Saudi Aramco’s decision to halt an expansion of its output capacity is because of the energy transition, Energy Minister Prince Abdulaziz bin Salman said.
The company surprised the oil industry last month by announcing it won’t proceed with plans to bolster production capacity by about 8% to 13 million barrels a day by 2027. The prince characterized the move as a postponement, and said Saudi Arabia continuously reviews its decisions to ensure stable energy markets.
“We have postponed this investment simply because we’re transitioning,” he said at a conference in Dhahran, Saudi Arabia. Aramco “has oil, it has gas. It will even have geothermal very soon. It is going to do oil to chemicals, this is something we want to put lots of money on. And we’re going into chemicals, and of course going into renewables.”
The move raised questions about Saudi Arabia’s view on future demand as the world shifts toward low-carbon energy, and was also seen as a concession there’s adequate oil supply from competitors including US shale producers. The International Energy Agency forecasts demand will hit a limit by the end of this decade, but Aramco’s Chief Executive Officer Amin Nasser said Monday that he doesn’t see a peak in the next few years.
Saudi Arabia is leading an effort by OPEC and its allies in cutting oil supply in an support the market and prevent a surplus. The kingdom’s output is currently at a two-year low near 9 million barrels a day, meaning it already has an existing capacity buffer of about 3 million a day.
The halt in the expansion also saves Aramco billions of dollars of annual spending, potentially resulting in higher dividends to the government. The company’s payouts are crucial for the Saudi state amid a burgeoning budget deficit and Crown Prince Mohammed bin Salman’s plans to spend tens of billions of dollars to diversify the economy into areas such as sports and tourism.
Prince Abdulaziz also spoke about emergency oil stockpiles held by other countries. The US, for example, has reserves that it can use in the event of supply disruptions. President Joe Biden’s administration authorized a drawdown of those stockpiles to tame gasoline prices in the wake of Russia’s war in Ukraine.
“If emergency stocks were utilized for commercial purposes, if they were not used for attending to shortages of supply, then why should we be the last country to hold energy capacity or emergency capacities when it is not appreciated and when it is not recognized?” the minister said, without mentioning the US.
He said the decision to halt Aramco’s expansion for now came after eight months of elaborate review of its capacity. The kingdom is a “continuous mode of reviewing” and is “ready to tweak up or downwards at any time, whatever market necessity dictates,” he said.
Work to expand the Zuluf, Marjan and Berri oil fields is ongoing in order to maintain the company’s production capacity, said Aramco Chief Executive Officer Amin Nasser.
“Maintaining potential in itself is a significant expenditure for the company,” Nasser said.