State-owned Saudi Aramco has been directed by the Government of Saudi Arabia to stop its oil expansion plan and focus on a maximum sustained oil production capacity of 12 million barrels per day.
This figure is one million barrels per day (bpd) below the target announced in 2020.
In a statement, the company said: “Aramco announces that it has received a directive from the Ministry of Energy to maintain its maximum sustainable capacity (MSC) at 12 million bpd, and not to continue increasing MSC to 13 million bpd.”
Currently, according to Reuters, the Middle East nation is producing around nine million barrels per day.
Sources told the news agency that Aramco’s lower target capacity does not indicate a shift in Saudi Arabia’s outlook on future oil demand or arise from technical constraints.
The company, which has a spare capacity of three million barrels per day, can increase output if required by the market, they added.
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The de facto OPEC leader, Saudi Arabia, along with Russia, has been coordinating output reductions to stabilise the market amidst increasing supplies from other major producers such as the US.
In the short term, strong demand is unlikely to be seen that would necessitate Saudi Arabia or the United Arab Emirates (UAE) to operate closer to full capacity.
OPEC maintains a more optimistic view on oil demand growth than other forecasters, anticipating that non-OPEC+ producers will meet most of the rise in demand for crude supply over the next two years.
OPEC’s latest report projects a demand growth for its oil of around 1.3 million barrels per day by the end of 2025, allowing for only a partial reversal of the current cuts.
By the end of 2025, Saudi Arabia and the UAE could still have considerable spare capacity, which is costly to develop and maintain.
The revised capacity targets may redirect focus towards Aramco’s ventures in gas and new energy sectors, the sources said.
Last year, Aramco entered the liquified natural gas market by acquiring a stake in MidOcean Energy for $500m (SR1.88bn).
The company is also developing Jafurah, Saudi Arabia’s largest unconventional gas field, which could become the most significant shale gas project outside the US with projected investments of $110bn.