Carola Hoyos

FT Syndication Service

ROME: Saudi Arabia, the world's biggest oil producer, has put on hold plans to increase long-term production capacity from its vast oil fields beyond existing proposals, its most powerful policymakers have said.

In a series of statements, including one by the king himself, the kingdom has warned consumers it does not reckon there is a need for further expansion beyond 12.5m barrels a day, an assumption disputed by the world's biggest developed countries.

The realisation Saudi Arabia will not increase production to 15m barrels a day as quickly as important consumers and the markets had assumed could put further pressure on oil prices, which touched fresh records in the middle of last month.

Mr Naimi has floated the figure of 15m barrels a day several times as representing the next phase of Saudi expansion although the number has never been adopted officially as a target. International organisations such as the International Energy Agency (IEA) have taken the statements as signalling that Saudi Arabia will continue with its expansion plans.

New York benchmark futures reached a record of slightly less than $117 a barrel lately in response to fear that Russia, the world's second largest producer, was unable to increase production in the next years.

Abdullah Jum'ah, chief executive of Saudi Aramco, the kingdom's oil company, said in a closed door meeting with oil ministers and executives in Rome on April 20 that market signals were 'imperfect' and that there were uncertainties created by the move away from oil, the world's worsening economic outlook and the recent turbulance in the financial markets, according to one person who took notes at the discussions. This has impacted Saudi Arabia's view on the profitability of investing billions of additional dollars into its industry at this point, Gulf sources said.

In a recent interview with Argus, an industry newsletter, Ali Naimi, Saudi Arabia's energy minister, made clear Saudi Arabia had "no plans" to embark on its next phase of expansion. "We are idling at around 9.0m bpd and we will reach capacity of 12.5m bpd by 2009."

He added: "That is substantial spare capacity. As far as I know, all the latest projections, at least up to 2020, do not require anything higher than that."

Forecasts by the IEA, the watchdog of the main consuming countries and an important participant in the forum, reach a different conclusion.

Most recently the group calculated that, even if all the policies to increase renewable fuels and to use oil more efficiently were to be enacted, the world would still need Opec's daily production to increase by 11.5m barrels by 2030, the bulk of which would have to come from its biggest members, such as Saudi Arabia.

That is a tall order. It is more than 50 per cent more than Opec has managed to increase output during 1980 to 2006.

Recent announcements will harden the view of those sceptics who argue the kingdom is unable to boost production because of the high decline rates at its fields - a view that is still in the minority among those in the industry and one Riyadh emphatically rejects.

King Abdullah, reported by the official news agency this month, said: "I keep no secret from you that when there were some new finds, I told them: 'No, leave it in the ground, with grace from God, our children need it'."