Saudi Arabia will maintain its focus on oil despite the ongoing global transition toward low-carbon energy. State-owned Saudi Aramco is planning to boost output by 1 million bpd to 13 million bpd to monetise the kingdom’s vast reserve while it can before the energy transition turns crude oil worthless, industry sources said. This contrasts efforts by western rivals such as BP, Shell, and Total who have announced spending cuts on oil and gas production to increase exposure to renewables.
The coronavirus pandemic has been viewed by many analysts to have accelerated the transition toward greener energy. Oil majors BP, Shell, and Total have all expected that the growth of crude oil consumption is closing to an end, a grave concern for oil-reliant economies like Saudi Arabia. Under the Vision 2030 plan, Saudi Crown Prince Mohammed bin Salman is trying to diversify the country’s economy by cutting dependence on oil. However, he needs unnumbered money, and Aramco’s oil sales are his primary revenue sources.
With production costs of just $4/barrel, Aramco believes that it can outlast and undercut rivals to generate profits despite low oil prices. Government sources said that the kingdom expected global oil prices to remain depressed at around $40-$60/barrel over the next couple of years. At that price level, investment and production are expected to be depressed elsewhere, allowing Aramco to keep pumping oil, grabbing market share, while keeping generating cash.
The company is also focusing on greenhouse gas emissions to remain competitive under tighter carbon regulations. Aramco said it had a carbon intensity of 10.1 kg of CO2 for every barrel oil production, the lowest among competitors. It is also working on better fuel formulations as well as carbon capture, sequestration, and recycling.
Aramco will also increase gas production, driven by growing domestic demand and Saudi Arabia’s ambitions to become a gas exporter. At the same time, The company’s newly-established corporate development organisation will carry out a task to review its costly acquisition plans for downstream assets as it bets in the sector to mitigate against a downturn in oil consumption growth. Aramco has delayed plans to construct a $10-billion refining and petrochemical complex with China’s Norinco. However, it said talks on the purchase of a stake in the Zhejiang refinery and petrochemicals complex and Reliance’s oil-to-chemical business remained in place.
