Adds quotes from energy minister in paragraphs 6-11
Saudi Arabia's energy minister Prince Abdulaziz bin Salman said today that the energy transition is the driving force behind the country's recent decision to halt a programme to boost its crude output capacity, noting that Riyadh already has plenty of spare capacity. But he did not rule out revisiting the expansion plan at a later date.
State-controlled Saudi Aramco surprised global oil markets when it announced on 30 January it had received a directive from the energy ministry "not to continue" with its programme to boost its maximum sustainable crude capacity by 1mn b/d to 13mn b/d.
"We have postponed this investment simply because… we are transitioning," Prince Abdulaziz said today at the IPTC petroleum technology conference in Dhahran.
The halt does not necessarily mean the expansion is being abandoned as Saudi Arabia continuously reviews its decisions to ensure stable energy markets, the minister said.
"Who said we make a decision and sit on it? No… we are in a continuous mode of reviewing and reviewing and reviewing, simply because we have to be [mindful] of the realities," he said.
Saudi Arabia offered no explanation at the time of the surprise decision, giving way to speculation that its view on oil demand growth may have changed or that inflation may have made the cost of the expansion unpalatable. But according to Prince Abdulaziz, it all boils down to the energy transition and a rethink of priorities at a time when the country is already holding significant spare capacity.
"The fact is that we now have around 3.2mn b/d of [spare] capacity," he said. Saudi Arabia has been producing just below 9mn b/d since the start of the second half of last year because of its Opec+ commitments.
As part of long-standing plans to transition to gas burning for power consumption, the country is due to save around 950,000-1mn b/d of consumed crude, diesel and fuel oil. It is also due to produce 650,000 b/d or so of condensate and other non-gas liquids (NGLs) from the giant Jafurah gas project, due to come on stream in 2025.
"Even if you assume [domestic] consumption will rise by 250,000-300,000 b/d over the next years… between the two numbers, we are still talking about an additional 1.3mn-1.4mn b/d [freed up over this period]," Prince Abdulaziz said. "If you aggregate this with the 3.2mn b/d, you're now talking about [spare capacity of] 4.6mn-4.7mn b/d."
He said the energy transition means spare capacity should no longer only be discussed in the context of oil, but rather all forms of energy.
"We used to maintain 1.5mn-2mn b/d [of spare capacity] because energy security in the 1970s, the 1980s, the 1990s, was more dependent on oil," he said. "But now, look what happened just last year. It was gas. The future problem of energy security will not be oil, it will be renewables and the materials, and the mining industry [and so on]."
Aramco is therefore not just pursuing investments in the oil sector, but also in gas, petrochemicals, renewables and even geothermal.
"We have been saying all along, we are going to be the country that that will produce every source of energy. But also we are going to create that word — transition," he said.
Aramco first said it would lift crude capacity to 13mn b/d in the first quarter of 2020. It said in 2022 that it was planning to boost its capital expenditure year-on-year through to the middle of the decade to help fund the expansion. The company has also been working to lift its gas production by more than 50pc to above 15bn ft³/d (155bn m³/yr) by 2030 from 10.14bn ft³/d in 2021.
