London — OPEC's largest oil producer is turning its taps on after 16 months of curbing output.
It comes with oil prices back on the brink of $80/b spurred by sharp supply outages from Venezuela and Libya and with the potential for the market to tightening further due to looming sanctions on Iran's oil sector. Saudi Arabia has changed its tone since May, reassuring some of the world's biggest crude oil consumers, especially the US and India, that it is willing to balance the market.
That has drawn fellow OPEC member Iran's ire, which has questioned whether changes to its production cut agreement in June to pump an extra 1 million b/d can come at the expense of other member's market share.
Saudi Arabia, meanwhile, continues to reiterate its readiness to use its spare oil production capacity to meet any future changes in oil supply and demand "when needed".
The kingdom has always maintained it can boost output by up to 2 million b/d and over the weekend it reassured the US it can deliver.
But S&P Global Platts Analytics believes the global crude market could be left short by that very same 2 million b/d by the end of the year.
The question whether the world's only swing producer has both the means and the motivation to pump to the maximum to meet global oil supply shortages at short notice and for the long-term therefore needs an answer.
While Saudi Aramco CEO Amin Nasser told Platts recently that "maximum sustainable production" was 12 million b/d up from 10.03 million b/d in May, industry experts believe Saudi Arabia will struggle to pump more than 1 million b/d of additional output.
Platts Analytics says even if Saudi Arabia produces close to 11 million b/d it would be running its system at stress levels.
Saudi crude production averaged 9.96 million b/d from January to May this week, according to Platts OPEC survey data and is set to add at least 300,000 b/d in June according to preliminary survey data as it starts to empty some of its tanks.
Saudi crude output averaged 10.38 million b/d in 2016, before OPEC and non-OPEC started their production cuts.
EIA defines spare capacity as the volume of production that can be brought on within 30 days and sustained for at least 90 days.
In the longer term Saudi Arabia could possibly reach the 12 million b/d but it would take significant time and investment and doesn't fit the spare capacity definition.
There is the possibility of an emergency surge in output towards 12 million b/d whereby oil fields are depleted beyond what would be considered a reasonable rate and could end up damaging its production abilities further out.
Saudi Arabia shares with Kuwait a partitioned neutral zone that can generate up to 500,000 b/d.
The closure of the key fields, Khafji and Wafra, has led to a political stand-off between the two OPEC producers.
The restarts of these fields will be crucial for the kingdom if it wants to reach its 12 million b/d target.
Earlier this week, Japan's Toyo Engineering said the Khafji oil field shared by Saudi Arabia and Kuwait is being prepared to restart production in 2019.
Khafji was shut in October 2014 for environmental reasons and Wafra has been shut since May 2015 due to operational difficulties.
Industry experts believe it will take time for production to return should the issue be resolved.
The country's largest oil export terminals are in the port of Ras Tanura.
The port can handle capacity of about 6.5 million b/d, according to the EIA.
All of Saudi's key crude oil grades load from here along with condensate and products.
The port comprises three terminals: Ras Tanura terminal, Ju'aymah crude terminal, and Ju'aymah LPG export terminal.
The Ras Tanura crude terminal has a 33 million barrels storage capacity.
Sea shipping capacity is crucial to Saudi Arabia given that it lacks international pipelines.
The other key crude export terminal is the King Fahd terminal in Yanbu on the Red Sea, which has a loading capacity of 6.6 million b/d.
Total crude oil storage capacity at the terminal is 12.5 million barrels.
Only Arab Light crude oil grade is loaded at the Yanbu terminal.
Saudi Arabia has other smaller ports, including Ras al-Khafji, Jubail, Jizan, and Jeddah.
The main customers of the kingdom's oil are in Asia, with the region taking almost two-thirds of the country's oil exports.
Japan, China, India and South Korea are the largest buyers of Saudi crude. The main buyers in this region are China's Unipec, CNOOC and Sinochem; Japan's Nippon Oil Corporation, Cosmo Oil, Idemitsu Kosan; and India's IOC, BPCL and Reliance.
The US, a key ally of the kingdom, is also a sizeable buyer, taking around 15% of Saudi crude exports.
Saudi Aramco operates the 603,000 b/d Port Arthur refinery in Texas, which is a pivotal buyer.
Flows to Europe are around 10% of Saudi crude loadings with the bulk being exported from the Sidi Kerir terminal in Egypt.
CRUDE QUALITY, EXPORT GRADES
Saudi crude is generally a mix of heavy to medium sour oil, which is generally high in sulfur and yields a decent amount of residual fuel and vacuum gasoil.
The oil is particularly popular with complex refineries in Asia, US and Europe which can crack heavy sulfurous crudes, and still yield distillate products due to the refiners having complex secondary units.
The key export grades are Arab Heavy, Arab Medium, Arab Light and Arab Extra Light.
Some of Saudi's key oil fields are Ghawar, Khurais, Shaybah, Safaniyah, Qatif and Zuluf.
Saudi Aramco plans to begin exports from the Muajjiz oil terminal on the Red Sea sometime before the end of 2018.
This would raise Saudi Arabia's total loading and (crude and products) export capacity to about 15 million b/d from 11.5 million b/d.
Liquid fuels continue to account for half of the current energy mix.
Saudi Arabia burned an average of 458,000 b/d of crude last year in its power plants, with a peak of 680,000 b/d in June, according to the Riyadh-based Joint Organizations Data Initiative.
The government hopes to increase the share of gas used to 70% over the next 10 years, nearly doubling its current gas production to 23 Bcf/d by 2026.
It processed an all-time high of 12 Bcf/d of raw gas in 2016, producing 8.3 Bcf/d of sales gas.
That was up from around 8 Bcf/d of sales gas in 2015, according to its annual review released in June last year.
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