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Royal Dutch Shell Plc .com: Saudi says crude is flowing freely

From The Houston Chronicle
June 28, 2006, 12:01AM
U.S. ARAB ECONOMIC FORUM
Saudi says crude is flowing freely
Prince calls lack of refining capacity the real problem

By LYNN J. COOK and BILL HENSEL JR.
Copyright 2006 Houston Chronicle

Saudi Arabian crude is stranded in tankers on the high seas, circling the globe in a desperate search for buyers, according to the kingdom’s ambassador to the U.S., Prince Turki al-Faisal.

The ambassador told an audience at the U.S.-Arab Economic Forum held at the George R. Brown Convention Center on Tuesday that 350,000 barrels of heavy crude oil have been lifted from the ground but cannot be sold because the world lacks the refining capacity to turn it into useful fuels like gasoline or diesel.

He later confirmed most of that is already loaded onto tankers, just waiting for sales contracts.

How long can the situation last?

“As long as there is no customer,” he said.

The stranded oil helps to illustrate Saudi Arabia’s insistence that it is doing everything it can to try to quell oil prices and that the market is out of its hands.

The world’s refiners only have excess room to run lighter crudes.

High demand for that kind of oil, coupled with the fact that it is easier to turn light crude into transportation fuels, continues to drive up oil prices even though there’s plenty of the heavier stuff out there.

The prince said that given the situation with the crude it is trying to sell, it is obvious it is not limited supply that is driving oil prices up.

“The fact is, the biggest bottleneck in oil prices is the security situation, particularly in our part of the world,” he said.

But exacerbating the situation is a lack of refinery capacity, he noted.

While Saudi Arabia is building more refineries and talking about expanding into hot markets like China, there is a lack of refinery capacity in the U.S., he pointed out.

One way to deal with the need for increased capacity is to reduce demand for oil in the U.S. by increasing fuel-efficiency standards, said William Berry, executive vice president at Houston-based ConocoPhillips.

He said tougher standards would help conserve gasoline and deal with growing demand for energy.

“The federal government needs to step up efforts to promote the efficient use of energy in all sectors of the economy, including transportation,” Berry said.

Increased efficiency can help relieve some of the pressure on supplies, he added.

The U.S. consumes 20 million barrels of oil a day but produces only about one-third of that, said John Watson, president of international exploration and production for Chevron, who joined Berry on the morning panel.

Berry called it disturbing that many discussions about energy focus on reducing reliance on what is labeled unstable foreign supplies of oil.

“Repeated pronouncements by U.S. lawmakers about backing out Mideast imports may deter Arab producers from expanding capacity at the very time the world needs them to do so,” he said.

John Hofmeister, president of Shell Oil, said U.S. interdependence with Middle Eastern oil producers is fundamental to sustained economic growth for countries throughout the world.

Steve Simon, director and senior vice president of Exxon Mobil, called the Middle East vitally important.

“The U.S. has a strong interest in what happens to production in the Middle East,” Simon said.

Albert Helmig, executive adviser and former vice chairman of the New York Mercantile Exchange, said the entire world needs oil.

“The demand for oil is global, not regional,” Helmig said. “We are all interdependent.”

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