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Saudi Arabia expects to benefit from future drop in oil supply from major producers such as the US and Russia and pump more crude to cater to global demand as it mulls more sales in Saudi Aramco shares to foreign investors, the country’s crown prince said April 27.
“There is a wrong perception among many analysts that Saudi Arabia wants to get rid of oil,” Mohammed bin Salman told Saudi TV. “This is not true. We want to benefit from everything in Saudi Arabia, whether oil or any other sector.”
Major oil producers such as Russia and the US will likely see their output dwindle as demand continues to grow until 2040, allowing Saudi Arabia to pump more crude to offset the supply declines.
“[Global] supply will dwindle much faster than the drop in [global] oil demand,” the crown prince said. “In the future, it [Saudi Arabia] will increase production to cater to oil demand.”
Aramco has plans to boost its oil production capacity by 1 million b/d to 13 million b/d, as directed by the Saudi energy ministry. Aramco is conducting engineering analysis on how to achieve that expansion, but the work could be pushed forward if there is demand for extra Saudi supplies, CEO Amin Nasser said March 22.
This 13 million b/d target does not include output from the Neutral Zone oil fields, which are owned jointly with Kuwait, Nasser said at the time.
Saudi Arabia is ramping up its oil production capacity despite peak oil demand scenarios that are being touted by various organizations and energy transition trends that have prompted global energy majors to slash their future oil output plans.
Russian peak oil
Even Russia, Saudi Arabia’s main partner in the OPEC+ alliance, is working on a peak oil production scenario.
Russia’s revised oil strategy will focus on maximizing monetization from crude exports before hitting peak production in 2027-2029 and seeing world demand drop, according to a draft document on the development of the sector up to 2035 being reviewed by the State Duma.
The draft document, which is prepared by the energy ministry and revised annually, takes into account the consequences of the ongoing pandemic, as well as accelerated decarbonization trends globally, which may cause world oil demand to peak earlier than 2030.
The Russian energy ministry has forecast crude oil output to total 478 million mt, or 9.6 million b/d, in 2021, practically unchanged from 2020 levels.
Russia outlined protection of its market share in the international market as one of its main goals for 2021.
Under four various scenarios, Russia’s crude output could peak at 504 million-590 million mt in 2027-2029 before decreasing to 414 million-494 million mt in 2035.
US supply growth
The International Energy Agency is also forecasting that the Middle East will dominate 2021-2026 supply growth picture, while US supply growth will be more modest compared to recent years, according to its medium-term oil market outlook published March 17.
The IEA estimates that the demand for OPEC’s crude will rise from 27.3 million b/d this year to reach 30.8 million b/d in 2026. By 2026, total oil production will rise by 10.2 million b/d from a six-year low of 94 million b/d in 2020.
Besides focusing on oil demand growth, Saudi Arabia is also keen to monetize its oil assets and sell more shares in Aramco to help finance its economic diversification plans, the crown prince said.
“We may sell some [Aramco shares] to key international investors and that will be announced in the next one to two years,” he said. “There is a discussion for the acquisition of 1% stake [of Aramco] by a leading global energy company and this would be an important deal.”
The 1% acquisition would help sell Aramco products in a major country, bin Salman said, without providing further details. The Saudi government also is in talks with other companies to buy various Aramco stakes, he added.
The government may also list some Aramco shares on the Saudi stock exchange, where it is currently traded, and it may transfer some shares to the Public Investment Fund, the country’s sovereign wealth fund, he said.
Revenue from the 2019 Aramco share sale was transferred to PIF, which is set to become a major investor in the Saudi economy.
PIF, which was supposed to have assets of Riyals 7 trillion ($1.87 trillion) by 2030, will now have a new 2030 target of Riyals 10 trillion, bin Salman said.
This year PIF will have greater capital spending than the budget, a trend that will continue in the future, he added.
