Business

AMMAN — A meeting held Tuesday at the King Abdullah II Industrial Estate in Sahab examined means to boost and facilitate investments in the Kingdom.

Jordan Industrial Estates Corporation (JIEC) Chief Executive Ali Madadha highlighted facilities offered for investors, according to a JIEC’s statement.

He listened to inquiries made by members of Jordan Investors Association (JIA) and pledged to follow up on them with concerned parties. Madadha stressed the importance of cooperation between the two sides to resolve various issues pertaining to investment projects.

JIA members made proposals on providing housing and transport facilities for workers.  JIEC,  a financially and administratively autonomous corporation, is  responsible for managing, marketing and developing industrial estates in Jordan.

LONDON — When Saudi Arabia's Oil Minister Ali Al Naimi says he does not want the kingdom to lose market share anymore, he really means it.

Iraq, Venezuela, Russia and Kazakhstan all saw their oil partially replaced by Saudi crude in Asia, the United States and even Europe, with its lackluster demand, as traders said the kingdom offered customers more oil, and more cheaply.

Supplies from the leading producer of the Organisation of Petroleum Exporting Countries (OPEC) are notoriously difficult to track as they reach customers under confidential direct deals rather than via the spot market. 

But an indirect confirmation of rising deliveries came on Sunday from Naimi himself.

The veteran minister, who carefully chooses his words and figures in his speeches, said the kingdom was now pumping around 10 million barrels per day (bpd), near an all-time high and some 350,000bpd above the figure Saudi Arabia gave to OPEC for its February output.

And to stress the message, Naimi said the kingdom had the ability to increase if customers asked for more.

Gary Ross, the founder and executive chairman of PIRA, the first consultancy to predict Saudi oil output rising to 10 million bpd in March, said PIRA's research and conversations with customers showed additional crude would be delivered to Asia and the United States.

In Asia, some Chinese refineries switched from using West African barrels to the Saudi Arab Light grade. In the United States, some customers increased their use of Saudi oil because of very competitive pricing.

Also contributing to the rise in Saudi supplies were much lower loadings of Iraqi crude because of bad weather in February, Ross remarked.

"The Saudis have said they are ready to increase supply if there is more demand. So over the past months they got more demand and they supplied the market with additional crude," said Ross.

"I think Saudi Arabia is comfortable with its current production volumes and is happy to restore market share. They are unlikely to go much above 10 million," he added.

‘Super competitive’ 

Naimi has repeatedly said that Saudi Arabia's loss of its share in major markets was the main reason it decided against cutting production at OPEC's last meeting in November 2014.

The decision contributed to a steep decline in oil prices to below $50 per barrel in January from $115 in June 2014.

The Saudis are hoping the development will cut output from high-cost producers, such as US shale explorers, and win back market share for low cost producers such as Saudi Arabia.

The past weeks have shown that Riyadh was not waiting for a bigger market share to come their way, but was pro-actively managing the situation.

"The Saudis have been placing more barrels in Europe since February — something I haven't seen for a long time. It creates additional pressure on Russia and Kazakh oil grades," indicated a trader with an oil major, which buys large volumes of Saudi, Russian and Kazakh crude.

Russia and Kazakh supplies to the Mediterranean markets have fallen in January and February because of bad weather. Nigerian exports have also dropped due to disruptions.

"Basically, the Saudi selling prices have been super competitive and hence demand for their crude strong," said Amrita Sen from Energy Aspect, who also saw back in February Saudi supplies exceeding 10 million bpd in March.

According to Thomson Reuters Oil Research and Forecasts, US imports of Saudi crude stood at 30 million barrels in February, overtaking China after Saudi Arabia cut prices for America.

Sen indicated that higher than expected refinery runs and fuel demand in Asia and Europe had also allowed Riyadh to sell more.

State giant Saudi Aramco said it saw supplies to China rising over time.

"We see our energy supply potentially doubling... as China's energy demand grows," Aramco's chief Khalid Al Falih told Beijing-based media group Caixin in an interview.

Saudi Arabia tends to raise production without increasing exports in the summer months when local power demand spikes due to air conditioning needs. Demand at home has also been rising as domestic refining capacity grew. 

However, the kingdom has invested heavily in gas production so it could save more crude for exports instead of burning it for power generation.

