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As OPEC's price enforcer and holder of most of the cartel's spare oil production capacity, we expect Saudi Arabia to keep a tight rein on output over the next ten years, with no apparent progress on oft-stated plans to boost productive capacity from the current 12mn b/d to 14-15mn b/d. The Kingdom is expanding exploration work in areas including offshore, gas and unconventionals, and we see continued expansion in the refining and petrochemicals segments, although gas price reform could deter foreign investment in the latter.

We highlight these trends and developments in Saudi Arabia's oil and gas sector:

- BMI expects Saudi oil production to cross 12mn barrels per day (b/d) by 2021, with the slow rise symptomatic of a desire to control oil prices and maintain relative market tightness.

- Oil consumption is expected to rise by about 1mn b/d over the period 2011-21, with much of the increase driven by the rising utilisation of crude oil for power generation.

- We expect Saudi Arabia to remain self-sufficient in natural gas, with production and consumption rising from an estimated 87bn cubic metres (bcm) in 2011 to 120bcm by 2021. Greater exploration of the Red Sea and prospects for tight gas production could bode well for gas reserves.

- The advancement of refinery projects could turn Saudi Arabia into a gasoline exporter, while petrochemicals producers continue to take advantage of cheap feedstock (gas, naphtha).

- Although still largely closed to foreign investment, international companies have found opportunities in the Neutral Zone, gas exploration, refining and in the case of service companies, technical assistance on tight gas drilling.

Saudi Arabia's dependence on oil prices leads to high volatility in the country's export revenues. Our assumptions of slower growth in China and further uncertainty with regard to the eurozone debt crisis, clearly pose a threat to global oil demand. We assume OPEC basket oil prices will fall from US$99.38/bbl in 2012 to US$93.23/bbl by 2014, thus creating downside risk to the Saudi macroeconomic outlook.

Click for Report details:Saudi Arabia Oil and Gas Report Q2 2012