Saudi Arabia’s reversal on plans to boost oil production capacity is an “astute” move amid rising industry costs, according to consultants Wood Mackenzie.
State-run Aramco announced on 30th, January that it’s pausing a 1 MMbpd capacity expansion scheduled for 2027, without providing any explanation. With a constrained outlook for oil demand and swelling oil-service expenses, the decision makes sense, Wood Mackenzie said.
“Costs have substantially increased since the pandemic,” said Alexandre Araman, principal analyst at the company. “It makes less sense now for Aramco to go after projects that are getting more expensive, when it doesn’t see opportunities to significantly increase production while prices are under pressure.”
To reach the 13 MMbpd target, Aramco would have needed to press on with expansion projects such as Safaniyah and Manifa, “as well as the commercialization of new discoveries,” he said.
The kingdom has idled about 25% of its oil output since last July, as part of an accord with the OPEC+ cartel to prevent a global supply surplus, capping production near a two-year low of about 9 MMbpd. Riyadh will probably keep the limit in place for the first half of this year, Araman predicts.
“With spare capacity higher than usual and a persistent need to reduce production, this is an astute time to abandon the 13 MMbpd capacity target,” he said.