Separately, a senior Gulf OPEC delegate told Reuters on Tuesday that stronger-than-expected global oil demand should help support crude prices at around $55-$60 a barrel in the next two months despite some signs of a growing glut in the United States.

The comments appear to counter some market forecasts that the US oil glut may push prices to as low as $20-$30  and are a sign that the core Gulf OPEC members remain confident about their strategy of defending market share.

"Global demand is definitely growing much stronger than expected. In December, January, and especially February it was beyond what forecasts anticipated," the delegate said.

Low oil prices may have encouraged demand to pick up particularly in the United States but also in Asia, the Gulf delegate, who declined to be identified, added.

Oil prices are expected to fluctuate around $55-$60 a barrel through April, when they may come under pressure because of seasonal refinery maintenance and rising stocks in the United States, the Gulf OPEC delegate continued.

International benchmark Brent crude was trading above $55 on Tuesday.

Underlining brimming US supplies, crude stocks rose nearly three times as much as expected, as storage at the Cushing, Oklahoma oil hub reached a new record, a government report showed last week.

"There are still uncertainties, prices will stay fluctuating around 55-60 dollars," the delegate indicated. "If you look at the US, it's really tough, stockpiling is rising. But if you look at the international market, stocks are on the higher side but they are still within the five-year average."

The Gulf OPEC delegate said rising production reflects increasing exports to meet global demand as well as growing local needs.

"Increased production is due to two reasons: sales for the international market reflecting stronger demand from customers, not anything else, and local needs with the new refineries online," he indicated.

AMMAN — An annual investment forum in Dubai next week provides a good opportunity to promote Jordan's investment and economic environment, Jordan Chamber of Commerce President Nael Kabariti said on Sunday.

He added that Jordan’s participation in such forums and conferences is part of the chamber’s policy to promote the Kingdom for Arab and foreign investors.

He indicated that Jordan’s session would include working papers on the educational sector and investments realised in in Aqaba and the Dead Sea besides the campaigns promoting energy, tourism and hospitality, health, mining, finance and banking, logistics and ICT, among others.

Kabariti noted that the session, which will be held on the first day of the event, aims at acquainting participants with the legislative and economic developments  within Jordan's comprehensive reform drive.

AMMAN — The Amman Chamber of Commerce (ACC) announced Monday in a press statement that, in collaboration with USAID-funded Fiscal Reform Project, it hosted a Public Private Dialogue forum on international best practice in tax policy and administration in the Jordanian context.

"The discussion, attended by experts in fiscal and tax policy, representatives of the business community and members of the chamber’s board of directors, focused on comprehensive tax reform as well as the pillars of international best practice in tax policies, which are based on justice, neutrality, free competition, simplicity and progressiveness," the ACC said in the press release.

“Given the prominence of the debate on tax policies in Jordan’s public and private sectors, it is crucial to have an open and interactive dialogue with Jordan’s business leaders and members of the Amman Chamber of Commerce, to exchange views as well as lessons learned in Jordan’s tax system and how it is connected to Jordan’s fiscal and economic stability,” the press statement quoted Fadi Daoud, deputy chief of party of the Fiscal Reform Project, as saying.

One of the key components of the project is improving revenue mobilisation through strengthening tax administration and advancing tax reform. 

NEW YORK — The Organisation of Petroleum Exporting Countries (OPEC) and lower global oil prices delivered a one-two punch to the drillers in North Dakota and Texas who brought the US one of the biggest booms in the history of the global oil industry.

Now they are fighting back.

Companies are leaning on new techniques and technology to get more oil out of every well they drill, and furiously cutting costs in an effort to keep US oil competitive with much lower-cost oil flowing out of the Middle East, Russia and elsewhere.

"Everybody gets a little more imaginative, because they need to," says Hans-Christian Freitag, vice president of technology for the drilling services company Baker Hughes.

Spurred by rising global oil prices, US drillers learned to tap crude trapped in shale starting in the middle of last decade and brought about a surprising boom that made the US the biggest oil and gas producer in the world. 

The increase alone in daily US production since 2008, nearly 4.5 million barrels per day, is more than any OPEC country produces other than Saudi Arabia.

But as oil flowed out and revenue poured in, costs weren't the main concern. Drilling in shale, also known as "tight rock", is expensive because the rock must be fractured with high-pressure water and chemicals to get oil to flow. 

