Saudi Aramco has abandoned plans to increase production capacity, a dramatic reversal that will raise questions about the Kingdom's view of future demand.
Earlier, the world's largest oil producer said in November that it was progressing "very well" on a multibillion-dollar project that would ramp up capacity to 13 million b/d by 2027 as demand from China and India continued to grow. As part of OPEC+'s efforts to revive the global** market and prevent surplus, Saudi Arabia currently has a capacity of 12 million days, or about 9 million days per day. Aramco said in a statement that it would update its capex guidance when it reports its annual results in March.
Vandana Hari, founder of Vanda Insights in Singapore, said: "This is the clearest indication to date that Saudi Arabia is slowing down its expectations for global** demand growth in the coming years. ”
The change in plans will wipe out a significant portion of the buffer that traders are expected to have later this decade, a gap that may be difficult for others to fill. But maintaining additional spare capacity is expensive, especially as demand is likely to slow down in the future as the energy transition continues.
Although it remains the backbone of the economy, Saudi Arabia is expanding in the natural gas, chemicals and renewable energy sectors. A person familiar with the matter said that these companies are likely to get a piece of the pie from the expansion of production capacity.
It may also free up additional funds for **. Saudi Aramco's generous dividends are becoming increasingly important for Crown Prince Mohammed bin Salman to pursue expensive projects such as the Future City NEOM, buy stakes in high-profile footballers and sports leagues, and seek to diversify the economy from oil.
Meanwhile, Amrita Sen, research director at consulting firm Energy Aspects, said the market does not need Saudi Arabia's 13 million barrels per day capacity because it is sufficient after the Organization of the Petroleum Exporting Countries (OPEC) cut production. "We have to ask ourselves how long Aramco will keep production capacity low," she told Bloomberg TV. ”
Aramco also expects an additional 1 million barrels per day to be exported by 2030 as a result of Saudi Arabia's broader domestic plan to halt burning** power generation. (Compiled by Xiao Chen).
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