Mar 212010
 
Third Saudi State (present day) (Saudi Arabia)
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Last summer, Saudi Arabia put the final bolt in its largest oil expansion project ever, opening a new field capable of pumping 1.2 million barrels a day — more than the entire production of Texas. The field, called Khurais, was part of an ambitious $60 billion program to increase the kingdom’s production to meet growing energy needs.

It turns out the timing could not have been worse for Saudi Arabia.

Only two years ago, consumers were clamoring for more supplies, OPEC producers were straining to increase their output, and prices were rising to record levels. But now, for the first time in more than a decade, the world has more oil than it needs.

As demand slumped because of the global recession, Saudi Arabia was forced to shut about a quarter of its production. After raising its capacity to 12.5 million barrels a day, Saudi Arabia is now pumping about 8.5 million barrels a day, its lowest level since the early 1990s.

“2009 was painful for us as it was for everybody else,” said Khalid A. al-Falih, the president and chief executive of Saudi Aramco, the kingdom’s state-owned oil giant, and a company veteran who was promoted to the top post at the beginning of last year. “We experienced the same cash flow constraints that everybody did. But we adjusted quickly and, certainly, everything that was strategic to us was not touched.”

The recession also precipitated a milestone for Saudi Arabia and the global energy market. While China’s successful economic policies paved the way for a quick rebound there, the recession caused a deeper slowdown in the United States, slashing oil consumption by 10 percent from its 2005-7 peak. As a result, Saudi Arabia exported more oil to China than to the United States last year.

While exports to the United States might rebound this year, in the long run the decline in American demand and the growing importance of China represent a fundamental shift in the geopolitics of oil.

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