Aramco output to stay at 12 million bpd as plan to boost capacity axed

Saudi Aramco, the world’s largest oil-producing company, will not increase its production to 13 million barrels per day as was previously announced, and will instead maintain its maximum sustainable capacity at 12 million bpd.

The company made the decision after receiving a directive from the kingdom’s Ministry of Energy, Saudi Aramco said in a statement to the Tadawul stock exchange, where its shares are traded.

The company said it will update its capital spending guidance when its full-year 2023 results are announced in March.

Aramco was asked by the Energy Ministry in March 2020 to increase its maximum output capacity to 13 million bpd amid a stand-off with Russia over market share. The following year, the company’s chief executive Amin Nasser said the “full capacity will be available by 2027 but it will come in increments”.

To achieve the 13 million bpd capacity, “we will focus on existing fields and will make the appropriate disclosure and announcements when we reach certain project milestones but it is going to come from existing and new fields, so it will be a combination of both”, he said at the time.

The change of plan is expected to take out a significant portion of the supply buffer that traders were expecting for later this decade, a gap that may be hard for others to fill. But maintaining the additional spare capacity is expensive, especially as oil demand is likely to slow in the future with the energy transition, Bloomberg reported.

In January, Opec forecast a dip in crude oil demand growth in 2025, but said consumption would be driven by solid economic activity in China.

Global oil demand is expected to expand by 1.8 million bpd next year, down from Opec’s estimate for this year of 2.2 million bpd, the group said in its monthly oil market report.

The decision not to raise production “might be cost driven, a desire to redirect revenue to the government instead of investing in new capacity, a new less optimistic outlook on future oil demand”, UBS strategist Giovanni Staunovo told The National.

It is also driven by “sufficient high spare capacity [about 3 million bpd] and potential of higher one in the future,” he said. Aramco’s latest announcement is not expected affect oil prices in the near term as the production capacity was expected to come online by 2027, Mr Staunovo added.