Change in Saudi Capacity Plans Make Sense Amid Higher Cost and Output Cuts

High spare capacity and persistent reduction in output suggest an “astute time” to change Saudi Arabia capacity growth plans according to Wood Mackenzie.

• Saudi Arabia’s Energy Ministry on Jan 30 told Saudi Aramco to maintain its maximum crude capacity at 12mb/d and not to increase capacity to 13mb/d by 2027 as previously planned.
• No explanation was provided but the decision makes sense due to a constrained oil demand outlook and rising oil-service expenses according to Wood Mackenzie.
• “Costs have substantially increased since the pandemic,” said Alexandre Araman, “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.”
• Production is currently capped near a two-year low of about 9mb/d with about 25% of oil output idled since last July to help prevent a global supply surplus.
• Saudi Arabia are likely to maintain the production cuts for the first half of 2024.