Saudi Arabia will maintain an ambitious rate of investment in its hydrocarbon sector to meet forecast global demand increases over the next decade, despite the weaker oil prices which have hit its economy this year, according to a leading Saudi oil executive.
Yesterday, the head of Saudi Arabia's state-owned national oil company, Aramco, said it plans to invest US$40 billion a year over the next 10 years to keep its oil production capacity steady and double gas production.
The Aramco chief executive Khalid Al Falih said he expects more of the company’s capital spending to be directed towards offshore projects and expects rising costs across the oil sector to underpin oil prices, according to Reuters.
If prices stay low it will discourage the more expensive production and ultimately constrain supply.
Speaking at a conference in Stavanger, Norway, Mr Al Falih said: “To meet forecast demand growth and offset [global output] decline, our industry will need to add close to 40 million barrels per day of new capacity in the next two decades.”
He added “Although our investments will span the value chain, the bulk will be in upstream, and increasingly from offshore, with the aim of maintaining our maximum sustained oil production capacity at 12 million barrels per day, while also doubling our gas production.”
Saudi Arabia ranks fifth in the world in natural gas reserves, with 291 trillion cubic feet of proven reserves, and eighth in production, at about 3.6 billion cubic feet last year, according to the US energy information agency.
Oil prices have weakened this year, despite turmoil in hot spots that are important for oil, especially Libya and Iraq. The threat to supplies has been offset by weaker-than-expected demand in Europe, China and elsewhere, so benchmark oil prices have fallen by more than 10 per cent from their June peak above $115 a barrel.
The declining oil price has put pressure on Saudi Arabia’s economy. Analysts at Capital Economics estimate that the Saudi economy slowed to a growth rate of 4.3 per cent in the second quarter of this year, compared to 4.7 per cent in the first, with the slowing oil sector the main culprit.
Nonetheless, Saudi Arabia and Aramco remain committed to a market-based approach. Mr Al Falih said that neither Opec nor the International Energy Agency – the main think tank for rich oil-consuming countries – should try to control oil prices. Fundamental industry problems, such as rising costs, difficult technical challenges, and diminishing oil discoveries would support oil prices in coming years, he said.
“I share … the belief that this is a market-driven business,” Mr Al Falih said.
“It’s not Opec, the IEA, and consumers that should be in the business of trying to control the market … To tap these increasingly expensive oil resources oil prices will need to be healthy enough to attract needed investments … and long-term prices will be underpinned by more expensive marginal barrels.”
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