Analysts said Saudi Arabia’s government may be losing faith that the world wants to keep buying more of its oil
Saudi Arabia has cancelled plans to raise the limit on the amount of oil it aims to produce, fuelling climate campaigners’ hopes the government will accept experts’ predictions of a peak in oil demand.
The energy ministry told state-owned oil giant Saudi Aramco not to go ahead with a planned increase of its production cap from 12 to 13 million barrels a day, the company announced on Tuesday.
In a brief and unexpected statement, the world’s biggest oil firm gave no reasons for the move. But some analysts speculated that the Saudi government’s faith in ever-growing oil demand may be declining.
Saudi Arabia currently produces around 9 million barrels. A million barrels is just over 1% of the world’s oil production and equivalent to that pumped out by medium-sized oil producers like Angola or the United Kingdom.
Writing on the wall?
Oil Change International campaigner Romain Ioualalen said the decision shows Saudi Arabia “is starting to realise that the world meant it when it committed to “transition away from fossil fuels” at Cop28″.
Linking it to the US decision last week to pause new gas export terminals, Ioualalen said “the era of unchecked fossil fuel expansion is over and we’re entering the era of renewable energy”.
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Peter Wood, a strategist for oil producer Shell, said on X that “the market doesn’t need more oil production capacity right now” but with oil wells coming to the end of their lives “that can change, even if oil demand [growth] slows”.
But, while climate campaigners celebrated the signal, energy geopolitics researcher Francesco Sassi said Saudi Arabia may just be trying to push up the oil price to balance its budget.
Sassi also pointed out that over the last five years, Saudi Arabia has been burning less of its oil for electricity domestically, as it ramps up gas and invests in renewables. That leaves it more to export.
Carbon Tracker analyst Guy Prince pointed out that the new cap is still three million barrels above its current level so the country still has plenty of space to increase production.
But he added that, if Saudi Arabia is serious about restraining oil production, that would be a good move for the country.
“Considering that they’re looking to diversify their economy away from fossil fuels in the long term, it doesn’t make any sense to expand their existing production capacity,” he said.
Opec vs IEA
For years, the Saudi-led Organisation of Petroleum Exporting Countries (Opec) has clashed with the International Energy Agency (IEA) over whether oil demand will decline or not.
The IEA predicts that, over the next five years, oil demand growth is “set to lose momentum…as the energy transition gathers pace, with an overall peak looming on the horizon”.
On the other hand, Opec claims oil demand will keep growing to 2045 and perhaps beyond.
Prince said it was “hard to see” Opec’s forecast panning out when there is “such a rapid rollout of renewable technology” and the possibility of governments stepping up climate action.
The differences in predictions are most acute for road transport. The IEA says oil demand for petrol will fall by 2028 as electric vehicle sales “soar” but Opec predicts it will keep growing strongly, although it accepts there are “high levels of uncertainties” because of the rise of electric vehicles.
Despite most major developing countries having net zero plans, Opec expects the developing world to be using more oil in 2045 than they do now.
It says this growth will be led by the world’s most populous country India, where it claims oil demand will double by 2045 as more gasoline and diesel are used.
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Recent reporting from the Centre for Climate Reporting revealed Saudi Arabia has been taking measures to prop up oil demand across Asia and Africa, by investing in oil-guzzling technologies.
In the run-up to Cop28, the OPEC and the IEA clashed publicly. The IEA said that the oil and gas industry faces a “moment of truth” and “must choose between fuelling the climate crisis or embracing the shift to clean energy.
The head of Opec responded with a blog post, accusing the IEA of “unjustly villif[ying] the industry as being behind the crisis”.
At Cop28, Opec warned its members that “pressure against fossil fuels may reach a tipping point with irreversible consequences”.
But after governments agreed to “transitioning away from fossil fuels in enegy systems”, the Saudi energy minister played down the decision.
Two weeks after the summit, he claimed that this was optional. This claim was labelled “incredibly misleading” by E3G analyst Tom Evans.
