Page 5 - MEOG Annual Review 2021

MEOG JANUARY MEOG

of the Kingdom’s hydrocarbon development. de-facto leader of OPEC.
Middle East Oil & Gas (MEOG) understands Indeed, in one fell swoop, the Kingdom,
that despite having reduced production levels to which appeared somewhat to have lost its way
around 7.5mn bpd in Q2 2020, Aramco main- last year following the price war with Russia and
tained a 2021 production ‘base case’ of around drastic production cuts to stem the bleeding
10.3mn bpd. resulting from weak demand, has once again
However, as outlined by MEOG last week, the stamped its authority on not just OPEC and
company has experienced significant growing OPEC+, but the global oil market.
pains in its transformation into a ‘public’ com- Oil stocks and crude prices jumped on the
pany following the listing of just under 2% of its news and while the announcement is contrary
shares on the Saudi Tadawul stock exchange in to the wishes of Russian Deputy Prime Minister
late 2019. Alexander Novak, Russia will gladly soak up the
With production cut, revenues will also fall, additional market share while benefiting from
which means that the company’s anticipated higher prices, at least for the next two months.
short-term delays to major projects to increase Aramco’s sole operatorship of Saudi Arabia’s
production, including Berri, Marjan, Zuluf oil industry and the Kingdom’s enormous and
and Jafurah to name a few, may be pushed back cheap-to-produce reserves give it unique ‘swing’
further, as it is likely to be forced once again production capabilities.
to rationalise its capital programme to safe- In recent years, Riyadh had teamed up with
guard the $75bn per year dividend promised to the UAE and Kuwait to increase the impact and
shareholders. share the pain of such swings and as US shale
Meanwhile, Abdulaziz’s cautious approach is production rocketed, OPEC was perceived to
likely to be put to the test. He is understood to have lost its mojo.
have put a halt to Aramco’s $10bn plans to lease However, the cut, in addition to last year’s
out a stake in its oil pipelines business, but moves production highs and lows, shows that Riyadh
like these are likely to be needed if the company will do whatever it believes it needs to do to
is to continue spending heavily to sustain and protect its long-term interests, irrespective of
add to production while also fulfilling its obliga- whether or not it gains support among other
tions to shareholders. OPEC/OPEC+ members.
It also provides a stark reminder of the unpre-
Leading role dictability of Saudi oil production policy, and it is
With the latest move, Saudi Arabia is portray- this that may best serve the Kingdom’s efforts to
ing itself as a benevolent master in its role as the truly control the market.™

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