Saudis announce oil production increase despite global glut

The President and CEO of Saudi Arabia’s national oil company Aramco, Amin Nasser, announced Tuesday that despite near-record levels of oil production world-wide, the Dhahran-based firm will increase its output of crude in 2016.

After publicizing the details of Saudi Arabia’s highly touted “Vision 2030” plan in April, Nasser’s announcement comes as somewhat of a surprise for a country which is looking to diversify its economy and transition away from traditional forms of energy.

Specifically, Vision 2030 states Riyadh will invest in alternative sources of energy, increase natural gas production and allocate resources in other areas of the economy such as mining, construction and technology development.

The plan also calls for the transformation of Aramco itself “from an oil producing company into a global industrial conglomerate,” and to sell a 5 percent stake in the company in the form of an IPO, which will be traded on the Saudi Stock Exchange in Riyadh.

Oil experts and Aramco executives expect global demand for crude to increase by 1.2 million barrels per day in 2016, a void which Nasser says his company will fill.

The call for an increase in production, however, comes at a time when non-state owned firms such a BP and Royal Dutch Shell are cutting back on production investments.

According to Rice University fellow Jim Krane, Saudi oil output capacity is currently set at 12 million barrels per day, but that number could increase in the not-too-distant future.

The country currently produces 10.2 million barrels every 24 hours.

“If the Saudis want to avoid being stuck with most of their reserves stranded underground, the signs now say they better sell it off sooner rather than later,” Krane said.

Despite the call now for increases, an international agreement with Russia and Venezuela, among other smaller oil-producing countries for Aramco to limit oil production to levels realized in January was nixed before a deal was reached.

Currently, oil sales in the Middle Eastern Kingdom account for 90 percent of the country’s wealth.  In addition, Aramco employs just under 62,000 workers — 51,653 of which are Saudi Arabian.

In addition to increasing oil capacity in 2016, Vision 2030’s goal is for natural gas output to double over the next decade, which will increase competition for a top Russian commodity that’s been partially stifled in recent years.

 

[BBC] [Wall Street Journal] [Photo courtesy fabiusmaximus.com]