Page last updated at 23:16 GMT, Thursday, 10 July 2008 00:16 UK

Giant oilfield to raise Saudi output

By Andrew Walker
Business correspondent, BBC World Service, Khurais, Saudi Arabia

Workers at the Khurais oil field
Workers brave the heat to get the project finished in time

The desert sun is beating down. The temperature is 44 degrees Celsius. And yet there are men working in the baking heat.

Not all that energetically, perhaps, but they are working nonetheless. For them, there is no escaping on board the visiting air-conditioned bus. Instead, simple shelters provide scant, yet welcome, relief.

Welcome to Khurais in the Saudi Arabian desert, 160 kilometres east of the capital Riyadh.

It is described by the national oil company, Saudi Aramco, as the largest oilfield development in the history of the industry, containing 27 billion barrels of oil.

Huge investment

The main site is called a central processing facility that will be able to handle 1.2 million barrels a day of crude oil, from three separate oilfields.

That would be more than 10% of Saudi Arabia's total oil production capacity.

The project also includes 310 new wells and the improvement of 110 existing ones.

Khurais oil field
Khurais is described as the largest oilfield development yet

A sea-water treatment plant on the Gulf coast is also being expanded.

It will supply an extra two million barrels a day of water to inject into the ground to maintain the pressure as the oil is extracted

The plan for the whole project involves 4,000 kilometres of piping, and nearly half a million cubic metres of concrete.

In total, there are 28,000 people working on the project, although they are not all toiling under the desert sun.

All this comes with a hefty price tag - $10bn (5bn).

Raised output

The Khurais project is a key element in Saudi Arabia's $60bn plan to increase its production capacity.

The Kingdom's aim is to be able to produce 12.5 million barrels a day by the end of next year, though Saudi Arabia generally keeps some spare capacity.

Its current production is about 9.7 million barrels a day.

Without delay

Outside Saudi Arabia there is not much spare capacity among oil suppliers.

Many analysts say that is one of the key reasons prices are so high - although that is not the prevailing view in Saudi Arabia, where they blame speculators in financial markets.

Workers at the Khurais oil field
Some 28,000 workers are involved with the Khurais project

So it does matter to oil importing countries that Khurais should be ready to pump oil on time in June next year.

Aramco executives say it will be.

On this site in the desert, the central processing facility, construction started in February last year.

Mohammed Rabeh from Aramco's project department says it is now 55% complete and 99% of the materials are on site.

But outside Saudi Arabia there are some doubts.

Another Aramco project to bring capacity on stream is behind schedule.

The Khursaniya project was supposed to be ready at the end of last year.

It still isn't.

Amin Nasser, a senior vice-president of the company, says it will be ready in August. And he insists Khurais will be on time.

'Peak oil'

If it is on time, it should help Saudi Arabia keep ahead of demand.

Mr Nasser points out that it costs money to maintain spare capacity.

Khurais oil field
Sceptics say there is less oil beneath the sand then the Saudis estimate

Saudi Arabia generally does do that, in order, he says, to stabilise the market.

With oil prices so high, you might wonder what on earth he means by stability, but he insists that prices are not high because of any shortfall in supplies.

And it is certainly true that unused capacity doesn't come cheap.

There is also a bigger and longer term question about Saudi Arabia's oilfields.

It is what's called the "peak oil" hypothesis. That's the idea that the world is at or close to the maximum level of sustainable oil production it can achieve.

The geologists, economists and analysts who take that view argue that Saudi Arabia's reserves are not as plentiful as they tell us.

Looking round this hot sandy construction site it's impossible to tell. But in Saudi Arabia they insist the oil will last for decades.

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