DHAHRAN, SAUDI ARABIA (Reuters) – Saudi Arabia's U-turn on its oil capacity expansion plans was because of the energy transition, its energy minister said on Monday, adding that the kingdom has plenty of spare capacity to cushion the oil market.
The Saudi government on Jan 30 ordered state oil company Aramco to halt its oil expansion plan and target maximum sustained production capacity of 12 million barrels per day (bpd), 1 million bpd below a target announced in 2020 and set to be reached in 2027.
"I think we postponed this investment simply because ... we're transitioning," Prince Abdulaziz bin Salman said at the IPTC petroleum technology conference in Dharan, adding that Aramco has other investments to make in areas including oil, gas, petrochemicals and renewables.
Saudi Arabia has said it aims to reach net zero emissions by 2060, with Aramco targeting net zero emissions from its own operations by 2050.
Prince Abdulaziz said that the kingdom had a "huge cushion" of spare oil capacity in case of major disruptions to global supplies caused by conflict or natural disasters.
Aramco Chief Executive Amin Nasser told reporters on the sidelines of the same conference that the state oil giant remained ready to raise capacity should it be needed.
“We have adequate spare capacity of about 3 million barrels," Nasser said.
"And as a company - because this is a decision for the government - we remain ready whenever they want to increase MSC (maximum sustained capacity); we are always ready to expand.”
Under cuts agreed by the Organization of the Petroleum Exporting Countries and allies led by Russia, together known as OPEC+, Saudi oil production is about 3 million bpd below its 12 million bpd maximum sustainable capacity, making it the world's biggest holder of spare capacity.
"We are ready to tweak upward, downward, whatever the market necessity dictates," Prince Abdulaziz said.
He criticised a decision coordinated by the International Energy Agency in 2022 to release oil from emergency reserves to cool global prices after Russia's invasion of Ukraine.
"Why should we be the last country to hold energy capacity, or emergency capacity, when it is unappreciated and when it is not recognised?"
Nasser said he expected oil demand to increase to 104 million bpd this year and to 105 million bpd in 2025, downplaying suggestions that it will peak soon. OPEC figures show oil demand reached a record of more than 102 million bpd last year.
When asked about a further offering of Aramco shares this year, Nasser said it would be a "shareholder decision".
The Saudi state remains overwhelmingly Aramco's biggest shareholder and heavily relies on its dividend payouts. The government directly holds 90.19%, the kingdom's Public Investment Fund (PIF) 4% and PIF subsidiary Sanabil 4%, LSEG data shows.