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Saudi oil output 'stretched to the limit'
by Staff Writers
Riyadh, Saudi Arabia (UPI) Jan 13, 2012

China oil firm slams 'puzzling' US sanctions
Beijing (AFP) Jan 14, 2012 - A Chinese oil firm which the US placed sanctions on saying it was the largest seller of refined petroleum products to Iran has denied the claim as "fiction", state media said Saturday.

Washington Thursday said Zhuhai Zhenrong brokered delivery of more than $500 million in gasoline to Iran from July 2010 to January 2011 and put in place sanctions barring the Beijing-based company from doing business in the US.

The sanctions came a day after US Treasury Secretary Timothy Geithner met Premier Wen Jiabao and other Chinese leaders to ask for help squeezing Iran's key oil revenues and pushing Tehran to halt its nuclear ambitions.

"The accusations that we export refined oil to Iran is complete fiction. We have never done that. The sanctions are truly puzzling," a representative for Zhuhai Zhenrong was quoted as saying in The Global Times newspaper.

Calls to the company went unanswered on Saturday and China's ministry of foreign affairs could not be reached for comment.

Zhuhai Zhenrong defended itself as Wen left Saturday for the Middle East to visit key oil-producing nations as rising tensions over Iran's nuclear programme spark fears of major oil supply disruptions.

Energy-hungry China relies on Iran for 11 percent of its oil imports.

Vice foreign minister Cui Tiankai this week warned against making any links between China's trade relations with Iran and pressure on Tehran's nuclear programme.

The US sanctions, also placed on companies from Singapore and the United Arab Emirates -- where Wen will make a stop -- bar the three firms from receiving US export licences, trade support from the US Export Import Bank and loans over $10 million from US financial institutions.

Zhuhai Zhenrong's website said the company, founded in 1994, had imported a total of 150 million tonnes of crude oil by the end of 2010 and has a long-term contract to import fuel oil from the National Iranian Oil Company.

"The sanctions don't make any difference to our company's business because we have never had any business cooperation with any United States companies," a representative, Zheng Mei, told the Legal Mirror newspaper on Friday.

Wen, on his Middle East trip, will first spend the weekend in Saudi Arabia -- the largest provider of oil to China -- before going to the UAE on Monday and then on to Qatar on January 19.

Saudi Arabia, the world's leading oil exporter, has for decades used spare production capacity to cover shortfalls in output by other oil states and prevent prices spiraling in times of crisis.

But questions are being asked now whether the kingdom will be able to come to the rescue if Iran blocks Persian Gulf exports -- at least one fifth of the world total -- in its current confrontation with the West.

On paper, Saudi Arabia has spare capacity totaling around 2 million barrels per day.

Earlier this year, it raised its output to 10 million bpd, in part to pick up the slack from the drop in output by Libya because of its seven-month civil war and other drops in strife-torn Syria, Yemen and South Sudan.

That's the highest level for the kingdom in 30 years.

On Dec. 14, the Organization of Petroleum Exporting Countries, which includes Saudi Arabia, increased its production ceiling from 24.84 million bpd to 30 million bpd.

But apart from Saudi Arabia and possibly the United Arab Emirates, no OPEC member has any spare production capability to act as a cushion in the event of a major supply crisis.

So the kingdom, as it has so often in the past, will be expected to play a crucial role if the global oil supply is heavily disrupted, as it would be if the Strait of Hormuz is closed.

In November, Khalid al-Falihj, chief executive of state-owned Saudi Aramco, disclosed that Riyadh has halted a planned $100 billion expansion after the kingdom had reached 12 million bpd capacity.

He said the pressure on Saudi Arabia to raise its output capacity had "substantially reduced."

The kingdom launched the expansion program in the early 2000s, when production was pegged at 8.5 million bpd. The target was 15 million bpd.

Energy analysts said the decision to curtail the drive to boost production capacity may have stemmed from pressing budgetary problems as the ruling House of Saud grapples with the pro-democracy uprisings that have convulsed Arab republics for the last year.

"The current focus of Saudi Arabia is on domestic social spending on the back of the Arab Spring," observed Amrita Sen, an oil industry analyst with Barclays capital in London.

King Abdallah announced a social welfare and public spending package worth $130 billion earlier this year in a bid to stifle any demand for political reform by the kingdom's 12 million citizens.

Industry sources say Saudi Arabia would have difficulty sustaining production rates higher than its declared capacity for lengthy periods.

It has declared reserves of 262 billion barrels of oil, the highest in the world. But these are what the Saudis say they are, and there have been suspicions for some time that Riyadh's reserves may not be what they seem.

