DHAHRAN, SAUDI ARABIA -- Saudi Arabia expects to be producing 8 million barrels of crude oil a day by the end of this year and is accelerating its long-range expansion program to reach 10 million barrels a day by 1995, according to senior officials of Saudi Aramco, the state-owned oil company.
Before Iraq's invasion of Kuwait Aug. 2, Saudi production was 5.3 million barrels daily, the limit it accepted at a July meeting of the Organization of Petroleum Exporting Countries.
The short-term production increase and the accelerated program for the 1990s reflect the desert kingdom's desire to stabilize the world oil market and expand its customer base, Saudi officials said.
The 8 million figure represents a jump of 300,000 barrels daily over current Saudi output, which was boosted dramatically to help make up for world production lost when Iraq invaded Kuwait. With the addition of another planned 500,000-barrel daily increase by the middle of next year, production would be close to the pre-invasion figure, releasing at least one of the pressure points that have driven up world oil prices.
Saudi Arabia has by far the world's biggest crude oil reserves but few other resources. If high prices or doubts about the reliability of supply drive oil consumers to other sources of energy, as they did in the 1970s, the kingdom's long-term prosperity could be jeopardized, Saudi officials said.
In an effort to help fill the world oil supply gap of 4.35 million barrels a day caused by the loss of Iraqi and Kuwaiti output, Saudi Aramco put many of its 43,000 workers on overtime in a concerted drive to increase its production by 2 million barrels as fast as possible.
The effort involved reactivating mothballed wells, pipelines, pumping stations and gas-oil separators, as well as modifying some refineries to process different mixtures of oil, Saudi Aramco officials said.
Current production is 7.7 million barrels daily, according to Nasr Ajmi, Saudi Aramco executive vice president. That figure represents about 15 percent of total consumption outside of the Soviet Union and Eastern Europe. By the end of the year it will be 8 million and by mid-1991 the target is "8.5 or better," Ajmi said.
Dismissing Western press reports of technical problems hampering the production effort, Ajmi said, "We have every reason to believe we can get to that level and sustain it."
Facilities that were mothballed when oil prices plummeted in the mid-1980s were in "such good shape," Azmi said, that "technically, we didn't need three months. Working a lot of overtime, we were able to get 2 million barrels within two weeks."
With the price of oil hovering near $40 a barrel, 2 million additional barrels means $80 million a day in revenue for Saudi Arabia to pay for the military confrontation with Iraq -- not a minor consideration for a country that incurred budget deficits throughout the 1980s.
But Saudi planners are more concerned about the long-term implications of rising prices and volatility in the market, according to economists and government officials here. Petroleum Minister Hisham Nazer has said many times that Saudi Arabia wants a balanced relationship in which customers are assured of reliable supplies of reasonably priced oil and the Saudis are assured of a long-term market for their oil and reasonable profits. Shortages and skyrocketing prices threaten those objectives.
The government made the decision to expand the country's capacity to 10 million barrels a day last year, reportedly over the protests of some analysts in the Petroleum Ministry and in Saudi Aramco who objected to spending the $15 billion to $30 billion it is expected to cost when prices were falling in a worldwide oil glut.
Now, what began as a decade-long program of expansion -- one that some here perceived as a white elephant in the making -- has turned into a full-speed-ahead campaign that will mean billions of dollars for American construction firms such as Fluor Daniel Corp. and Ralph M. Parsons Corp., which have contracts to manage large portions of the expansion.
Saudi Aramco is hiring again, Ajmi said, after several years of declining payrolls.
The company is also negotiating with shipbuilders to expand its tanker fleet, Ajmi and other senior officials said. This is consistent with the company's effort to become more involved in refining, transportation, marketing and other "downstream" operations, and not be just a producer of crude oil.
Doing 10 years worth of work in five years means that Saudi Aramco will have to compromise some of its safety and quality standards, some company officials said. For example, some facilities will be expanded and refitted without being taken out of production, a deviation from standard safety procedures.
Some new wells may be brought on line before the development of facilities to capture and use the natural gas that is a byproduct of oil production. These "associated" gases are the chief source of industrial energy within the country and it is Saudi Aramco policy not to waste, or flare, any gas, but some flaring will apparently be necessary, engineers at company headquarters said.
The Saudi oil producing company had even bigger expansion plans in the mid-1970s, when it was still known as Aramco and owned by the four American oil companies that created it. Company executives talked then about 12 million barrels a day or more. But the world oil glut and falling prices aborted those plans in the early 1980s.
Now, Ajmi said, the company is prepared to take the risk that a costly expansion will again create production capacity that will not be needed if Kuwait and Iraq return to normal. But he said, "It's easier to go down" by mothballing pumps and pipelines "than it is to go up" by having to build new facilities in a hurry when needed.