It became more expensive as the drilling frenzy pushed up costs for labour, material, equipment and services. In a dash to get to oil quickly, drillers didn't always take the time to use the best technology to analyse each well.

When oil collapsed from $100 to below $50, once-profitable projects turned into money losers. OPEC added to the pressure by keeping production high, saying it didn't want to lose customers to US shale drillers. 

OPEC nations can still make good profits at low oil prices because their crude costs $10 or less per barrel to produce.

Now drillers and service companies are laying off tens of thousands of workers, smaller companies are looking for larger, more stable companies to buy them, and fears are rising of widespread loan defaults. 

OPEC said in a recent report that it expects US production to begin to fall later this year, echoing the prediction of the US Energy Department.

To compete, drillers have to find ways to get more oil out of each well, pushing down the cost for each barrel. Experts estimate that shale drillers pull up just 5-8 per cent of the oil in place.

"We're leaving behind a large amount of hydrocarbons, and that's quite unacceptable," Freitag says. "It requires different thinking now."

Engineers have adapted some of the best sensor technology and mathematical models, developed first for deep offshore drilling, to see into the rock better. 

As they drill, they use imaging technology to find natural cracks in the rock that they can then use as a target when they fracture the rock, to leverage natural highways for oil and gas.

After they fracture the rock, they can map the new cracks. That way they can know how close they can drill another well to target more oil without sapping production from the first well. 

EOG Resources, one of the pioneers of shale oil drilling, has reduced the space between wells in an area called the Leonard Shale, in Texas, to 560 feet from 1,030 in 2012.

Drillers are finding they can back into wells drilled only a few years ago to re-frack them or inject specially tailored fluids to get oil flowing again. That can return a well in some cases to peak output, without the expense of drilling a new well.

The companies are also getting much faster.

Exxon says it has cut the time it takes to drill a well in North Dakota's Bakken formation by one-third over the past four years. It has also cut by half the cost of fracturing the rock and preparing the well for production. 

Exxon will run 13 rigs in the Bakken this year, the same number it did last year, despite the low prices.

Companies will save money in the coming months because service companies, rig operators and other suppliers to the industry will lower rates to keep business. 

Oil companies have been telling investors in recent weeks they expect to see cost reductions of 10-40 per cent, depending on location and type of service.

Drillers are also focusing on the wells in the parts of formations that they know to be the most prolific, and cutting back drilling in places where they aren't quite sure what's below. That reduces overall spending without dramatically decreasing production.

US shale drillers will never push costs as low as OPEC countries. But the US industry may be able to survive, or even thrive, if drillers can learn to quickly adapt.

"There is a significant portion of this that is competitive on a global basis," said Exxon Mobil Chief Executive Officer Rex Tillerson at an annual investor meeting earlier this month. "North American tight oil supply is more resilient than some people think it is."

Separately, Saudi Arabia's oil minister stressed that oil producers outside OPEC must cooperate to boost falling crude prices as the group refuses to take responsibility alone.

"We refuse to take responsibility alone because [OPEC] produces 30 per cent of market output and 70 per cent comes from outside," Ali Al Naimi said in remarks carried Monday by the Saudi Press Agency (SPA).

Crude prices slumped by about 60 per cent between June and February, weighed down by a glut of global supplies and concerns about stalling demand.

The slide was exacerbated in November when OPEC refused to cut production to rescue falling prices, saying it wanted to maintain its market share.

The 12-member group, led by top producer Saudi Arabia, pumps around a third of the world's oil but other major producers, such as Russia, are not tied by its decisions.

Asked whether OPEC would be willing to work with non-members, Naimi pointed to the crash of 1998 when the group cooperated with other producers to cut output and support oil prices.

"Today, the situation is difficult. We tried, met with them but did not succeed because they insisted that OPEC should take the responsibility alone," said Naimi, in reference to talks with non-OPEC producers ahead of the group's meeting in November.

"All must contribute if we want to improve prices because it is in the interest of all," the Saudi minister added.

Naimi remarked that the kingdom had the capacity to supply any new client with crude.

Saudi Arabia had no objection to new oil producers joining OPEC, he noted, indicating that several countries have in the past turned down invitations to become members of the group.

The Saudi minister also defended the oil policy of Gulf states, saying they were taking measures to stabilise the market.

