Drone attack cuts global oil capacity by 5%

DRONES have targeted the world’s biggest oil exporter, Saudi Aramco, reducing the state-owned Saudi-Arabian oil and gas company’s output by about 50%, and global crude oil production by 5%.

Two facilities, located in Abqaiq and Khurais, Saudi Arabia, were attacked in the early hours of 14 September, causing several explosions and fires which were subsequently controlled. Operations at the facilities have been temporarily suspended as a result. No injuries were reported.

According to the Financial Times, the attack is the most significant on Saudi Arabia’s energy infrastructure in the last 30 years.

Preliminary estimates say the incident will impact 5.7m bbl/d of oil production, which based on conflicting reports constitutes 5–6% of global production. Some of the lost capacity will be offset using stockpiles. Saudi Arabia has about 188m bbl of oil in reserve. The attack will also impact about 700,000 bbl/d of natural gas liquids (NGLs), which will reduce supply of ethane and NGLs by up to 50%.

Saudi Arabia’s domestic supply of electricity and water from oil, as well as fuel supply, are expected to be unaffected.

Aramco is still assessing the implications and working to recover the lost oil. US news broadcaster CNBC reported that Aramco aims to restore 2m bbl/d of the lost output by the end of Monday. According to reports it could be weeks before the company returns to its full production capacity.

The Saudi Press Agency reports that the Saudi Minister of Energy, Prince Abdulaziz bin Salman bin Abdulaziz, said that this “terrorist” attack is an extension of recent attacks on oil and civil facilities, pumping stations, and oil tankers in the Arabian Gulf, aimed at global oil supply and its security.

The report adds, that according to the minister, this “once again highlights the importance of the international community undertaking its role in maintaining energy supplies against all terrorist actors who carry out, support and finance such cowardly acts of sabotage”.

The Houthi movement, an Iran-backed Yemeni militia, has claimed responsibility for the drone attacks. However, the US has blamed Iran for the recent attacks. According to The Guardian, US officials claim evidence suggests that the attack came from the direction of Iran or Iraq rather than Yemen. Iran denies responsibility, and Iraq denies its territory was used for the attack.

Saudi Arabia’s Ministry of Interior says that an investigation is underway.

Speaking to CNBC, Sarah Cottle, Global Head of Market Insight at energy and commodities information company S&P Global Platts, said that the incident “effectively eliminates” spare global capacity. She added that whilst global stockpiles provide a buffer, they can only last so long, and that the “medium- to long-term outlook has to be bullish”

Oil prices surged following the attack. According to the Financial Times, when markets opened on 16 September, Brent Crude, which serves as a benchmark price for global oil purchases, rose by almost 20% to US$71/bbl, reportedly the biggest spike in three decades. Prices later dropped again to about US$66/bbl.