RIYADH, Feb 14: Saudi Arabia is adding new crude spare capacity. The number of drilling rigs operating in the Kingdom, a barometer of drilling activity, is expected to double to 70 by the end of the year , from only 34 in December 2004.

This appears very much in line with the recent statement of Saudi Petroleum and Mineral Affairs Minister Ali Al-Naimi, vowing to maintain stability in the global crude market. The additional spare capacity would go a long way in soothing the itchy crude markets, energy analysts here feel.

The world's largest oil exporter plans to meet the sustained increase in global oil demand by boosting its efforts to add new capacity to a level last seen during the energy crises in the 1970s, Financial Times said quoting oil industry reports.

This development is taking place even while the Opec secretary general is maintaining that oil producers may need to cut supply for the second quarter of the year even if consumption stays robust and would need a faster, bigger cut if they see a sharp fall in demand.

It has now been reported that by the end of the year, Saudi Aramco plans to double the number of drilling rigs it operates in order to explore and develop new oil and gas fields.

"Saudi Aramco's target is to have 70-plus drilling rigs working by the end of 2005," said a Saudi Aramco official. Saudi Aramco had only 34 drilling rigs operating in December last year.

The increase in drilling activity marks a shift in strategy for Saudi Aramco, which has been operating its business for the past two decades so as to maintain its capacity to produce oil, rather than increase it. "We have to have more rigs," Ali Al-Naimi said at the Opec meeting last month. "Without rigs, we cannot find or develop new oil."

Over the past few months, Saudi Arabia has sought to ease high oil prices, saying it intends to lift capacity by another 2m barrels a day to 12.5m bpd within the next five years, and possibly as high as 15m bpd if strong demand persists. But its pledge was greeted sceptically by oil traders and prices were only briefly affected. The investment in drilling rigs is the first concrete evidence that the kingdom has identified a shift in the oil markets towards sustained higher prices. "(Saudi Aramco) has changed its attitude a lot in the past six months; it is more confident that oil demand and oil prices are going to remain high," Financial Times said quoting an oil executive working in the region.

He said the Saudis had been fearful of expanding production rapidly. A sharp increase in output by Opec producers in 1997 and 1998 at a time when oil demand slowed following the Asian currency crisis caused oil prices to fall to $10 a barrel.

"They are changing their management philosophy from just replacing capacity to increasing capacity," the executive said and added that Saudi Aramco had also increased its annual budget for exploration and development activities to about $2.7bn (1.4bn pounds), from about $2.3bn last year, to increase its oil output.

This increase might seem small compared with listed international oil companies such as Exxon Mobil, BP and Total, which are spending about $15bn on exploration and production activities. But Saudi Aramco, which has control over a quarter of the world's oil reserves, spends 90 cents to find and develop a barrel of oil, compared with $6 for its western peers. The company produced 9.1m bpd last month, more than double its closest western rivals.