But as the oil price rout has forced companies into a deep retrenchment, Saudi Arabia’s energy behemoth has set its sights on longer term ambitions. After all, the kingdom has a $750bn buffer to allow it to do so.
To be sure, Saudi Aramco is also using the downturn to “sharpen” its fiscal discipline, according to its chief executive Khalid Al Falih, negotiating better deals with services companies and other contractors to trim spending.
But it is making a bet that running its energy sector hard, investing in oil, gas and refining and pushing for new business in troubled times, will enable Opec’s largest producer to retain its dominance.
Ali Al Naimi, Saudi oil minister, last month said the kingdom was producing about 10m barrels of crude a day, up from an average of about 9.7m b/d in the second half of 2014, according to data from JODI, the global oil database.
At the same time, the number of rigs drilling for oil and gas has jumped more than 15 per cent since June to 120, according to oilfield services company Baker Hughes, even as the price of crude has halved. In the US rig numbers have dropped by half since October to the lowest in four years.
Meanwhile, Mr Al Falih embarked on a trip to Beijing to charm the Chinese into importing more Saudi crude and products as competition for the Asian market increased.
“No matter what, Saudi Aramco will remain the largest and most reliable energy supplier on the planet, and that safety belt is available for China to rely on,” he said in March.
The long-term goal is clear. Saudi Arabia led Opec in November into a high stakes battle for market share against its rivals, forsaking short-term revenues for its future market share.
By not cutting production, the kingdom ushered in an extended period of lower prices to force those producers dependent on expensive oil to curb output. This, they believe, will benefit the Saudis and other producers of cheap oil.
“Of course the strategy is working,” says Gary Ross, executive chairman at consultancy Pira Energy Group. “You just have to be patient. For the Saudis there is no turning back at this stage.”
Behind the production and drilling numbers are several factors, say Gulf energy experts, some short-term considerations and others longer-term strategic plays.
Demand for Saudi crude from Europe, Asia and the US has picked up of late. Refineries in Europe are processing more as margins remain strong, while attractive price differentials have lured more buyers from Asia and the US. (Mr Naimi has said the kingdom would increase output should demand for Saudi crude rise.)
But the kingdom also raises production ahead of the summer when the country burns more oil to keep cool as air conditioning usage rises.
In addition, domestic demand has been rising as Saudi refining capacity has grown.
Espen Erlingsen, analyst at data group Rystad Energy, adds that Saudi Arabia is keen to maintain its spare capacity — the volume of production that can be brought on within 30 days and sustained for at least 90 days — and could even be increasing it. “You could speculate that the country is now building capacity,” he says.
To maintain or increase spare capacity while producing 10m b/d and at the same time offset decline rates, it has to drill more, he adds.
Saudi Arabia historically has had the greatest spare capacity and has usually kept to its declared policy of having more than 1.5m to 2m b/d on hand in case of potential crises that reduce oil supplies. Accordingly, production capacity stands at about 12.5m b/d, Gulf oil experts say.
Saudi Aramco said last year it wanted to reduce capital costs by 20 per cent. Even so, Rystad Energy still estimates the country’s oil and gas investments will grow 5-10 per cent in 2015 from the previous year.
In comparison, global investments are expected to fall about 20 per cent over the period. Gulf countries are forecast to drop 5 per cent.
Analysts say those oil producers with the balance sheet will take advantage of cheaper drilling costs in a low oil price environment, as they play a game of survival of the fittest.
Mr Ross says the Saudis are worried that the rest of the world is paring investment too far. “They’re nervous supply could fall off a cliff [in the next two years].”
Although the kingdom may not, at least for now, be prepared to cut when prices are low and supplies remain high, in a tight oil market it needs the capability to fill the gap, says Mr Ross.
Oil market cynics say the Saudis are more wary of prices shooting back up. Several years of oil above $100 a barrel encouraged production from rivals such as the US, Brazil and Russia.
Conversely, if prices stay at lower levels for longer, Saudi Arabia needs to maximise its revenues.
This is one factor behind the kingdom’s drive to invest heavily in its gas sector so it can maintain lucrative oil exports rather than burning oil for power generation.
Saudi Arabia, alongside others, has been “heading down an unsustainable energy consumption path, causing huge opportunity costs from lost export revenues”, says Ali Aissaoui, an energy policy expert at Arab Petroleum Investments Corporation.
The kingdom is also building its energy resilience through refining and petrochemicals, ensuring Saudi Aramco is not dependent solely on its upstream sector.
Saudi Arabia is “moving beyond its long-held role as a simple exporter of crude oil”, says Jim Krane, a fellow at Rice University’s Baker Institute for Public Policy.
By building refineries at home, taking stakes in refineries abroad — South Korea, China and the US — and starting a product trading company in recent years, “Saudi Arabia is on track to join the club of major oil product exporters”, says the International Energy Agency, the wealthy nations’ energy watchdog, in its five-year outlook.
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