After a difficult year during Covid, Saudi Arabia and its oil and gas industry are finally rebounding as global oil demand recovers.
Oil revenue in Saudi Arabia is surpassing pre-pandemic levels with oil export revenue achieving its highest levels since 2018 thanks to OPEC+ oil supply cuts sending prices soaring worldwide. With the price of Brent hitting $83.47 a barrel this week, oil producers around the world are celebrating.
Saudi Arabia's oil revenue reached $19 billion in July and the government hopes it will help reduce the country's budget deficit to 1.6 percent of its GDP in 2022. This may be achieved if Saudi Arabia's revenue can reach levels 4.5 percent higher than originally projected.
This huge rebound is largely down to the country's impressive reopening following the Covid pandemic, which continues to hit several countries around the world hard. By opening up production and decreasing Covid restrictions Saudi Arabia has been able to get its oil sector and other industries back on track, as many other states still struggle.
As OPEC+ oil cuts continue to ease into 2022, Saudi Arabia expects to produce an average of 9 million bpd in 2021, 9.7 million bpd in 2022, and over 10 million bpd in 2023, out of a total potential production capacity of 12 million bpd. With oil demand remaining strong, after a year of stagnation, this excess production potential gives it room to manoeuvre depending on global demand.
Saudi Arabia has announced plans to increase its focus on midstream and downstream operations as a means of boosting production while demand remains high, solidifying its stance on the ongoing production and export of oil and gas well into the future.
S&P Global Ratings explain, "The authorities will also keep on maintaining efforts to rebalance the hydrocarbon industry away from its reliance on upstream crude production and export, toward natural gas and value-added midstream hydrocarbon activities such as refining, petrochemicals, chemicals, and minerals." Therefore, "Several large hydrocarbon projects will continue to ramp up production in 2021-2024."
This shift could see Saudi Arabia surpass its 12 million bpd production potential to hit 13 million bpd by 2027. State-owned oil company Aramco hopes to drive up production through greater investment in the sector so long as demand remains high before an inevitable waning of demand as renewable alternatives become more widely available.
To ensure the country's position in the international oil market, Saudi Arabia is concentrating on maintaining strong links with China and other several Asian states, with Asia expected to make up 90 percent of all oil demand within the next five years.
At present, Saudi Arabia remains China's top oil exporter accounting for 1.96 million bpd in September, a surge of 53 percent from the same time last year. Despite significant cuts in OPEC+ production over the last year, Saudi Arabia remained China's top crude exporter in 2020, beating Russia for the title.
To maintain its position within Asia, Saudi Arabia cut prices of all its crude grades to importers across Asia in October compared to September, while leaving export prices to north-western Europe and the U.S. unchanged. Saudi Arabia cut its Arab Light crude prices by $1.30 a barrel, the highest monthly reduction within the last year, shocking a market that expected a lower cut.
Saudi Arabia's oil supply to China, India, and other Asian states is not merely a response to current market demand but a long-term plan to sustain its position as the largest oil producer in the world for years to come.
In March, Aramco CEO Amin Nasser told the China Development Forum that Saudi oil would continue to support China's energy security for the next 50 years and beyond. While China looks to local producers for part of its crude supply, ensuring it is not putting all its eggs in one basket as well as encouraging more competitive oil prices, Saudi Arabia is not worried about its position in the region.
Nasser stated, "Ensuring the continuing security of China's energy needs remains our highest priority - not just for the next five years but for the next 50 and beyond." He backed up his stance on the country's ongoing fossil fuel production and export by explaining, "We appreciate that sustainable energy solutions are crucial to a faster and smoother global energy transition ... But, realistically, this will take some time since there are few alternatives to oil in many areas."
As Saudi Arabia's oil and gas market looks as strong as ever, state-owned Aramco is strategizing to ensure it remains this way. By ramping up the country's production potential at a time when other countries are reducing their oil investments, and solidifying ties with an Asian market that it expects to dominate global oil demand, Saudi Arabia expects to maintain its position for years to come.
By Felicity Bradstock for Oilprice.com
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Felicity Bradstock is a freelance writer specialising in Energy and Finance. She has a Master’s in International Development from the University of Birmingham, UK. More