In Shocking Reversal, Saudi State Unexpectedly Orders Aramco To Drop Oil Capacity Expansion Plans
Oil traders were stunned this morning when, in a huge reversal of its prior plans, the Saudi state ordered Aramco to stop work on expanding its maximum sustainable capacity to 13 million barrels daily, instead keeping it at 12 million bpd, ensuring that peak capacity will remain lower than projected rising demand for years to come, effectively pressuring oil prices much higher over the long run (unless, of course, the world figures out cold fusion in the next few years).
The company said in a statement today 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 currently has capacity for 12 million and is producing about 9 million a day after curbed output as part of OPEC+ efforts to revive the global oil market and prevent a surplus. Back in 2021, Saudi Arabia’s state oil company said it was working to boost its production capacity to 13 million barrels daily, a capacity expansion it predicted would come fully online by 2027 and in chunks, chief executive Amin Nasser said at the time.
The surprise move comes after the world’s biggest oil exporter said in November that it was progressing “very well” with the multibillion-dollar project to boost capacity to 13 million barrels a day by 2027 as demand in China and India continues to grow.
The Saudi giant, the world’s biggest oil firm and the largest oil exporter globally, was working as fast as it could to reach that production capacity expansion, the executive said, noting that upstream investment has a long lead time.
According to Bloomberg, the change in the investment plan ordered by the Saudi government comes at a time when Aramco has significantly increased dividend payments to the state, its primary owner. The kingdom is running a fiscal deficit as it spends tens of billions of dollars on efforts to diversify the economy into areas such as sports and tourism.
