Pictured is Aramco tower at the King Abdullah Financial District (KAFD) in Riyadh on April 16, 2023. (Credit: Fayez Nureldine/AFP)
BEIRUT — In an unexpected turn of events, Saudi Arabia ordered its national oil company Aramco to maintain its oil production capacity at 12 million barrels per day, abandoning its plan — which would have cost over $20 billion — to increase capacity to 13 million barrels a day by 2027.
Aramco, the world’s largest oil company, stated Tuesday that it received instructions from the Ministry of Energy to halt its production capacity increase.
The Kingdom did not specify the reasons behind the decision, but various analysts have stepped in to provide some preliminary hypotheses.
A shift towards Vision 2030?
In a thread on X, Amena Bakr, senior research analyst at Energy Intelligence claimed that “the funds saved from the capacity expansion are expected to feed into Vision 2030 diversification projects.” The development plan aims to diversify the economy and reduce the Kingdom’s oil dependency.
Bakr also speculated that the decision may be cost-driven, as Saudi Arabia is currently producing around nine million barrels per day (bpd), meaning the Kingdom already has three million bpd in spare capacity, and sitting on spare capacity is “expensive” — due to the cost of maintaining oil reservoirs, where things like pressure change require constant monitoring. But it might also have something to do with future expected demand, with part of the world transitioning to greener energy.
Earlier in December, representatives from over 200 countries agreed to start reducing their consumption of fossil fuels at COP 28, the global climate summit held in Dubai in December 2023, to mitigate the negative impacts of climate change. The Kingdom was one of the agreements’ main opponents before it was adopted.
According to Reuters, Riyadh and Abu Dhabi have constantly called for more investment in oil and gas, arguing that fossil fuels will remain part of the energy mix for decades to come. Yet “major consumers, including the United States and the European Union, have adopted policies aimed at transitioning away from fossil fuels and towards cleaner energy, which has discouraged such investment.
However, a source with direct knowledge of the matter told Reuters that “the move in no way reflects a change of views on future oil demand scenarios,” although it may trigger market speculation.
Carole Nakhle, chief executive officer of Crystol Energy, an energy consultancy and training company, told L’Orient Today that she believes that demand may not have grown as much as forecasted by the Kingdom. China constitutes the largest importer of oil in the world, but its economy is currently struggling, which may impact its demand for oil and the subsequent overall demand on the oil market.
It remains unclear whether the reversal back to 12 million bpd is a final decision and if it will be subject to change in the future. In this regard, The Financial Times notes that Saudi could bring their production capacity back up at any time to meet sudden spikes in demand.