Aramco's Spending Mystery -- Bloomberg -- March 13, 2023

After posting a record profit for 2022, Saudi Aramco says it will boost capital investment by as much as 45% this year. But it has yet to answer the question of how much, if any, of that increase will go toward lifting the country’s oil-production capacity, even as it warns of the risks of underinvestment globally.

The company reiterated plans to boost domestic production capacity to 13 million barrels a day by 2027, but that’s a long-held target and the projects to achieve it are well underway. They’re due to start contributing more volumes next year, with the biggest increments set to come in 2025 and 2026. But there’s no sign yet that Aramco’s looking beyond that goal.

Indeed, Crown Prince Mohammed bin Salman said in July that, beyond that, the kingdom “will not have any additional capacity to increase production.” But it's far from clear that's a geological limit.

With access to massive and (relatively) easy-to-exploit oil reserves in Saudi Arabia, Aramco has a huge advantage over other producers. While the world may hold more proven oil reserves than are needed as it transitions away from fossil fuels, much of that crude is unattractive or off-limits to investors.

The vast deposits of Venezuela’s Orinoco basin or Canada’s oil sands, which make them the world’s first- and third-biggest oil reserves holders, respectively, are much more expensive and carbon-intensive to produce than the oil lying beneath Saudi Arabia’s deserts or the shallow waters of the Persian Gulf. They also require a lot more processing once they reach the surface to turn them into usable products.

The next three biggest reserves holders — Iraq, Iran and Russia — are hobbled by politics. Only Iraq is potentially open for business with Western oil companies, and it has seen more overseas oil investors leave than arrive in recent years. For the other two, maintaining current production levels in the face of international sanctions may be their key challenges.

The future of global oil demand is uncertain, but OPEC sees it rising to about 110 million barrels a day, a near 10% increase, by 2035. It’s not clear that Aramco worries enough about underinvestment in oil production to boost its own capacity beyond current plans.

--Julian Lee, Bloomberg Oil Strategist