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Saudi Arabia Says Energy Transition Drove Decision to Halt Capacity Expansion

The decision of Saudi Arabia to abandon plans to expand its crude oil production capacity is a result of the energy transition, Saudi Energy Minister, Prince Abdulaziz bin Salman, said on Monday.

At the end of last month, Saudi Arabia surprised the oil market by announcing a shift in production capacity strategy.  

State oil giant Aramco said it was ordered by the Kingdom’s leadership to stop work on expanding its maximum sustainable capacity to 13 million barrels per day, instead keeping it at 12 million bpd. The world’s biggest oil firm said in a statement that it would update its capital spending plans for the year in March when it announces its 2023 financial results.  

Prince Abdulaziz bin Salman put the record straight behind the decision and said at a conference in Saudi Arabia today, as carried by Bloomberg,

“We are transitioning and transitioning means that our oil company, which is a hydrocarbons company, now is becoming an energy company, with investments that go into all areas like oil, gas and petrochemicals and others.”  

Speculation has flourished about the reasons behind the Saudi decision.

First, analysts speculate that the outlook on long-term oil demand has come into question.  

Next, investment banks suggest that supply growth from producers outside the OPEC+ agreement has surprised the market in the past two years, and the world’s top crude oil exporter, Saudi Arabia, may have recognized that it faces a problem and has to fight harder for its market share.

Then there is the belief that the surprise announcement from Saudi Aramco could support oil prices for longer.

Finally, the halted expansion is expected to save Aramco billions of U.S. dollars from capital expenditure on massive new projects, easing the pressure on the balance sheet and potentially leaving more cash for the coffers of the Kingdom, which is planning an enormous amount of spending on futuristic projects such as the NEOM project—a key pillar of Saudi Arabia’s Vision 2030 program to boost its economy and diversify it away from oil.

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By Tsvetana Paraskova for Oilprice.com

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  • Mamdouh Salameh on February 12 2024 said:
    So many explanations and excuses have been given by analysts about the reasons behind Saudi Arabia abandoning its plans to expand production capacity to 13.0 million barrels a day (mbd) all of which have so far failed to guess the real reason.

    Speculation has ranged from the long-term outlook of global oi demand, to Saudi Arabia having to fight harder for its market share, to supporting oil prices, to easing the pressure on the balance sheet and potentially leaving more cash for the coffers of the Kingdom and finally as a result of energy transition according to as Saudi Energy Minister Prince Abdulaziz bin Salman.

    However, the real reason is, in my opinion, Saudi inability to raise production. Saudi production has been failing for a while and is currently estimated at 6.0-6.5 mbd. For more than five decades 90% of Saudi oil production has been coming from five giant, ageing and fast-depleting oilfields (Ghawar, Safaniya, Shaybah, Khraise and Zuluf ) which are more than 74 years old and are being kept in production by the injection of billions of gallons of water.

    That is why Saudi production cuts are now a permanent feature of the global oil market

    Dr MamdouhG Salameh
    Internatinal Oil Economist
    Global EnergyExpert

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