Saudi Arabia may have surprised markets by announcing it would ditch its plan to raise oil production capacity to 13 million barrels per day (bpd), but the decision was being deliberated for at least six months due to concerns that the world's top crude exporter wasn't fully monetizing its excess capacity, Reuters reported on Wednesday, quoting an industry source.
On Tuesday, Saudi 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 its maximum sustainable capacity is determined by the state under a law from 2017. Aramco added that it would update its capital spending plans for the year in accordance with the new government directive in March when it announces its 2023 financial results.
Saudi Arabia's state oil company said it was working to boost its production capacity to 13 million barrels daily back in 2021. The capacity expansion will come fully online by 2027 and will come on in chunks, chief executive Amin Nasser said at the time.
However, the Saudi rulers have now determined that there may be no need for an expansion of the capacity beyond 12 million bpd. While the ditching of the 13-million-bpd target came as a surprise for markets, the Kingdom has been entertaining the idea for at least half a year.
The decision came from the top, a Reuters source said.
Saudi Arabia has only rarely supplied more than 11 million bpd to the market, for example in the early months of 2020 amid the full-blown price war with Russia while prices were tanking as Covid was destroying demand.
Currently, Saudi Arabia produces 9 million bpd of crude, as part of the OPEC+ agreement. The Kingdom also contributes with an extra voluntary cut of 1 million bpd to the OPEC+ production reductions.
As Saudi Arabia has been pumping 9 million bpd for months, Aramco's CEO Nasser said in October that the company's spare oil production capacity currently stands at 3 million bpd.
By Tsvetana Paraskova for Oilprice.com
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Comments
For decades, 90% of Saudi production has been coming from five giant, ageing and fast-depleting oilfields (Ghawar, Khurais. Safaniya. Shaybah and Zulif) which were discovered more than 74 years ago and and are being kept producing by injections of billions of gallons of water.
I estimate current Saudi production at no more that 6.0-6.5 mbd with the balance to make up its declared production of 10.0 mbd coming from its oil inventory, a practice that it can never be maintained for long and is only intended for emergencies and time of maintenance of its oil infrastructure.
Moreover, Saudi Arabia has never ever had a production capacity of 12.0 mbd. It only managed very rarely to produce 11.0 mbd in the past. In fact, it currently has no actual spare production capacity.
By 2030, Saudi Arabia will have less than 400,000 barrels a day (b/d) for export and would have virtually ceased to remain an oil exporter.
Moreover, Saudi production cuts will from now on become a permanent feature of the global oil market.
Dr Mamdouh G Salameh
International Oil Economist
Global Energy Expert