ANALYSIS-New Saudi refineries to reduce crude oil export cushion
* Saudi to start up three big refineries over five years
New plants can use nearly tenth of current crude capacity
* Refinery expansion to alter global trade flow for fuel
By Daniel Fineren and Humeyra Pamuk
DUBAI, Jan 11 (Reuters) - Saudi Arabia's drive to build new refineries means its maximum capacity to export crude, the big gun it aims at other producers wanting higher oil prices, is set to decline over the next five years.
Major oil importers are not alarmed, as actual Saudi crude exports are well below their maximum and because more U.S. and Iraqi crude will become available. But India's refining industry has reason to worry about the emergence of a rival processing more than a million barrels a day.
The three new refineries, each able to process 400,000 barrels per day (bpd) of mainly heavy crude, could consume nearly a tenth of the kingdom's current officially declared production capacity of 12.5 million bpd when they are all fully operational in 2017.
Saudi Arabia has so far used its unique ability to produce much more crude than needed to counter price hawks led by Iran in the Organization of the Petroleum Exporting Countries and keep prices at levels that do not over burden the world economy.
Now the world's largest crude exporter has invested tens of billions of dollars raising refinery capacity to maximise profits by selling more products while cutting a fuel import bill that has ballooned since 2007 as domestic demand grew.
The trio of refineries will continue major exports of petroleum in the form of diesel and gasoline, moderating any erosion of the kingdom's overall clout in crude oil markets.
Some traders at Asian refiners, the biggest buyers of Saudi crude, were relaxed about the availability of crude.
"I am not worried about the supply situation. Supply of crude is ample, especially from the (Middle East) Gulf," a trader at north Asian refiner said.
"Iraq's production is increasing, that could make up. But, refining margins will definitely be a concern if Saudi Arabia begins to export products."
Fereidun Fesharaki, chairman of Facts Global Energy, said the new refineries will result in lower exports of Arab Heavy crude, one of the Saudi grades, pushing up its prices.
"Despite growing demand at home, most of the products will go to exports and have a regional impact on product markets and the flow of products globally," Fesharaki said in FGE's latest global refining report.
Even when making up for supply losses from Libya and Iran over the last two years, Saudi Arabia has rarely needed to pump more than 10 million bpd and Saudi officials have said they see no need to increase capacity beyond the current sustainable levels of around 12.5 million bpd.
A surge in North American shale oil production and rising Iraqi exports have taken much of the pressure off Riyadh to maintain such a large and costly spare capacity cushion that it has never and may never test.
"The rapid increase in shale oil production will lower U.S. import of crude oil from the Middle East in the next few years," a senior trader at a western oil company in Singapore said, adding that lower U.S. demand would push more west African crude into Asia.
"Margins will be affected if Saudi products hit the markets, especially with the global economy slowing as well, unless there are more closures of old refineries," he said.
Saudi Arabia's move from selling only crude towards more value-added products aims to diversify its economy and should be profitable, especially as the refineries will use mostly heavy and sour oil that it now sells at a discount to other grades.
"More of our liquids production can travel farther down the value chain, rather than being exported as crude oil, refined products or natural gas liquids," state run oil company Saudi Aramco says on its web page.
As the new refineries use more crude, Aramco may run its existing oil wells harder but it is already spending to offset declining production from older fields. Unless it invests yet more heavily to build more capacity, its maximum crude export potential will fall.
Rapidly rising domestic demand for vehicle fuels and power plants has seen implied Saudi crude oil use rise to an average of 2.4 million bpd in the 12 months to the end of October, 2012, according to Reuters analysis of official figures available through the Joint Oil Data Initiative (JODI).
By comparison, the gap between Saudi production and exports in the same period of 2005 was 1.9 million bpd, pointing to a 20 percent rise in Saudi crude use over the last five years.
Current Saudi crude consumption rates cap its annual average crude exports at around 10.1 mln bpd, with more available in winter and less in summer when air-conditioning needs are high.
Adding another 1.2 million bpd of refinery capacity raises potential Saudi crude use to 3.6 million bpd by 2017, unless it succeeds in reducing the oil it burns for power generation.
If not accompanied by a rise in crude production capacity that more than offsets declines in maturing fields, increasing refinery use could reduce maximum export capacity to around 9 million bpd in five years time.
Whether that will be an issue for world oil markets is unclear, as even when Saudi production averaged a record of 9.9 million bpd in the first nine months of 2012, its crude exports averaged just 7.5 million bpd.
So Saudi Arabia could still increase exports by 1.5 million bpd above the record levels sold in that period, even if the three refineries due online over the next five years were already running flat out.
MAJOR OIL FIELD MANIFA
By far the largest of the new Saudi oilfields on the horizon is Manifa, which is expected to produce around 500,000 bpd by mid-2013 and hit full flow of 900,000 bpd of heavy crude in 2014.
"The key thing for me is what happens with Manifa... If Manifa is only replacing decline in other fields, then that of course implies a shift from exports to more domestic use," Robin Mills of UAE-based energy consultancy Manaarco said.
If oil use in power generation can be controlled by more gas use, Saudi Arabia will remain a significant oil product exporter. But its net exports of crude and products could drop by 600,000-1,100,000 bpd by 2020, depending on the pace of Saudi demand, unless it raises crude output further, Mills said.
Most of Manifa's output this year is likely to be consumed by the new Jubail refinery, the largest addition to global refining capacity since 2009, which developers Saudi Aramco and French oil major Total expect to hit full production in the second half of next year.
Rising output from Manifa, beyond Jubail's maximum processing capacity, could make more Arabian heavy crude available for export from late 2013 to late 2014.
But the expected start up in late 2014 of Aramco's Yasref refinery, being built on the Red Sea coast with China's Sinopec , will use up most of what is left of Manifa's output from 2015, with the heavy and medium-crude Jizan refinery on the Red Sea set to soak up 400,000 bpd more Saudi crude from 2017.
(Additional reporting by Ramya Venugopal in Singapore; Editing by Anthony Barker)