In February 2011, diplomatic cables from the U.S. Embassy in Riyadh to the State Department, released by WikiLeaks, cited Aramco's senior vice president for exploration, Abdallah al-Saif, as claiming Saudi Arabia had 716 billion barrels of total reserves, of which 51 percent was recoverable.

He further claimed that in 20 years Aramco would have reserves of 900 billion barrels.

That's roughly the combined reserves of the seven other leading producers, including Venezuela, Canada, Iran, Iraq and Russia.

But the U.S. diplomats quoted Sadad al-Husseini, a geologist and Aramco's former head of exploration, as warning in November 2007 that the kingdom's production capacity target of 12.5 million bpd, needed to keep a lid on prices, could not be achieved.

This, he said, was because the kingdom's reserves may have been over-estimated by as much as 300 billion barrels, nearly 40 percent.

One cable said that in al-Husseini's view, "once 50 percent of original proven reserves had been reached … a steady output in decline will ensue and no amount of effort will be able to stop it."

The U.S. consul in Riyadh observed that al-Husseini "is no doomsday theorist. His pedigree, experience and outlook demand that his predictions be thoughtfully considered."

Al-Husseini, who had publicly questioned Saudi Arabia's state reserves before his encounter with the U.S. diplomats, later claimed he had been misrepresented in the cables.

It's possible he was pressured into doing that. But even so, gulf-based sources believe Riyadh could have a tough time covering shortages stemming from a serious confrontation in the gulf.

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China, Saudi ink energy deals during Wen visit
Riyadh (AFP) Jan 15, 2012 - China signed energy deals with its top oil provider Saudi Arabia on Sunday as its Premier Wen Jiabao visited the kingdom with tension over Iran's nuclear programme sparking fears of major oil supply disruptions.

The Chinese leader met King Abdullah on Sunday, Saudi state news agency SPA said, adding that the two leaders "discussed regional and international developments, as well as cooperation between the two countries."

Saudi Arabia is the largest supplier of oil to energy-hungry China and bilateral trade between the two countries amounted to $58.5 billion in the first 11 months of 2011, according to Xinhua Chinese news agency.

The two countries inked several economic and cultural agreements on Sunday including a Memorandum of Understanding between Saudi petrochemical giant SABIC and China's Sinopec to build a petrochemical plant in Tianjin, SPA said.

They also signed a cooperation agreement for the "peaceful use of nuclear energy," it added without elaborating.

On Saturday, Wen met with Crown Prince Nayef bin Abdul Aziz, who is Saudi's interior minister, SPA reported.

Wen also held talks with the head of the Organisation of Islamic Cooperation, Ekmeleddin Ihsanoglu, an OIC statement said.

The Gulf tour will also take Wen to the United Arab Emirates and Qatar.

His trip comes as the West ups the stakes in its standoff with Iran, threatening to impose sanctions on the oil exports of the Islamic republic, which provides 11 percent of China's oil imports.

Iran is the third largest provider of oil to China. Qatar and the UAE, although both major oil-producing states, do not yet figure among the top 10 oil exporters to Beijing.

The visit comes days after Wen met with US Treasury Secretary Timothy Geithner, who was in Beijing to drum up support for the new US sanctions that aim to squeeze Iran's crucial oil revenues.

The measures bar any foreign banks that do business with Iran's central bank -- responsible for processing most oil purchases in the Islamic republic -- from US financial markets.

But China opposes the sanctions on Iran, which Washington and other nations accuse of developing nuclear weapons -- a claim denied by Tehran.

Japan's Foreign Minister Koichiro Gemba was in the Gulf last week also on a tour aimed to secure oil supplies in case of a shortage resulting from sanctions on Iran's oil exports.

Iran has starkly warned Gulf states not to make up for any shortfall in its oil exports under the new US and EU sanctions.

If Arab neighbours compensate for a looming EU ban on Iranian imports, "we would not consider these actions to be friendly," Iran's representative to OPEC, Mohammad Ali Khatibi, was quoted as saying by the Sharq newspaper on Sunday.


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Japan backtracks on Iran oil embargo
Tokyo (AFP) Jan 13, 2012
The Japanese government on Friday began backtracking on its pledge to join Washington's drive to strangle Iranian oil exports as top figures insisted no decision had yet been made. Just 24 hours after the country's finance minister indicated Tokyo was falling into line with US demands, the premier and his foreign minister both signalled a significant retreat. The US is trying to ramp up ... read more

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