RIYADH: Saudi Arabia’s energy minister said on Monday that oil markets could face a dangerous period as reduced investments in exploration and drilling threaten to cut crude production by 30 million barrels per day by 2030.
Prince Abdulaziz bin Salman, speaking at a post-budget media forum in Riyadh, also said that top oil exporter Saudi Arabia would be one of the few countries that could raise its oil production capacity in 2022.
“Hesitation from others is a blessing for the investor who builds his steps on addressing uncertainty with certainty, and thus some countries will suffer from the lack of clarity of policies.
“We are set for a period that could be dangerous. If there isn’t more spending on investments to preserve production capacity and increase it, an energy crisis is coming to the world,” Prince Abdulaziz said.
“In a way or another, I am not predicting, but I am warning that spare production capacity will disappear.”
Spare capacity is an important buffer for the oil market as it allows producers to quickly respond to unplanned outages that could tighten the market and cause big fluctuations in prices.
Consumers in Asia and Europe this year have faced shortages of natural gas, coal and power due to production declines that pushed prices to multiyear highs.
The Saudi energy minister also touched on the ESG factors that take into account an environmental governance system for financing energy projects.
He believes these policies will reduce the capabilities of energy companies to invest and obtain the necessary financing for it.
“I am talking about major companies like Chevron, ExoMobil, Shell, BP. These companies now suffer from two things: The first is government tightening and the second is the financial tightening through the size of borrowing opportunities and the third is the painful experience that some companies have gone through, especially shale oil producers,” Prince Abdulaziz said.
He said the business model has changed as all financial accumulation was paid in cash dividends and $200 billion was taken from their balance sheets after the pandemic.
The minister said people do not realize that 65 percent of what is spent is just to maintain production capacity as it is, not to increase it. In other words, he added, the lower the number than the target, there will be a shortage of the existing supplies that the world needs now, and if these numbers are not reached, there are two curves, the first curve is a massive drop in production capacity.
Prince Abdulaziz highlighted the importance of localization in the renewable energy sector.
He said the Kingdom’s goals in this sector go beyond covering local needs.
The minister added that every government entity in the Kingdom has a role in the renewable energy sector, noting that the Ministry of Energy is working with the Public Investment Fund and ACWA Power as partners in this field.
The arrangements are based on allocating 70 percent of the renewable energy projects for economic growth. In addition, the auxiliary infrastructure and the projects that manufacture renewable energy products are available.
The ministry is working in cooperation with the Ministry of Industry, the Local Content and Government Procurement Authority and Saudi Arabian Mining Co., in order not to be exposed to the materials needed by the renewable energy industry.
The ministry will manufacture solar panels and have industries or develop the mining sector so that it can benefit from the Kingdom’s resources, the minister said.
Argaam quoted the minister as saying there is a tendency with Maaden to have a subsidiary specialized in looking for additional mining resources so the sector’s supply chains would not be impacted.