"We are not against anyone. We are with all to support stability in the market and to support a balance between supply and demand," Naimi said.

Saudi Arabia and its Gulf partners have been criticised for allegedly using oil as a political weapon against countries within and outside OPEC.

Oil prices fell in Asian trade Monday with US benchmark West Texas Intermediate for May delivery down 65 cents at $45.92 and Brent tumbling 58 cents to $54.74.

Bloomberg News quoted Naimi as saying on Sunday that his country is producing almost 10 million barrels of crude a day.

Saudi Arabia pumped 9.85 million barrels a day in February, according to Bloomberg.

AL BAIDA, Libya — The battle for Libya's oil wealth has taken on new dimensions as rival governments lay claim to the National Oil Company (NOC), further deepening divisions in the volatile North African nation.

The latest row erupted last week as UN envoy Bernardino Leon, who is mediating between Libya's warring factions, warned the country was heading towards destruction unless a political deal is found.

It also comes as the Daesh terror group, which has made huge profits from illegal oil sales in Syria and Iraq where it has seized chunks of territory, has gained a foothold in Libya.

The once lucrative oil industry has fallen victim to the unrest that has gripped the country since dictator Muammar Qadhafi was toppled and killed in the 2011 NATO-backed uprising.

Militants have stepped up attacks on the industry which had a pre-revolution output of about 1.6 million barrels per day (bpd), accounting for more than 95 per cent of exports and 75 per cent of revenues.

The economy has been reeling since December, when production fell to around 350,000 bpd as the Fajr Libya militia alliance, which includes Islamists, attacked oil terminals in the east.

Fajr Libya seized Tripoli in the summer and installed a government and parliament opposed to the internationally recognised government and legislature elected in June.

On Monday, the recognised government, which sits in the remote east between the cities of Tobruk and Baida, severed ties the Tripoli-based NOC.

"The legitimate Libyan government... is the only legitimate channel that has the right to deal and to contract companies to authorise gas and oil sales," it said in a statement. 

'A messy situation' 

To be valid, such sales must be made via the new NOC headquarters in the eastern city of Benghazi and approved by company Chairman Al Mabrook Abu Seif, it added.

The statement, published on its Facebook page, did not elaborate on how new contract payments should be made, but anyone who violates its decisions will be prosecuted.

On Thursday, the NOC board in Tripoli hit back.

"The NOC's position is neutral and receives no directives from either the Tripoli- or Baida-based governments and operates in complete independence from both sets of authorities," it said in a statement in English. 

 The NOC said it would continue to operate from Tripoli, where it was founded in November 1970, and would "remain an independent institution that operates outside political disputes".

Libya slid into chaos after the 2011 revolt, with former rebels and powerful tribes vying for power in a state whose oil reserves are estimated by OPEC at around 48 billion barrels.

"It really is a messy situation, with two governments, two parliaments, two heads of the same central bank, and now two NOCs!" said Valerie Marcel, an associate fellow at London's Chatham House.

The expert on oil and energy issues noted that "the two governments and their militias were already battling it out for control over oil production and export infrastructure".

'New level of complexity'  

"Creating a rival NOC in Benghazi creates a whole new level of complexity and uncertainty for oil buyers," she said.

But Abu Seif disagreed.

"We sought to run the NOC in a neutral fashion but we have failed since Fajr Libya seized Tripoli and put the headquarters under its control," he said.

Abu Seif added that he would respect the terms of contracts which have already been struck with the Tripoli headquarters, but stressed that new ones must get his approval.

Marcel said the internationally recognised government has a clear advantage over its Tripoli rival because it controls export terminals.

This was not always the case.

In July 2013, rebels blockaded four export terminals to press for restored autonomy for the eastern Cyrenaica region, slashing output to just 200,000 bpd from 1.5 million bpd.

Under a deal with the then government, the rebels returned control of two terminals in April 2014 and the remaining two in July last year.

The deputy prime minister of the internationally recognised government, Abdul Salam Al Badri, has warned that dealing with NOC officials in Tripoli is "unlawful" and tantamount "to financing terrorist groups".

BEIJING — China received critical support from the International Monetary Fund (IMF) and the Asian Development Bank (ADB) on Sunday for its goal of establishing a new Chinese-led multilateral lender, adding to a growing wave of endorsements that has worried the United States.

