Saudi Arabia’s state oil company, Amamco, will cuts costs but maintain its capital investment, a senior official said yesterday.
Aramco, which is the umbrella company for production, refining and most other activities in the kingdom’s petro-complex, has been “driving down costs” but “investment in capacity – oil and gas – has not slowed down”, said Khalid Al Falih, Aramco’s chairman, while attending a business forum in Riyadh.
Aramco is often secretive about its operations, and Mr Al Falih did not quantify how much costs have been cut from operations or how much investment is planned for what projects.
In its last annual review, for 2014, the company said it cut its domestic procurement budget to US$4.3 billion from $6.5bn the previous year.
Aramco, the world’s largest oil exporter, produced about 3.7 billion barrels of oil last year but the value of its oil exports halved as oil prices crashed from an average of $100 per barrel the year before.
Prices have fallen further in the first few weeks of the year and are down about 15 per cent even after a recent bounce to about $32 per barrel for world benchmark North Sea Brent crude futures.
While Saudi Arabia has cut its overall spending, the state oil company is seeking to maintain spending on its strategic “mega projects” in the oil and gas sector to take advantage of an expected improvement in oil and gas prices when markets come into balance.
Saudi Arabia has one of the most oil-dependent economies in the world – with about 43 per cent of GDP directly dependent on oil revenues, compared with about 21 per cent for the UAE and 13 per cent for Russia, according to World Bank figures.
The kingdom had to dig deep into reserves last year to shore up spending but announced plans to slash spending this year by 20bn Saudi riyals (Dh19.58bn) to 840bn riyals, in an effort to cut the deficit to 326bn riyals from 367bn riyals last year.
Diversifying its economy is a strategic priority, which includes plans to develop more of Saudi’s downstream oil and gas sector.
One of its mega projects, for example, includes the development of the Shaybah field in the Empty Quarter, which is estimated to cost 187bn riyals in total.
Shaybah is expected to increase oil production by a quarter this April, bringing it to 1 million barrels per day.
Aramco is building an adjacent natural gas liquids plant to meet growing demand for petrochemical feedstock as well as four new power generators to bring capacity to 1.3 gigawatts by July 2017.
The kingdom’s spending cuts are coming mainly from reductions in fuel subsidies and other lavish state benefits, at least initially.
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