Saudi Arabia pledges to expand oil output capacity Saudi Arabia pledges to expand oil output capacity
Now Reading
Saudi Arabia pledges to expand oil output capacity

Saudi Arabia pledges to expand oil output capacity

The world’s biggest oil exporter will raise capacity to 13 million barrels a day from 12 million


Saudi Arabia ordered state-run oil producer Aramco to boost the kingdom’s output capacity by 1 million barrels a day, the latest escalation in a battle for control of the global petroleum market.

While delivering the extra capacity may take years and many billions of dollars in investment, the decision shows that Crown Prince Mohammed bin Salman has little intention of pulling back from his aggressive response to the breakdown of OPEC’s alliance with Russia and other oil producers.

The country’s energy ministry, headed by Prince Mohammed’s half-brother, ordered Saudi Aramco to boost its output capacity for the first time in at least a decade.

The world’s biggest oil exporter will raise capacity to 13 million barrels a day from 12 million, it said Wednesday in a statement.

“The company is exerting its maximum efforts to implement this directive as soon as possible,” Aramco chief executive officer Amin Nasser said in a separate statement.

Aramco didn’t specify when it would reach the higher capacity level or how much investment such an increase would require.

“To add a million barrels per day is a very major undertaking,” said Robin Mills, chief executive officer of Dubai-based consultant Qamar Energy. Aramco can draw upon existing plans for big developments that need several years of work, said Mills, who formerly worked as a geologist in the Middle East for Royal Dutch Shell Plc.

Saudi Energy Minister Prince Abdulaziz bin Salman returned last week from Vienna without an agreement by the OPEC+ coalition to make deeper cuts in production to help prop up prices. The failure to reach a deal shattered a partnership between the Organization of Petroleum Exporting Countries and producers such as Russia that had regulated much of the world’s oil supply for more than three years.

Flagging Demand
Oil plunged as much as 31 per cent on Monday after Saudi Arabia and Russia traded shots in an oil price and supply war that threatens to overwhelm markets already reeling from the impact of the coronavirus outbreak on demand.

Aramco’s shares declined as much as 1.6 per cent in trading Wednesday on the Saudi exchange. The stock traded at 30.85 riyals, down 1 per cent, giving the company a market value of 6.2 trillion riyals ($1.65 trillion) at 12.11 pm in Riyadh. This week, the stock has traded below the 32-riyal level at which the government sold stock in December.

Saudi Arabia has more spare capacity than Russia, and that cushion has long enabled it to play a dominant role among producers. Adding supply in times of shortage can dampen price spikes, and the Saudis are showing now that they can wield that power to exert financial pressure on other producers.

The kingdom announced plans more than a decade ago to boost and sustain its capacity at a level of 12 million barrels a day, and it has worked to maintain that by expanding fields including Manifa and Shaybah. Adding 1 million barrels a day of additional spare capacity would cost more than $20bn, Khalid Al-Falih, the former Saudi energy minster, said in 2018.

The order to boost production capacity highlights the inherent contradiction in Aramco’s status as a publicly listed company that’s also controlled by the Saudi state. The company sold 1.5 per cent of its shares on the Riyadh stock exchange in December in the world’s largest initial public offering. Yet it’s beholden to government decisions concerning output and capacity.

This isn’t the first time the Crown Prince has exerted influence over Aramco’s operations during debates over supply.

He said in April 2016 that the kingdom could boost capacity to as much as 20 million barrels a day, an amount that would roughly equal a fifth of worldwide production. Prince Mohammed made the comments as OPEC ministers gathered in Doha, Qatar for an ultimately doomed meeting aimed at freezing output.

A group meeting later that year brought Russia and others into the output-cutting framework that lasted until its collapse last week.


Scroll To Top