THE WALL STREET JOURNAL: Thwarted Attack At Saudi Facility Stirs Energy Fears

Officials Worry Terrorists
Are Targeting Oil System;
Crude Futures Jump 4%
By BHUSHAN BAHREE and CHIP CUMMINS
February 25, 2006; Page A1
A foiled attack Friday on a Saudi oil-processing facility reinforced a dire concern for the U.S. and the energy industry: that terrorists are looking to score a direct hit on one of the world's largest petroleum chokepoints.
Friday's target, the vast Abqaiq facility, may be the single most vital cog in the world petroleum system. Saudi Arabia is the world's largest oil exporter. Abqaiq processes six million to seven million barrels a day of crude oil — equal to about two-thirds of daily Saudi output and 8% of the world's consumption.
“There is nothing that matches Abqaiq, in volume and strategic terms, in the world,” said Jim Burkhard, senior director of oil-market analysis at Cambridge Energy Research Associates in Cambridge, Mass.
Saudi officials said the thwarting of the attack proved that their oil assets are tightly guarded. Officials said two vehicles laden with explosives were attempting to drive through defenses at the facility's outer gates, roughly a mile from the main entrance, when security forces fired on them. The vehicles blew up, killing those inside and critically injuring two security guards. Al Qaeda has been implicated in previous oil attacks, but it wasn't clear if the group was behind this assault.
ABOUT ABQAIQ
• Oil was first discovered there in 1940.
• The oil field has 17 billion barrels of proven reserves.
• Aramco facility there processes about two-thirds of Saudi Arabia's oil output
• It is Aramco's main crude processing center.

Sources: Saudi government, EIA, Aramco
MORE ON OIL MARKETS
Issue Briefing: Unrest Behind Oil's RiseThough Saudi oil minister Ali Naimi said the attack and explosions at the site didn't affect oil and gas production or exports, markets were jolted by the news. Crude-oil futures jumped 4% on the New York Mercantile Exchange. Light sweet crude for April delivery surged as high as $63.25 a barrel before settling at $62.91, an increase of $2.37, on the New York Mercantile Exchange. (See related article on page B5.)
The attack comes as trouble in a slew of oil-producing powers has put energy security back atop the world agenda. Insurgents have hobbled oil output in both Iraq and Nigeria. Russia last month briefly cut off gas supplies to neighboring Ukraine. Iran has threatened to disrupt Persian Gulf shipments amid its dispute with the West over its nuclear ambitions.
Oil prices have doubled since 2003, as growing demand has outpaced supply increases, leaving the world with only a thin cushion of spare pumping capacity. The shortage has made it easier for governments, rebels and terrorists alike to use energy as a potent political weapon, sending prices soaring by withholding supplies, attacking pipelines or merely threatening to cause havoc.
More broadly, the attack brought to mind the nightmare scenario that has worried Washington for more than three decades: a significant disruption at Saudi export facilities on the Persian Gulf side of the kingdom. The threat from internal subversion has always been considered greatest in that area, and the ability of foreign military forces to help prevent trouble there is the lowest.
Such fears help explain President Bush's declaration in his State of the Union address this year that the U.S. needs to reduce its dependence on Middle Eastern oil imports. The fact that Mr. Bush referred specifically to the risks of reliance of Middle Eastern oil — as opposed to imported oil generally — offended the Saudis, who have long prided themselves on being a reliable supplier to the U.S. and the West. The Saudis may point to the fact that the attack was stopped as evidence they remain as reliable as ever, but the Bush administration could suggest it shows the need to follow up on the president's challenge.
Underscoring growing concern about oil terrorism, the North Atlantic Treaty Organization last week in Prague held its first energy-security conference, attended by senior U.S. and NATO officials.
In recent years, Saudi Arabia has ramped up spending on security following a spate of terrorist incidents. In 2004, there was a rash of oil-infrastructure strikes in Saudi Arabia that involved refineries and foreign oil workers, which while sensitive aren't strategically important enough to hobble the global energy supply.
According to the Energy Department, Saudi spending on security rose by 50% in 2004 to $5.5 billion. Abqaiq, for one, is so well-protected that “you would need an army, probably with air support, to get through,” said Nawaf Obaid, a Saudi oil and security consultant and an adviser to the government.
Still, the mere attempt highlighted the world's dependence on the facility, which may have been the purpose of the attack. “This is a weapon of mass media,” said Anthony H. Cordesman, an energy-security analyst at Washington's Center for Strategic and International Studies. “Even if they fail, they get the publicity.”
Security analysts said terrorists in Saudi Arabia appear to have switched to targeting oil facilities after a backlash in the kingdom. In previous attacks in populated areas, Saudis were angered by the terrorists killing innocent Muslims, Mr. Cordesman said. At the same time, Friday's attack also suggests terrorists have so far been unable to recruit people inside oil facilities who could help them penetrate the huge plants, he said.
Abqaiq receives petroleum streams that are pumped in from Saudi Arabia's giant fields, processes and cleans the oil by separating out water and gas, then pumps it through pipelines for export via shipping terminals on the nation's coasts.
Damage to Abqaiq could cripple Saudi exports, bottling in crude streams that can't be processed for export. That has happened once before: An accidental fire at Abqaiq in 1977 knocked out 70% of Saudi Arabia's output for three days. The Saudis gradually fixed the damage and output recovered over several weeks. Had the fire reached the complex's generating plants, it might have taken months, and possibly years, to rebuild Abqaiq.
Saudi Arabia has a few other vulnerable targets, including Ras Tanura on the Persian Gulf, the world's largest oil-export terminal, which can ship up to 6 million barrels a day. But the kingdom's network of pipelines and export terminals has a large cushion of fallback facilities. The Saudis have built spare facilities on the Red Sea coast, on the other side of the Arabian Peninsula. All told, they can move some 14 million barrels a day through their pipelines and ports, much higher than their current daily output of some 9.5 million barrels.
Almost all of the world's slim spare oil-pumping capacity of some 1.5 million barrels a day is in Saudi Arabia. So a dislocation of Saudi supplies couldn't be made up by another oil producer. To cover any shortfall, the world would have to resort to the use of strategic stocks of oil held by the 26 industrial country members of the International Energy Agency, as happened after last year's hurricanes in the Gulf of Mexico.
–Gerald F. Seib contributed to this article.
Write to Bhushan Bahree at [email protected] and Chip Cummins at [email protected]