Saudi Aramco has announced plans to invest $40bn a year over the next decade to keep oil production capacity steady and double gas production.
President and CEO of the world’s largest oil producer, Khalid Al Falih, said the company expected an increase in capital for offshore projects, according to Arab News.
Speaking at a conference in Stavanger, Norway, Al Falih said rising costs across the sector would underpin oil prices, which fell to a 14-month low of $101.07 last week as global demand growth weakened despite an increase in production in several locations creating an oil glut.
“To meet forecast demand growth and offset [global output] decline, our industry will need to add close to 40mn barrels per day (bpd) of new capacity in the next two decades,” Al Falih said.
“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 12mn bpd while also doubling our gas production.”
He warned that rising costs and global turmoil could lead to a lack of oil supplies in the future if companies did not make sufficient investments.
“We must put our money where our mouth is by making prudent and timely investments, balancing long-term objectives and short-term interests and meeting the energy needs of the future, while providing attractive investment options and delivering value to shareholders,” Al Falih said.
“This will ensure that we efficiently meet the kingdom’s rising energy demand with gas for power and industry and refined products for transport, while also meeting the global call on our crude oil.”
However, he said costs were soaring.
“At Saudi Aramco, project costs have roughly doubled over the last decade despite deploying cutting-edge technologies and applying our robust project management systems to mitigate cost escalation,” Al Falih said.
“These project challenges are driven in part by shortages and bottlenecks in our supply chain, including drilling contractors, shipyards, EPC firms, and materials and equipment suppliers, which have led to growing quality, schedule and cost pressures.”
Al Falih said fundamental problems within the industry, including rising costs, increasing technical challenges and the falling size of reserves at new locations would determine the price of oil, and the Organization of the Petroleum Exporting Countries (OPEC) or the International Energy Agency (IEA) should not interfere in the market.
“I share … the belief that this is a market driven business, it’s not OPEC, the IEA and consumers that should be in the business of trying to control the market,” he said.
“OPEC will take the price as it comes.
“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.”
Al Falih said the industry also was experiencing critical shortage of skilled workers.
“Finding and attracting competent engineers, rig personnel and geoscientists to run ever more complex and expensive operations has become an acute challenge,” he said.
