Spare production capacity has shrunk significantly due to underinvestment, the head of Saudi Aramco said Nov. 9, warning that the potential rebound in jet travel and continued power plant demand for liquid fuels could create a worryingly tight market in 2022.
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"Unfortunately, there is not enough investment in the sector to increase supplies and maintain that spare capacity," Aramco President and CEO Amin Nasser said at the Nikkei Global Management Forum.
He estimated that global oil demand would surpass pre-pandemic levels of some 100 million b/d next year. Jet fuel demand remains about 3 million-4 million b/d below where it was before the pandemic, and a recovery in air travel would quickly consume the world's spare production capacity, he said.
The current high oil prices reflect the healthy economic recovery, as well as energy switching in the power sector from gas to liquid fuels, which could potentially add 1.5 million b/d of oil demand this winter, Nasser said.
Spare capacity can act as the market's buffer against unexpected disruptions to supply, such as hurricanes, political unrest and security incidents.
With many international oil companies seeking to downsize their oil portfolios and some producing countries struggling to revive upstream investment, Saudi Aramco stands to benefit and gain in market share, as it embarks on raising its crude production capacity from 12 million b/d to a world-leading 13 million b/d by 2027. The company is already the world's largest exporter of crude.
The slower pace of the energy transition in many developing countries means oil will remain a major fuel source for several decades, Nasser said.
"Between now until 2050, there are going to be an estimated 2 billion more energy users in the world and population growth would be led by developing countries, where energy transition will be much slower," Nasser said. "Hence, I expect oil and gas demand will be healthy for many decades to come."
Nasser highlighted that there are different needs for less developed countries as consumers in developed countries may be able to afford expensive energy solutions, but the same would not apply for consumers in developing countries.
"The world needs [green and clean] energy policy that is more inclusive," he said.
Oil and gas would remain Saudi Aramco's key businesses for a long time, though efforts to reduce carbon footprint will be executed with its combination of strategies including carbon capture, gas to hydrogen, liquid to chemical and more, Nasser said. Saudi Aramco recently set a target of bringing its carbon emissions down to net zero from its operations by 2050.
"Aramco's upstream emissions are perhaps one of the lowest in the industry. ... We have done a lot and put in a lot of investments [in reduction of GHG emissions] and we are confident with our strategy," he said.