CERAWEEK: World in energy security crisis with only 2 mil b/d spare crude capacity: Aramco CEO

The world only has about 2 million b/d of "effective spare capacity" to produce more crude oil at a time when global demand is rising and Russia's invasion of Ukraine threatens to take more barrels offline than the market can withstand, Saudi Aramco CEO Amin Nasser said March 8.

"We have an energy security crisis right now," Nasser said at CERAWeek by S&P Global in Houston.

Nasser's comments came the same day President Joe Biden planned to announce his support for a US ban on Russian oil imports, and when Biden has repeatedly and unsuccessfully asked Saudi Arabia and OPEC to produce more oil more quickly to help lower crude oil and record-high fuel costs.

Front-month NYMEX WTI pricing was skyrocketing yet again and approaching $130/b as of 1530 GMT on March 8.

In part because of mixed messaging on the energy transition, the world has failed to invest enough in oil and gas in recent years and now stands at a crisis point, Nasser said. Now the Russian invasion is exacerbating existing problems.

"It's a bleak reminder of the impact geopolitics can have on the fragile energy transition plans," Nasser said, calling for a deescalation in Ukraine. "Mixed signals have only added to the chaos."

Even if Aramco and others use all of their spare capacity, he said, the higher production volumes are only temporary because of faster decline rates. That is why Aramco is investing to increase its spare capacity, but it will take until about 2027 to add roughly 1 million b/d of additional capacity, he said.

"It needs to be sustainable -- strong, solid capacity," Nasser said. "We believe in the long term."

On a four-week moving average, the US imported 84,000 b/d of Russian crude as of Feb. 28, according to US Energy Information Administration preliminary data. That was down from a recent peak of 362,000 b/d in the week ended June 11, 2021.

The US imported 672,000 b/d of Russian crude and refined products in 2021, most of it vacuum gasoil and unfinished oils. Russian crude flows to the US averaged 199,000 b/d in 2021, according to the EIA.

Europe is the biggest export market for Russian oil, consuming 2.7 million b/d of crude and a further 1 million b/d of oil feedstocks and unfinished products, according to S&P Global Commodity Insights.

"There are not sufficient sources of incremental supply to cover a substantial prolonged loss of Russian oil, particularly the 4 million b/d Russian oil imports into Europe," said Shin Kim, head of oil supply and production analytics, S&P Global. "Saudi Arabia and the UAE could potentially add 1.5 [million]-2 million b/d combined if they ramp up to full capacity, but even these volumes likely cannot be sustained for an extended amount of time."

If anything, Nasser said, even more investments in oil and gas are needed to help "decarbonize" the production process. Aramco and other major producers in the Oil and Gas Climate Initiative announced plans March 8 for net-zero methane emissions goals from oil and gas operations by 2030.

"Our industry is not perfect," he said. "We are ready to listen; we are ready to engage."

Speaking immediately after Nasser at CERAWeek, Occidental Petroleum CEO Vicki Hollub downplayed the ability of US producers to quickly ramp up oil volumes in 2022.

"We're in a really dire situation here," Hollub said, arguing against estimates that the US could add 1 million b/d of production this year. "Nobody really prepared for significant growth this year."

Only the Permian Basin is notably growing in the US, and it is already producing at record highs after working through most of the best wells in its drilled but uncompleted inventory, she said. The rig count is up, but not enough, and supply chain issues for procuring sand and downhole piping will escalate this year, Hollub added.

"We're in a significantly challenging environment here today," she said.