Leaders of the IMF and ADB, speaking at a conference in Beijing, said they were in talks with or happy to cooperate with the Asian Infrastructure Investment Bank (AIIB), a $50 billion lender to be majority funded by China that is seen by some as a rival to these established international financial institutions.

The United States, concerned about China's growing diplomatic clout, has urged countries to think twice about signing up and questioned whether the AIIB will have sufficient standards of governance and environmental and social safeguards.

Some 27 countries have already signed up to participate in the AIIB, China's Finance Minister Lou Jiwei told China National Radio on Saturday. It will provide project loans to developing countries and is slated to begin operations at the end of 2015.

The United States' key strategic allies in the region, Australia, Japan and South Korea, are also considering joining the proposed Beijing-based bank.

Early opposition to the AIIB from Western countries partially dissolved after Britain said this month it would join.

"We have decided to become the first major western nation to be a prospective founding member of the new Asian Infrastructure Investment Bank, because we think you should be present at the creation of these new international institutions," British Finance Minister George Osborne, said in a pre-election budget speech to parliament last week after rebuffing a telephone plea from US Treasury Secretary Jack Lew to hold off.

The move by Washington's close ally set off an avalanche. Irked that London had stolen a march, Germany, France and Italy announced that they too would participate. Luxembourg and Switzerland quickly followed suit.

Canberra could formally decide to sign up to the AIIB when the full Cabinet meets on Monday, Australian media have said.

At least eight more countries may join the lender by the March 31 deadline, Jin Liqun, secretary general of the interim secretariat that is establishing the AIIB, told a panel at the conference on Sunday.

The fund will have approval from its shareholders at the start to double its capitalisation to $100 billion, he said.

"China will follow the rules of the international community and will not bully other members but work together with them and try to reach consensus in all the decisions we make without brandishing the majority shareholder status," he added.

Bandwagon 

In an editorial published on the same day, China's official Xinhua news agency suggested that the United States might be embarrassed that many of its allies had not heeded its warnings.

"For decision makers in the United States, they really have to be reminded that if they do not jump on the bandwagon of change in time, they will soon be overrun by the bandwagon itself," it said.

IMF Managing Director Christine Lagarde said on Sunday that the fund would be "delighted" to cooperate with the AIIB.

China's Lou and ADB President Takehiko Nakao said at the conference they had held discussions on possible cooperation, with the Chinese finance minister adding that topics discussed included safeguard standards.

Lou has previously said AIIB would complement rather than compete with other institutions such as the ADB, the Manila-based multilateral lender dominated by Japan and the United States.

Jin said developing countries in Asia would receive the bulk of loans for infrastructure projects, which could be co-provided with commercial banks and pension funds.

Non-Asian countries would also only hold 25 per cent of the AIIB's shareholding, lower than their stakes at the founding of the ADB, he added.

The trail of transatlantic and intra-European diplomatic exchanges points to fumbling, mixed signals and tactical differences rather than to any grand plan by Europe to tilt to Asia.

That is nevertheless the way it is seen by some in Washington and Beijing.

As recounted to Reuters by officials in Europe, the United States and China who spoke on condition of anonymity because of the sensitivity of the subject, the episode reveals the paucity of strategic dialogue among what used to be called "the West".

It also highlights how the main European Union (EU) powers sideline their common foreign and security policy when national commercial interests are at stake.

China's official Xinhua news agency reflected Beijing's delight.

"The joining of Germany, France, Italy as well as Britain, the AIIB's maiden Group of 7 (G-7) member and a seasoned ally, has opened a decisive crack in the anti-AIIB front forged by America," it said in a commentary.

"Sour grapes over the AIIB makes America look isolated and hypocritical," it added.

"The Americans are starting to look very mean-spirited with their criticism", said a Beijing-based Asian diplomat. "This is not a battle they are winning. Even their closest allies in Asia are starting to fall in line," he added.

Anger at stalled IMF reform 

In Europe as in Washington, China's launch of a new institution to channel a fraction of its massive currency reserves into infrastructure investments in Asia posed a political conundrum and provoked turf disputes.

Western countries had long urged Beijing to recycle some of its trade surplus into building transport, energy and telecommunications networks in developing nations, but they wanted it to use the World Bank and the ADB.

China, angered that the US Congress has not ratified a 2010 agreement to increase its voting share and that of other emerging economies in theIMF, chose to go its own way instead.

