The Saudi Ministry of Energy has instructed Saudi Aramco to abandon its 13 million bbl/day target and maintain 12 million bbl/day instead. Those at Wood Mackenzie, however, don’t see it tightening supply and demand for the time being.
“Based on our forecast for oil demand to peak in 2030, the shift to a 12 million bbl/day target from 13 million bbl/day should be absorbed in the market and not cause a tightening in the supply and demand balance this decade,” said Ann Louise Hittle, VP of Oil Markets for Wood Mackenzie.
According to Wood Mackenzie’s analysis for H2 2023, Saudi Arabia’s crude oil production averaged 9 million bbl/day and this level is projected to continue through H1 2024 with an average of 9.1 million bbl/day. This leaves Saudi Arabia’s spare crude production capacity at 3 million bbl/day, which is higher than the usual 2 million to 2.5 million bbl/day cushion the Saudis maintain in the global oil market.
“In recent years, Saudi Arabia’s production was being curtailed at varying levels since the pandemic. With the production agreement and voluntary cuts introduced in 2022-2023, the need to increase capacity was becoming less pressing,” said Ms Hittle. “With spare capacity higher than usual and a persistent need to reduce production, this is an astute time to abandon the 13 million bbl/day capacity target.”
Alexandre Araman, Principal Analyst, Upstream for Wood Mackenzie, suggested that recent cost increases in the industry and pressure on prices likely factored into the decision as well.
“Aramco is heavily investing in a trio of oil megaprojects at Zuluf, Marjan and Berri, along with infill drilling at its legacy fields to slow production declines,” he said. “To increase capacity to 13 million bbl/day, other expansion projects such as Safaniya and Manifa as well as the commercialization of new discoveries are more than required. But costs have substantially increased since the pandemic and it makes less sense now for Aramco to go after projects that are getting more expensive when it doesn’t see opportunities to significantly increase production while prices are under pressure.”
Araman also added that Aramco is investing in other opportunities besides crude oil, including the development of unconventional gas at the giant Jafurah Basin and the acquisition of a minority stake in MidOcean. In effect, it is swapping additional investment in domestic oil for gas.