saudi aramco pauses production capacity increase plan
Published on: February 4, 2024.
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Saudi Arabia Orders Aramco to Maintain Oil Production Capacity at 12 Million Barrels per Day
In a surprising move, Saudi Arabia has instructed energy giant Aramco to keep its oil production capacity at 12 million barrels per day (bpd) instead of increasing it to 13 million bpd as planned. The directive came from the Ministry of Energy and Aramco will provide an update on its capital spending guidance in March when it announces its full-year 2023 results.
As the world’s largest crude exporter, Saudi Arabia heavily relies on oil revenues, and Aramco is a crucial component of the kingdom’s economy. The profits generated by Aramco play a significant role in financing Crown Prince Mohammed bin Salman’s ambitious Vision 2030 program. This program aims to diversify the economy and prepare for a future less dependent on oil.
The decision to abandon the increase in production capacity suggests that Riyadh is uncertain about the demand for additional capacity and believes that the funds required for reaching and maintaining 13 million bpd can be more effectively utilized elsewhere. Aramco’s recent decision to increase funding for its venture capital arm, Aramco Ventures, from $3 billion to $7 billion further supports this notion.
Industry experts view this development as significant and unexpected. Justin Alexander, director of consultancy firm Khalij Economics, highlights Saudi Arabia’s existing reserves, ample capital for investment, and low development costs as factors that make it beneficial for the country to pursue additional capacity, even if global demand for oil plateaus or decreases due to the transition towards cleaner energy sources.
Aramco is committed to achieving “operational net-zero” carbon emissions by 2050. This goal specifically applies to emissions generated directly by Aramco’s industrial sites. However, it doesn’t include the CO2 emissions resulting from the combustion of Saudi oil by clients in their vehicles, power plants, and furnaces.
It is important to note that this announcement is not expected to have an immediate impact on oil production or exports. Following a series of production cuts since October 2022, Saudi Arabia currently produces approximately nine million bpd, well below its capacity of 12 million bpd.
Aramco’s financial performance in 2022 was remarkable, with record profits driven by a surge in oil prices caused by Russia’s invasion of Ukraine. This enabled Saudi Arabia to achieve its first budget surplus in nearly ten years. However, lower prices in subsequent quarters resulted in declining profits compared to the previous year.
Overall, Saudi Arabia’s decision to halt the increase in oil production capacity underscores the uncertainties surrounding future oil demand and the kingdom’s focus on more strategic investments. While Aramco continues to play a vital role in Saudi Arabia’s economy, the move suggests a shift towards greater economic diversification and a recognition of the changing energy landscape.
Source: [Khaleej Times](https://www.khaleejtimes.com)
