Saudi Arabia’s state-run oil giant pledges $334bn oil investment
Saudi Arabian Oil, (Saudi Aramco) Saudi Arabia’s state-run oil giant, has promised to make a major investment into oil facilities and related projects between now and 2025, despite the current weak oil prices.
The company has confirmed that it will carry on expanding its production capacity and facilities, making clear its belief that oil still remains a lucrative and positive asset class. It will also work to assist the country’s efforts to boost the economy by opting to use contractors to do the work that are known for making solid contributions to Saudi industries.
Aramco’s vice president for procurement and supply chain management, Abdulaziz al-Abdulkarim, told a recent conference in Bahrain: “Saudi Aramco is forecast to spend around $334 billion. This will be spent on material and services to support service facilities, infrastructure projects, drilling and maintain [oil] potential projects, unconventional resources both in the exploration phase and development and several other projects.”
Mr al-Abdulkarim also went on to say that the firm is planning to invest money into projects linked to less conventional resources, including shale gas and will spend almost half of its investment – 42 per cent – on oil drilling operations and 31 per cent on ground facilities.
Recently, spurred by falling oil prices, the country has dropped its plans to refuse to slash oil production in a bid to maintain market share. This strategy, which had been in place for the last two years, was changed during last month’s meeting of the Organization of Petroleum Exporting Countries, led by Saudi Arabia, to reflect plans to cut crude oil production.
The new agreement has led to expectations for a better supply-demand balance across the oil market as well as rising prices, however Saudi Arabia has also made it very clear that it plans to boost its oil production capacity over the long term and will put plans in place in order to achieve this aim. According to Saudi energy minister, Khalid al-Falih, failing to continue to invest in the oil industry could mean that the entire globe could be faced with a short supply of crude oil.
With all of these issues in mind, Aramco’s pledge to inject this major cash investment makes clear Saudi Arabia’s goal to remain the leading oil producer in the world. The sheer size of the investment will also create myriad business opportunities for international firms as well, however it has been made clear that large contracts will only be awarded to companies that make a solid contribution to the country’s overall economy.
Aramco announced at the end of last year that it plans to double the percentage of energy-related goods produced by the local market, as well as local services to the vast majority – 70 per cent – of the total spent by the year 2021, in a bid to create new jobs and attract potential investors. Known as the In-Kingdom Total Value Add, the programme will work to analyse the contribution made by Government contractors to domestic sectors. It will also examine the contribution made by international companies hoping to land Government contracts.
Certain firms, including Siemens and General Electric, have “already moved early, quickly and smartly,” according to Abdulaziz al-Abdulkarim, and have made suggestions that fall in line with the Saudi In-Kingdom Total Value Add programme.