With the COVID-19 pandemic driving down global oil demand, prompting analysts and fossil execs to declare that the moment of peak oil production has arrived, Saudi Aramco is doubling down on its plan to be the last producer standing as the global economy decarbonizes.
“Saudi Aramco plans to boost its production capacity so it can pump as much of Saudi Arabia’s vast oil reserves when demand picks up—before a shift to cleaner energy makes crude all but worthless,” Reuters reports, citing industry sources and analysts. “With almost 20% of the world’s proven reserves and production costs of just US$4 a barrel, Aramco believes it can undercut competitors and carry on making money even when lower oil prices make it unprofitable for rivals.”
- Be among the first to read The Energy Mix Weekender
- A brand new weekly digest containing exclusive and essential climate stories from around the world.
- The Weekender:The climate news you need.
The company’s next move, Reuters says, will be to increase its production from 12 to 13 million barrels per day, as it threatened to do during Saudi Arabia’s price war with Russia in March, a decision that would drive down prices by pegging global supply that much higher than demand.
“Saudi Arabia, being the lowest-cost producer, could see an increase in volumes and market share in the years to come even if global oil demand and prices do not recover, as a lack of investment naturally leads to production declines elsewhere,” Krisjanis Krustins, a director in the Middle East and Africa team at Fitch Ratings, told Reuters.
“The possibility that demand for crude has peaked makes it more pressing for the world’s top oil exporter to exploit its reserves while it can to generate cash to fund Saudi Arabia’s economic reforms,” the news agency adds. “The state-run oil giant is also revising ambitious downstream expansion plans and now aims to grab assets in established projects in key markets such as India and China, rather than building expensive mega-plants from scratch.”
“We expect oil demand growth to continue in the long term, driven by rising populations and economic growth,” Aramco told Reuters in a statement. “Fuels and petrochemicals will support demand growth,” since “speculation about an imminent peak in oil demand is simply not consistent with the realities of oil consumption.”
Analysts had a different view in late June, after colossal fossils BP and Shell downgraded the value of their combined assets by as much as US$39.5 billion in the space of weeks. “While we expect oil demand to recover next year, we think that it’s likely that it will never reach the levels seen in 2019,” Sverre Alvik, head of DNV GL’s Energy Transition Outlook, told Reuters at the time. While the reductions would not be enough to bring fossil emissions in line with the goals in the 2015 Paris Agreement, “COVID-19 has shown that behavioural changes are indeed possible, and we can use this opportunity to make a change which is good for climate.”
But the big-picture assessments from DNV GL and others applied to the fossil sector as a whole, not to the Saudi state fossil seen as the cheapest producer anywhere. Reuters says Aramco’s determination to keep the taps flowing is driven by Crown Prince Mohammed bin Salman’s plan to diversify the country’s economy and reduce its dependence on oil by 2030. “For the plan to succeed, Prince Mohammed needs lots of cash,” Reuters says, “and Aramco’s oil sales are his main source of revenue.”
“The crown prince said he will diversify but he didn’t say he will kill the oil industry. As long as it can make more money why not? Take the money and invest it somewhere else,” one source told a Reuters reporting team.
“Let’s agree that given the global economic situation, full diversification won’t happen by 2030,” the source added. “To completely wean a giant economy like Saudi off oil, it will require at least 50 years more. So as long as oil is with us, make more money out of it if you can.”
While Aramco already claims the lowest carbon intensity for its product, the colossal fossil “is also focused on how to pump more, cleaner fuel while cutting greenhouse gas emissions, to give it a better chance to compete as governments tighten carbon regulations,” Reuters adds. Much of that effort will rely on carbon capture and storage as Saudi Arabia continues to develop its natural gas resources and convert them into “blue” hydrogen.
Click here for more detail in the Reuters report.
