In Dhahran, Saudi Arabia, on February 12th, the Kingdom’s Energy Minister attributed the shift in Saudi Arabia’s oil capacity expansion plans to the ongoing energy transition. Prince Abdulaziz bin Salman emphasized that despite this adjustment, Saudi Arabia maintains ample spare capacity to stabilize the oil market. The decision, announced on January 30th, directed state oil company Aramco to halt its expansion plans, setting a maximum sustained production capacity target of 12 million barrels per day (bpd), one million bpd lower than previously planned and anticipated to be achieved by 2027.
Rationale for Postponement
Prince Abdulaziz bin Salman clarified that the postponement of investment in oil capacity expansion was a strategic move in light of the evolving energy landscape. He highlighted the diversification of Aramco’s investment portfolio, which now includes ventures in oil, gas, petrochemicals, and renewables. With Saudi Arabia aiming to achieve net zero emissions by 2060 and Aramco targeting net zero emissions from its operations by 2050, the Kingdom’s energy priorities are evidently shifting towards sustainability and environmental stewardship.
Spare Capacity Assurance
Despite the revised expansion plans, Prince Abdulaziz bin Salman assured that Saudi Arabia maintains a substantial cushion of spare oil capacity. This reserve is poised to mitigate any potential disruptions to global oil supplies arising from conflicts or natural disasters. Amin Nasser, Aramco’s CEO, echoed this sentiment, affirming that the company stands prepared to increase capacity if necessary, emphasizing their current spare capacity of approximately three million barrels.
OPEC+ Dynamics and Flexibility
Saudi Arabia’s role within the OPEC+ alliance was underscored, particularly in relation to production cuts. Despite its significant spare capacity, Saudi oil production remains approximately three million bpd below its maximum sustainable capacity, positioning the Kingdom as the world’s largest holder of spare capacity. Prince Abdulaziz bin Salman reiterated Saudi Arabia’s flexibility in adjusting production levels according to market demands, signaling a willingness to respond to fluctuations in oil market dynamics.
Critique of Emergency Reserves Release
Prince Abdulaziz bin Salman criticized the decision by the International Energy Agency (IEA) to release emergency oil reserves in 2022 following Russia’s invasion of Ukraine. He questioned the rationale behind Saudi Arabia being expected to maintain emergency capacity while its significance remains underappreciated and unrecognized by global stakeholders.
Despite discussions surrounding peak oil demand, Amin Nasser expressed optimism regarding future oil demand projections. He anticipates oil demand to rise to 104 million bpd in 2024 and further to 105 million bpd by 2025, countering notions of an imminent peak. Regarding the potential offering of additional Aramco shares, Nasser indicated that it would ultimately be a decision for shareholders, highlighting the Saudi state’s predominant ownership of Aramco and its reliance on dividend payouts.
In terms of Aramco’s ownership structure, the Saudi state remains the largest shareholder, with the government directly holding 90.19% of shares. The remaining ownership is divided between the kingdom’s Public Investment Fund (PIF) and its subsidiary Sanabil, each holding 4% of shares.
|Percentage of Ownership
|Public Investment Fund
|Sanabil (PIF subsidiary)
Saudi Arabia’s decision to revise its oil capacity expansion plans reflects a strategic response to the evolving energy landscape, marked by a transition towards sustainability. Despite the adjustment, the Kingdom maintains its commitment to stability in the global oil market while prioritizing environmental objectives.
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