However, oil industry sources and analysts said that Saudi Aramco intends to increase its production capacity so that it can pump as much as possible from the kingdom’s huge reserves when demand recovers before oil loses its value by switching to clean sources of energy.
The sources said that Aramco believes that it can lower prices than its competitors and continue to profit even when prices drop, depriving competitors of profit, because the Kingdom owns about 20% of global proven reserves, and production costs amount to only 4 dollars per barrel.
Officials and sources said that Riyadh is now planning to implement what appeared to be a threat in March during the oil price war with Russia to increase production capacity from 12 million barrels per day to 13 million.
Aramco’s approach stands in stark contrast to Western competitors such as BP and Shell, which intend to restrict spending on oil production so that they can invest in energy Renewable and clean energy in preparation for a world that lives with low carbon emissions.
The sources added that the state-run oil giant, with this new focus on oil, is amending plans for ambitious expansion in upstream activities (refining and marketing), and is now aiming to seize assets in existing projects in major markets such as India and China instead of building giant, expensive factories from the start. .
Aramco said in a statement: “We expect oil demand growth to continue in the long term, driven by population increases and economic growth, and fuels and petrochemicals will support demand growth. Predicting an imminent peak in oil demand is simply not consistent with the reality of oil consumption.”
Take the money
Sources familiar with the policy-making process in the Kingdom say that the possibility that crude oil has reached its climax makes Saudi Arabia, the largest oil exporting country in the world, to exploit its reserves from it more urgent as long as it can generate the necessary money to finance Saudi economic reforms.
Saudi Crown Prince Mohammed bin Salman is trying to create new industries to reduce the kingdom’s dependence on oil, through the Kingdom’s ambitious 2030 vision to diversify economic resources.
However, for the plan to succeed, Prince Mohammed needs large financial liquidity and Aramco’s oil sales are the main source of revenue in front of him, and one of the sources said: “The Crown Prince said he will work on diversification but he did not say that he will eliminate the oil industry. As long as it is possible to achieve more income from them, why not, take the money and invest it in another area. ”
He added, “Let us agree that, in light of the global economic situation, full diversification will not be achieved by 2030, because ridding a gigantic economy like Saudi Arabia completely of dependence on oil requires at least another 50 years, and so as long as oil is with us, we will extract more money from it if this is possible. .
Analysts and sources familiar with the company’s plans also said: Aramco Focuses on how to pump more, cleaner fuels to reduce greenhouse gas emissions, giving them a better chance to compete at a time when governments are tightening carbon emissions regulations.
The carbon density of Aramco’s oil production is 10.1 kilograms of carbon dioxide for every barrel it produces, which is the lowest among its competitors, and the company wants to reduce this level from that limit by the end of this year.
Aramco said: “Our priorities are to maintain our low carbon intensity and low production cost while delivering the energy supplies the world needs,” adding that it “is looking at ways to reduce emissions through technology such as increasing the efficiency of engines, better fuel formulations, carbon extraction, and converting carbon dioxide and hydrocarbons. Into useful products ”.
Aramco said that one example of the possibility of using hydrocarbons in hydrogen supply was the recent transfer of a shipment of blue ammonia to Japan, for use in generating electricity without any emissions, and that this is achieved for the first time in the world.
And she continued: “In this example, 50 tons of carbon dioxide was reused during the operation, after its extraction in producing methanol and enhancing oil recovery.”
The sources said that Aramco will also continue to develop its gas resources thanks to the high domestic needs and the Kingdom’s ambitions to become a gas exporter, as well as plans to sell stakes in some of its assets, such as the activity of the local pipeline network.
Amrita Sen, founding partner at Energy Aspects Research, said: “There will always be room for oil and the lowest sources of carbon emissions will win, and OPEC’s strength in the oil market will return, especially for those who can produce oil in the cleanest possible way and Saudi Aramco fits this description.”
Low cost
Sources familiar with the Kingdom’s thinking in the field of oil said that Aramco’s plan to increase production capacity to 13 million barrels per day is central to its strategy; It wants to be ready to capture more market share when demand recovers.
Sources and analysts say that Saudi Arabia also needs to prepare for the expected ambiguity surrounding oil prices after the Covid-19 epidemic, to ensure the continuation of spending and economic reforms plans without being largely affected by the oil price at 40 or 60 dollars a barrel.
The prevailing thinking in Saudi Arabia is that as long as oil prices are expected to remain low and may hover around 50 to 60 dollars per barrel for years, oil prices are supposed to be supported by the closure of fields in regions such as the United States where the cost of oil production is high.
“Saudi Arabia, as the least expensive producer, could see an increase in volumes and market share in the coming years even if global oil demand does not recover and prices do not recover, because it is natural that Saudi Arabia will see an increase in volumes and market share in the coming years. The lack of investment leads to a decrease in production in other regions. ”
The sources said that passing through peak oil demand may also lead to a new price war and an end to the efforts of the Organization of the Petroleum Exporting Countries (OPEC) and its allies to limit supplies, so Riyadh wants to arm and prepare for battle.
All oil producers will face a similar need to monetize their reserves and energy investments before they lose value. Unlike Saudi Arabia, the economy of OPEC members such as Venezuela, Iraq and Iran will be heavily dependent on oil and gas.
“If the peak oil demand catches the prevailing view that it occurs much later, then Aramco will benefit from a higher market share and a greater spare production capacity to reduce another unwanted increase in prices,” said Bob McNally, founder of Rapidan Energy Group.
He added, “Even if the increase in demand occurs quickly, the demand for Saudi materials will likely grow because production in the higher-cost countries that are not members of the OPEC + group will decline at a faster rate, while the Kingdom’s interest in managing supplies will continue to stabilize prices.”
Downstream sector review
Another key aspect of Aramco’s strategy is a review of the new administrative organization for institutional development that the company established last August of the company’s costly plans to acquire assets in the downstream sector, i.e. refining and distribution.
Aramco had made big bets on petrochemicals and oil refining as a way to mitigate the impact of a slowdown in oil demand growth.
However, the sources said that in an industry that may be on the cusp of a long-term recession, Aramco is now looking to buy assets that investors want to dispose of instead of setting up projects from scratch.
The sources said, confirming previous reports, that Aramco, for example, has postponed plans to build a refining and petrochemical complex with investments amounting to ten billion dollars with the Chinese giant Norinco for defense industries in China.
However, the sources added that the Saudi company is interested in investing in another project in China It will buy a stake in the Zhejiang refinery and petrochemical complex south of Shanghai and take over an oil storage facility.
Officials at Zhejiang Petroleum and Petrochemical Corporation were not immediately available for comment.
Aramco is also keen to invest in India and is in talks with the Indian company Reliance Industries to buy a 20 percent stake in its oil and chemical activity, but negotiations dragged on over the price of the deal.
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