’s total oil production capacity and produces more than 5 MMb/d of oil; the onshore Khurais field, the largest oil field brought on globally in 2009, which has a capacity of 1.2 MMb/d; the onshore Qatif field, with capacity of 0.5 MMb/d; the onshore Shaybah field, with capacity of 0.5 MMb/d; and the offshore Zuluf field, which produces 450,000 b/d.

According to the “Hart Energy Heavy Crude Oil” report, Saudi Arabia now is aiming for production of “heavy” heavy oil (versus the medium-heavy Arab Heavy crude). Toward that end, Saudi Aramco and Chevron Corp. are conducting a heavy oil steamflood pilot project in the Wafra field in the PNZ. Chevron operates three onshore PNZ fields, Wafra, Humma, and South Umm Gudair, which hold 2 Bbbl of proved reserves and total production of about 260,000 b/d.

Saudi Aramco also has made several offshore gas finds that are not associated with oil. The Karan, Arabiyah, and Hasbah fields are expected to come onstream in the next five years, adding at least 1.3 Tcf of production when fully operational. The company’s Wasit gas program is expected to become the largest gas plant in the Kingdom with a production capacity of 2.5 Bcf/d.

The bright spot

Now in the throes of reconstruction efforts following decades of war and 30 years of dictatorship, Iraq is poised to become a top-tier oil producer alongside its Saudi neighbor. The country’s proved reserves totaled 143.1 Bbbl of oil as of 3Q 2010, up from a 2001 estimate of 115 Bbbl. This new figure excludes Kurdish reserves, which are estimated at 45 Bbbl. The country also has the 10th largest proved natural gas reserves in the world at 112 Tcf.

With the fourth largest proved reserves behind Saudi Arabia, Venezuela, and Canada, the new democracy in the Middle East is striving to quadruple its production to 12 MMb/d by 2017. This high end projection is based on recent licensing agreements signed with international oil companies (IOCs) to increase the production of a dozen of its oil fields. However, Iraq has not exceeded production of 3 MMb/d since 1979. In 2009, the country’s crude oil production was little changed at 2.4 MMb/d; pre-war production was 2.8 MM b/d. Currently, Iraq has no output restrictions from its producer group OPEC.

In the near term, Iraq’s ambitious targets may not be reachable as the IOCs operating in the southern area of the country continue to experience infrastructure development problems, according to a study recently released by Rice University’s Baker Institute for Public Policy.

The study maintains that Iraq’s logistical and political challenges are taking place just as Saudi Arabia’s costs are increasing with the country’s efforts to expand and maintain sufficient spare capacity while investments shift to areas that have more complex geology and require greater technological intervention.

According to the Baker Institute, Iraq has the potential to increase production from 2.5 MMb/d in 2010 to more than 5 MMb/d in the next five to 10 years. The six “super” fields that will be the cornerstone of this massive crude oil expansion plan are Rumaila, East Qurna-1, West Qurna-2, Majnoon, Zubair, and Halfaya, which collectively hold nearly 200 Bbbl of oil. Rumaila alone accounts for one-third of reserves under contract, the report notes.

The offshore Manifa field is expected to increase the capacity of Arab Heavy crude, adding to Saudi capacity in the next few years, according to a heavy crude oil global analysis and outlook published by Hart Energy in 2011. (Image courtesy of Saudi Aramco)

Despite its immediate infrastructure constraints, Iraq’s central government in Baghdad has said it expects to add 10 Bbbl and 29 Tcf to its reserves from the 12 blocks it will offer in the country’s fourth bid round in January 2012. Forty-one companies have prequalified to bid on the blocks.

These new initiatives in Iraq are opening the door to increased foreign investment in an effort to spur oilfield development.

In addition to its huge assets, Iraq’s smaller fields such as the Gharraf, Badra, Qaiyarah, Najmah, Ahdab, and cluster of Missan fields in central and southern Iraq also are significant in raising production and, according to Hart Energy Research, represent what the IOCs will be developing going forward.

The Iraqi oil ministry awarded 12 technical service contracts to IOCs since reopening its upstream sector to foreign firms. Eleven of these contract awards resulted from two crude licensing rounds held in June and December 2009.

China National Petroleum Corp. was awarded a US $3 billion contract in November 2008 to develop the al-Ahdab field. On June 27, Phase 1 of production at al-Ahdab was completed, with output reaching 60,300 b/d.

BP, ExxonMobil, Shell, Lukoil, Eni, Total, Japan Petroleum Exploration, and China Petroleum Corp. also have signed on to develop Iraqi fields.

BP and CNPC were awarded a $15 billion field development services contract for the 16 Bbbl Rumaila field development project in October 2009.

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