Rystad Energy Analyzes Saudi Arabia’s Pause in Oil Capacity Expansion Amid Market Uncertainty: Implications for Offshore Projects and Supply Stability

Saudi Arabia’s Ministry of Energy has issued a directive to the world’s largest oil and gas operator, Saudi Aramco, to maintain its maximum sustainable capacity (MSC) at 12 million barrels per day (bpd), instead of proceeding with the planned increase to 13 million bpd. This decision has stirred uncertainty in the market regarding the continuation of upstream activities in the region.

With approximately 3 million bpd of existing surplus capacity, Saudi Arabia aims to play an active role in balancing the market, particularly amid ongoing challenges such as high drilling and completion costs and strained supply chains. The pause in capacity expansion comes at a time when the demand growth outlook remains uncertain.

Rystad Energy has delved into the implications of this announcement, particularly on offshore expansion plans. The decision to maintain the MSC at 12 million bpd represents a strategic shift from the previously announced expansion plans, which gained momentum in response to the supply crunch experienced in 2021/22.

Saudi Aramco’s focus on offshore oil and gas expansion projects, including the Dammam and Berri, Marjan, and Zuluf developments, underscores its commitment to meeting production targets. However, the revised mandate necessitates a reevaluation of future investments, with potential implications for projects like Safaniya and Manifa.

The decision also has implications for the composition of Saudi Arabia’s oil mix, as increased offshore volumes are expected to lead to a greater share of heavy grades. This shift underscores the importance of offshore expansion to maintain the country’s overall production levels.

Furthermore, the directive impacts offshore jackup activities, with Saudi Arabia’s jackup rig supply having doubled compared to previous years. The cancellation of a tender for additional jackups highlights a slowdown in incremental demand, potentially impacting rig demand projections up to 2030.

The decision also reflects an inflated cost environment, with service costs surging since Aramco’s strategic growth initiative announcement in 2020. This rise in costs, coupled with uncertainties in other industries, underscores the need for a strategic approach to investments.

Overall, the revised mandate represents a strategic response to market conditions, with implications for capex requirements, particularly in greenfield offshore developments. Despite the pause in capacity expansion, Saudi Arabia remains committed to maintaining its role in balancing the global oil market and ensuring supply stability.

In summary, Saudi Arabia’s decision to maintain its maximum sustainable capacity at 12 million bpd reflects a nuanced response to market dynamics, with implications for future investments, the composition of its oil mix, and offshore activities.