With initial capital of $50 billion, the Beijing-based AIIB can offer at most a complement to the larger World Bank and ADB, but it is starting point for expanding Chinese influence.

Officially, the United States says it is concerned about whether the bank will uphold human rights, environment and labour standards and be open and transparent in its governance.

In private, senior US officials acknowledge this is about power. One Obama administration member said congressional foot-dragging on IMF reform had "created an opportunity for China to assert itself".

Lew gave a blunt assessment last week, telling US lawmakers: "It's not an accident that emerging economies are looking at other places because they are frustrated that, frankly, the United States has stalled a very mild and reasonable set of reforms in the IMF."

Republican Senator Jeff Sessions of Alabama acknowledged irritation about IMF voting rights may have been a factor.

"I think this could be an unfortunate event and it might be bigger than we understand today," he told the Brussels Forum, an annual transatlantic dialogue organised by the German Marshall Fund of the United States.

In Washington, the issue resided between the State Department, the Treasury and the White House National Security Council, which may have muddied US communication with European allies, officials say.

"There just wasn't a clear and coherent and unified message on this from the beginning. It kind of languished for a while in a state of indecision and that produced the outcome that you've seen," said a Congressional source familiar with the discussions.

Within European governments there were debates about tactics and timing but the prevailing view was that it was better to try to influence the Chinese project from inside, several officials said.

"The debate mostly pitted national security advisers, who leaned towards hugging the Americans close ... against economic and Asia advisers, who argued that this big train was leaving the station and it was in our interest to jump aboard," a European diplomat involved in some of the discussions said.

In Berlin, the ministries of foreign affairs, finance and overseas development, run by rival wings of Chancellor Angela Merkel's coalition, jostled for influence.

Merkel's office instructed the finance and foreign ministries to take charge. Given Germany's prioritising of Chinese trade, there was never much doubt Berlin would join the AIIB.

"It was a no brainer," a German aide said.

‘Eyes open’

British, German, French and Italian officials held several meetings to discuss a common approach then London leapt first, causing resentment if not surprise.

"We want to be a Chinese partner of choice in international finance," a British government source said.

Inconclusive talks were also held by officials of the G-7 economies, which includes the United States, Japan and Canada alongside the four European states.

"We knew the US was not in the same place as us on this, we went into it with our eyes open," the source said.

The Chinese invitation to join the AIIB was delivered to individual states. The issue was discussed only once in the EU's 28-nation Economic and Financial Committee, which prepares meetings of finance ministers.

It was never raised to EU ambassadorial level, let alone to ministers. The big four did not include the European Commission or smaller EU states in their deliberations.

A French government source said issues such as governance were unresolved. "But it was important for the Europeans to show an interest from the outset. We'll see how it goes."

In Italy, the decision took a single phone call from Economy Minister Pier Carlo Padoan to Prime Minister Matteo Renzi, the European diplomat said.

Dutch Prime Minister Mark Rutte will meet Chinese President Xi Jinping this week. Officials said the Netherlands was weighing whether to join but it may have missed the deadline to become a founder member.

Having failed to persuade European allies, US officials are looking to regain the initiative, but partisan battles on Capitol Hill may continue to stymie a response.

The administration is using the spat to press Congress to grant President Barack Obama fast-track powers so he can conclude a Trans Pacific Partnership (TPP) trade pact with 11 Asia-Pacific nations other than China, and to finally ratify the IMF reform.

"We are acting proactively with trade promotion authority and TPP because other countries are acting. We want to be on the field, defining the rules of the road," the Obama administration member said.

AMMAN — The Central Bank of Jordan (CBJ) launched on March 15 the new real time gross settlement systems (RTGS) service, as of March 15.

In a statement, CBJ Governor Ziyad Fariz  said RTGS are funds transfer systems that will facilitate money transfer from one bank to another, adding that the step will boost economic and banking soundness and efficiency in the Kingdom.

It will ensure safe and efficient money transfer, which supports the financial policy and fosters financial stability in the Kingdom, he added. 

Settlement in "real time" means payment transaction is not subjected to any waiting period. The transactions are settled as soon as they are processed. 

DUBAI/KHOBAR, Saudi Arabia — As the global energy industry stares transfixed at a spectacular drop in US rigs, Saudi Arabia is ramping up the number of machines drilling for oil and gas despite a sharp fall in the price of crude.

