Reuters
Oil & Gas 360 Publishers Note: This is an interesting article about different paths for some of the major oil & gas companies. The other majors are divesting oil assets, and morphing into renewable power companies. Saudi Aramco is taking a different path and seems to be a logical move. The Aramco management is going to bring revenues into the country, and keep reducing the CO2 output.
DUBAI/RIYADH (Reuters) – The slump in demand for crude during the coronavirus pandemic has forced oil companies to contemplate the possibility that the fossil fuel market has peaked and the time for a global energy transition has come.
But Saudi Aramco plans to boost its production capacity so it can pump as much of the kingdom’s vast oil reserves when demand picks up – before a shift to cleaner energy makes crude all but worthless, industry sources and analysts told Reuters.
With almost 20% of the world’s proven reserves and production costs of just $4 a barrel, Aramco believes it can undercut competitors and carry on making money even when lower oil prices make it unprofitable for rivals, the sources said.
Riyadh now plans to follow through on its apparent threat in March during an oil price war with Russia to raise its capacity to 13 million barrels a day (bpd) from 12 million bpd, officials and sources have said.
Aramco’s approach is in stark contrast to Western rivals such as BP BP.L and Shell RDSa.L which plan to curb spending on oil production so they can invest in renewable and green energy as they prepare for a low-carbon world.
With a renewed focus on oil, the state-run oil giant is also revising ambitious downstream expansion plans and now aims to grab assets in established projects in key markets such as India and China, rather than building expensive mega plants from scratch, the sources said.
“We expect oil demand growth to continue in the long term, driven by rising populations and economic growth. Fuels and petrochemicals will support demand growth … speculation about an imminent peak in oil demand is simply not consistent with the realities of oil consumption,” Aramco said in a statement to Reuters.
‘TAKE THE MONEY’
A view shows Saudi Aramco’s Shaybah Natural Gas Liquids (NGL) project, Saudi Arabia December 14, 2015. Saudi Aramco/Handout via REUTERS
The possibility that demand for crude has peaked makes it more pressing for the world’s top oil exporter to exploit its reserves while it can to generate cash to fund Saudi Arabia’s economic reforms, sources familiar with Saudi policymaking say.
Saudi Crown Prince Mohammed bin Salman is trying to develop new industries to reduce the kingdom’s dependency on oil under his ambitious Vision 2030 plan to diversify the economy.
But for the plan to succeed, Prince Mohammed needs lots of cash – and Aramco’s oil sales are his main source of revenue.
“The crown prince said he will diversify but he didn’t say he will kill the oil industry. As long as it can make more money why not? Take the money and invest it somewhere else,” one of the sources told Reuters.
“Let’s agree that given the global economic situation, full diversification won’t happen by 2030,” he said. “To completely wean a giant economy like Saudi off oil, it will require at least 50 years more. So as long as oil is with us, make more money out of it if you can.”
Aramco is also focused on how to pump more, cleaner fuel while cutting greenhouse gas emissions to give it a better chance to compete as governments tighten carbon regulations, analysts and sources briefed on the company’s plans said.
Aramco’s oil production already has a so-called carbon intensity of 10.1 kg of carbon dioxide (CO2) for each barrel produced (CO2e/boe) – the lowest among its rivals – and it wants to push that down even further by the end of this year.
“Our priorities are to sustain our low carbon intensity and low cost of production, while delivering the energy supplies the world needs,” Aramco told Reuters.
