Energy Prospectus

SAUDI ARABIA’s decision to abandon its announced plan to increase its maximum sustainable capacity from 12 million b/d to 13 million b/d by 2027 is no surprise. The kingdom has repeatedly announced big increases in capacity only to scale them back later when oil consumption undershot previous forecasts and prices fell.

In 1977, the kingdom’s maximum sustainable capacity was estimated at 10.5 million b/d and it had firm plans to increase that to 14 million b/d by 1982 and tentative plans to increase it to 16 million b/d by 1985, according to a report issued by the U.S. General Accounting Office (GAO).

By May 1978, however, the plan had been scaled back to 13.5 million b/d by the early 1980s and it never reached anything like that level because oil consumption fell far below projected levels in the wake of the oil shocks (“Critical factors affecting Saudi Arabia’s oil decisions”, GAO, May 1978).

Saudi Arabia’s announced plans are mostly symbolic or aspirational. They serve an important political and diplomatic function by emphasising the kingdom’s role a reliable supplier able and indispensable to meet future growth in global consumption. They also remind the oil industry and the market of the kingdom’s ability to expand low-cost output and therefore its critical role as the swing producer.

For these reasons, the capacity plans should not be taken at face value and the current cancellation should not be a surprise to anyone familiar with the history.

> because oil consumption fell far below projected levels ( ie glut)

Some consider this Saudi Arabia acknowledging there is an oil glut and responsibly cutting back on growth. I wish we would do the same

I'm starting to believe that Fraser is a plant on this forum. He is negative on everything.

allen46, I’m not hear to defend Fraser and you are certainly entitled to your opinion but I believe Fraser brings up some interesting counterpoints particularly relating to macro fundamentals of commodity prices and their effects on the companies that Dan has painstakingly presented to the forum. He can certainly come off as brash and offensive in his comments which may be part of his NE pedigree but he has contributed to my astuteness in other sectors related to oil and nat gas such as the shipping industry. I don’t think he is profoundly negative, more likely just anally pragmatic at making wise investment choices in real time that in the short term are counter to Dan’s views. Fraser, your thoughts can be very insightful and passionate but it would be very appropriate and appreciative from many participants in this forum if you refrain from weaponizing your comments. Especially to the Big Guy aka Dan.