Industry sources and analysts say the Organisation of Exporting Countries (OPEC) kingpin is looking beyond the halving of global oil prices since June 2014 to a time when crude could again be in short supply.

Riyadh is therefore keen to preserve what is known as its spare capacity, the kingdom's unique ability to raise oil output quickly at any given moment.

But to achieve that, Saudi Arabia has to drill much more than in the past, after boosting output to record levels to compensate for global supply outages in the past four years.

"The Saudis are probably worried about everyone else reducing capital expenditure as a result of low oil prices and about non-OPEC output falling off a cliff at some point. We all know that supply disruptions are unpredictable but they are certain," said Gary Ross, executive chairman of New York oil consultancy PIRA.

"The increase in Saudi rig numbers is like a signal to the industry — let's be rational. We will need supply growth in the future," he added.

State oil giant Saudi Aramco used a record-high 210 oil and gas rigs in 2014, up from around 150 in 2013, 140 in 2012 and some 100 in 2011, according to previous industry estimates.

Amin Nasser, Aramco's senior vice-president for upstream operations, said this month his firm had yet to decide whether to increase the rig number in 2015 from the 212 currently in use.

But data shows the numbers are still rising.

Excluding non-US-registered rigs such as Chinese or Russian, February 2015 saw a total Saudi rig count of 155, up from 150 in January and 146 in December, according to data from OPEC and US oil services company Baker Hughes. Since 2010, the number of US-registered rigs has doubled from 67.

Sadad Al Husseini, a former senior executive at Aramco and now an energy consultant, said the rise in the Saudi oil rig count had been evolving over a long period.

"You need to drill more wells if you are producing 10 million barrels per day and maintaining your spare capacity," he said.

"It is also a natural phenomenon in the oil business, that the more you produce, the more you deplete your reserves and the more rapidly your field capacity declines. You need to drill more wells more frequently, simply to maintain production capacity," Husseini added.

Focus on gas 

Maintaining Saudi Arabia's spare-capacity cushion for oil is costly.

The country is effectively investing in something it cannot monetise immediately, but it sees the strategy as a pillar of its stature as the most important global oil player and a Group of 20 member.

In 2008, Oil Minister Ali Al Naimi said production capacity would rise to 15 million barrels per day (bpd) from 12.5 million but the plan was put on hold after the global financial meltdown of late 2008 saw oil plunge below $40 a barrel.

Subsequent events such as Libya's 2011 civil war tested the Saudi ability to ramp up output to help soothe global supply outages and showed that spare capacity could not be eroded if Riyadh wanted to continue playing a key role.

Saudi Arabia's refusal to cut output last year has played a part in the most recent oil price slump, as Riyadh fights to maintain its market share against competing sources of crude.

The OPEC heavyweight has been pumping more than 9 million bpd since mid-2011, up from 8.1-8.3 million for most of 2009-2010.

To ease pressure on its ageing giant fields, Ghawar and Abqaiq, Aramco launched the Khurais and Manifa fields with total capacity of more than 2 million bpd.

It plans to increase output from onshore fields, Shaybah and Khurais, by 550,000 bpd by 2017. It has also been ramping up drilling in offshore fields such as Safaniyah.

The projects should allow Aramco to preserve the world's largest spare-capacity cushion at more than 2 million bpd.

For 2015, industry sources estimated Aramco would deploy at least the same number of rigs as in 2014. Aramco declined to comment for this report.

Over the past two years, Saudi production has sometimes exceeded 10 million bpd in summer months as crude is burnt locally for power generation and new refineries.

That forced Aramco to put more emphasis on gas exploration, as higher gas output would help preserve spare oil capacity.

"Aramco's focus now is more on gas, so they have been moving some of their oil rigs to gas rather than terminating the contract and paying a penalty," an oil industry executive in Saudi Arabia said.

WASHINGTON — The Obama administration said Wednesday that it is in the early stages of studying claims that Gulf airlines have received market-distorting subsidies, a review involving uncharted territory for the US government.

No international trade rules or precedent by the United States exists for addressing airline subsidy claims, presenting a challenge for the administration as it determines how to proceed, a person familiar with the matter said. 

US airlines contend that Gulf carriers can lower prices and offer more amenities on newer planes because of state subsidies.

