Saudi Aramco Abruptly Drops Plans to Expand Oil Production

Saudi Aramco said Tuesday that it would call off plans to expand its oil output, a remarkable turnaround by one of the world’s leading petroleum producers.

Aramco, the national oil company of Saudi Arabia, said it had been directed by the government in Riyadh to maintain its “maximum sustainable capacity” of crude oil production at 12 million barrels a day, and give up a drive to increase it to 13 million barrels a day by 2027, a plan announced several years ago.

The oil giant did not provide a reason for the pullback. But it could be a sign that the Saudis are changing their thinking about future supply and demand for their oil. Global oil supplies have recently been stronger than the Saudis may have anticipated because of strong growth in output from shale drilling in the United States, which is now the world’s leading oil producer, and other sources. At the same time, some analysts expect demand to level out in the coming decade.

“The decision probably reflects a view that the world does not need as much Saudi oil as was previously expected,” said Neil Beveridge, an analyst at Bernstein, a research firm.

The government may want to free up money to spend on Crown Prince Mohammed bin Salman’s ambitious development plans, as well as on alternative sources of energy like natural gas and hydrogen. Aramco said it had received instructions to dial back expansion from the ministry of energy, which is run by Prince Abdulaziz bin Salman, the older half brother of the crown prince.

Reducing future capacity at a time of growing tension in the Middle East could create worries, but the Saudi move does not mean that there will be a drop in oil volumes anytime soon, analysts say. At the moment, Aramco is producing about three million barrels a day less than it can.

Still, Mr. Beveridge said reduced investment in capacity was “bullish” for oil prices. He also said that the Saudis may be sending a signal to close allies like the United Arab Emirates and Kuwait that they should back off on their own expansion plans.

Oil prices, however, fell slightly in trading on Tuesday.

Certainly, recent experience argues against a major investment in producing more oil. Saudi Aramco has been investing billions to expand output, but the company has not been able to pump anywhere near its stated capacity of about 12 million barrels a day.

That is because as leaders of OPEC Plus, the producers group, the Saudis have been holding their output to about nine million barrels a day in order to shore up prices.

Aramco said, however, that it will continue with some plans that are already underway to have additional production to offset the natural decline of existing oil fields.

What the Saudi government may be trying to do is allow Aramco to reduce its investment commitments at a time when high industry activity has driven up the costs of drilling and other services.

“Aramco is being given the space to slow down,” said Richard Bronze, head of geopolitics at Energy Aspects, a research firm. This leeway, he said, would let the company choose when it wants to spend money on developing new oil fields rather than forcing it to do so when costs are running high.


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