Saudi burns more crude for power
Singapore, July 27, 2009
Saudi Arabia, the world's top oil exporter, is burning more crude in domestic power plants to keep new wells pumping and produce cleaner electricity, likely eliminating demand for imported fuel this summer.
The use of even more crude oil to generate electricity allows the kingdom to put to use fresh output from a major new oilfield while holding firm to its Opec commitment to curb exports. It also helps the kingdom meet stricter environmental rules.
Estimates on how much crude it is burning differ, but the kindgom's own data show it has risen in recent years, and it could be as high as 470,000 bpd of crude this year, up 62 per cent from 2008, consultancy FACTS Global Energy says.
A Saudi source familiar with the kingdom's energy sector said the maximum it could burn at power stations would be 300,000 bpd, although another 120,000 bpd could be burned to power refineries and other facilities related to upstream production.
While the rise would have little impact on global crude oil markets more focused on Saudi exports -- which Riyadh has kept in check to help drain swollen global stockpiles -- the substitution will likely curtail its traditional summer fuel oil buying binge.
'They won't be importing fuel oil this summer because they are going to be burning more crude,' a Middle East trade source familiar with Saudi Arabia's fuel oil import programme said.
Burning crude instead of fuel oil is less of a loss to Saudi Arabia now than it has been historically, as fuel oil prices have strengthened. Fuel oil now trades at a discount of $5 to benchmark crude, about half the discount on average in 2008.
FACTS estimates that during peak summer power demand, crude burned could rise as high as 500,000 to 600,000 bpd. Less is used in winter when power demand is weaker.
'In early 2009, a significant fraction of the fuel oil used in the power sector was replaced by crude, partly due to tighter regulations on the quality and metals content of fuel oil burnt in power stations,' said Vijay Mukherji, a FACTS senior analyst.
Saudi data from 2008 seem to support the thesis: Saudi Aramco produced 8.96 million bpd of crude oil last year, exporting 6.88 million bpd and refining 1.58 million bpd, its annual report showed.
That left 500,000 bpd unaccounted for, crude likely to have been used by power plants, energy facilities or put into inventories -- nearly 140,000 bpd more than the year before. Some 50,000 bpd of that went into domestic inventories, according to Saudi data submitted to the international JODI database.
All told, it suggests the kingdom kept nearly 100,000 bpd more crude domestically that it did not refine or add to stocks in 2008 than in 2007, according to Reuters calculations.
The kingdom burns a total of 800,000 bpd of crude and oil products to generate power, a Saudi Electricity Co (SEC) official said, but he was unable to say how much was crude or fuel oil.
FACTS estimates the kingdom used up to 240,000 bpd of fuel oil for for power generation last year.
Saudi Arabia typically imports some 38,000 bpd of low-sulphur fuel oil from the Mediterranean and Europe in summer to meet peak power demand as the desert heat stokes air-conditioning use. The imports top up domestic refinery output.
The shift to burning more crude -- thought to be mostly Arab Light that has about one-fifth as much metals content as fuel oil -- to produce electricity is partly due to more stringent environmental requirements of domestic utilities.
'The power stations are getting tougher on fuel standards... there is now a requirement for lower metals in the fuel being used,' a senior oil trader said. 'So they are now having to burn more light crude, which has lower metals content.'
The SEC official said a committee on clean development headed by oil ministe