These issues do not fall under World Trade Organisation rules but rather under bilateral "Open Skies" agreements that authorise commercial flying between countries.

The agreements are silent on how to handle most subsidy claims, the source said. Yet alleged subsidies of more than $40 billion to Gulf airlines make the claim the largest that the administration has encountered and must be taken seriously, the source added.

Last week, the administration asked US airlines some 20 questions about the allegations.

"The [US government] interagency team did in fact ask the US airlines and their consultants several technical and clarifying questions about the data and information contained in their report," US Department of Transportation Press Secretary Ryan Daniels said in a statement, confirming a Reuters report.

"However, we are in the early stages of thoroughly reviewing this matter in close coordination with our interagency partners," he added.

The Obama administration has filed trade complaints on issues ranging from China's imposition of extra duties on American cars to India's ban on certain US agricultural goods to allegedly protect against avian influenza.

Aviation also has been at the centre of a decade-old dispute in which the WTO found that plane makers from the United States and the European Union had received illegal subsidies.

But Geneva-based watchdog's rules do not apply to air traffic rights or airline services, although it keeps these under review broadly.

Meanwhile, the dispute between US and Gulf airlines has escalated.

Delta Air Lines, United Airlines, American Airlines and their unions on Wednesday called on the administration to request a freeze on additional Gulf-airline flight departures to the United States.

On Tuesday, Emirates airline President Tim Clark promised to rebut the allegations, while Etihad Airways Chief Executive Officer James Hogan said the company received loans, not subsidies, from its government shareholder. Both had arranged meetings with Obama administration officials.

Hogan described the United Arab emirates (UAE) carrier as a "David" battling the US "Goliaths".

Hogan told an aviation industry summit in Washington that airlines everywhere benefit from state support, dismissing the claims of unfair competition by Gulf carriers in a report released by the top three US airlines.

As a battle heats up between Gulf airlines and rivals in Europe and the US, he accused American Airlines, Delta Airlines and United Airlines of themselves hiding behind protection.

"The world's two largest airline markets, the United States and the European Union, are closed, giving their own airlines a huge advantage in scale and scope," he told the US Chamber of Commerce Foundation's 14th Annual Aviation Summit.

Hogan said established aviation giants were built on various kinds of state support, including preferential market access, infrastructure and airports, hardly different from what Gulf carriers Qatar Airways, Etihad and Emirates are accused of.

He also cited the government-backed bailouts of US carriers when they failed.

"Many, many airlines, including many in this room, have benefitted from years of government bailouts, write-offs and loans, everything from bankruptcy protection to covering pension fund obligations, to straight-out financial payments," he  indicated.

"Etihad is a David who's been facing Goliaths since 2003," he argued. "The three biggest US airlines working together carry 34 times more passengers”.

In early March, American Airlines, Delta Airlines and United Airlines, along with US airline labour groups, accused the Gulf three of enjoying interest-free loans, subsidised airport charges, government protection on fuel losses, and below-market labour costs that are considered unfair subsidies by the WTO.

Claiming $42 billion in "unfair" subsidies to wrest business away from competitors, they called on the US government to open new talks over bilateral air agreements to address what they said are violations of those pacts, giving the Gulf carriers unfair competitive advantage. 

These "multi-billion dollar subsidies" had distorted the marketplace, "to the severe detriment of US employment", the American carriers claimed.

Qatar Airways Chief Akbar Al Baker said on Monday the problem was that the US carriers do not differentiate between what is a subsidy and what is the "legitimate" equity that a state-owned carrier gets.

Delta anyway flies "crap airplanes that are 35 years old," he added.

Noting that any money his airline receives from the state is in the form of "legitimate" equity, Al Baker indicated that his company's fleet of aircraft were much cleaner for the environment in comparison to Delta.

"The unfortunate thing is that because they are so inefficient they want to blame us, whilst we are very efficient, for their failures and drawbacks," he said.  "The issue is that they cannot stand the progress the Gulf carriers are making."

UAE Economy Minister Sultan Al Mansouri was quoted as calling them "false and unacceptable" by the Emarat Al Youm newspaper.

However, European carriers have also joined the argument.

Last week, French and German transport ministers called on the European Commission to tackle the issue of subsidies to Gulf carriers.

The French transport minister, Alain Vidalies, said the Gulf airlines were benefitting from "unfair competitive practices".