Elbow Grease: Aramco increases investments to boost oil production
April 12, 2022
3 min read
What's going on here?
Saudi Aramco has announced it is increasing investment in oil production to keep up with growing global demand for oil.
What does this mean?
Following a slump over the pandemic, Saudi Aramco recorded a profit of $110bn in 2021 due to the rebound in global demand for oil. The Saudi Arabian state-owned petroleum and natural gas company is one of the world’s largest by revenue, and a leader within the energy industry. On Sunday, the company promised a 50% hike in investments to significantly boost output over the next five years. Targets include raising the crude oil “maximum sustainable capacity” to 13m barrels a day and increasing gas output by over 50%.
One of the world’s most profitable companies, Aramco reported $75bn worth in dividends for its investors. CEO Amin Nasser claims that the company’s investment plan “aims to tap into rising long-term demand for reliable, affordable and ever more secure and sustainable energy”. The increase in investment has also grabbed the attention of Western nations, who may pressurise Aramco into releasing more energy into global markets.
What's the big picture effect?
The promise to boost investment and subsequently oil production comes amidst the current war in Ukraine, as Western countries promise to stop relying on Russian-produced energy. As one of only two countries with the spare capacity to offset the current shortage, Saudi Arabia initially showed no willingness to tap into its reserves, though this has recently changed. Due to Aramco’s ownership by the Saudi Government (which currently owns over 98% of its shares), the firm is bound by national regulations and restrictions on levels of production. Though there is a Western expectation that Aramco may close the current gaps in the market resulting from the conflict, this is unlikely due to government policies that dictate Aramco’s levels of oil production. In addition, oil shortages have existed well before the conflict, owing to rising consumption, low inventories, and declining spare production capacities.
This increase in investment comes amidst a rising trend towards sustainability and self-sufficiency in the energy sector. While the Aramco CEO considers the shift to renewable energy an unrealistic dream, critics continue to point out that the supply gap can be closed through increased investment in alternative energy, which is bound to be more sustainable in the long run. Shadow Chancellor Rachel Reeves, for instance, believes the UK should focus on boosting domestic production using wind and nuclear power to reduce the country’s dependency on foreign nations while also future-proofing energy sources. Nevertheless, Prime Minister Boris Johnson engaged in talks with Saudi Arabia to release oil into world markets, in an attempt to offset increasing energy prices in the UK.
Another concern amongst many is the impact these investments may have on the general public. The oil crisis has often been criticised for catering excessively to stakeholders despite the impact of energy prices on individuals’ everyday lives. If oil prices continue to rise as per the current trend, individuals will face even higher living costs, and businesses will face supply chain disruptions that drive up production costs as well. Additionally, oil and gas clients are essential to most law firms and their work. Aramco’s decision to boost investments is likely to generate opportunities in the legal sector. For instance, lawyers may have to work towards negotiating export agreements between Aramco and national governments amidst a constantly changing demand-supply environment. While only time can tell how Aramco’s increased production is likely to impact different stakeholders, individuals and the environment are likely to take a backseat on the priority list, with shareholder and government interests looking to reign supreme.
Report written by Megha Vinesh
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