As oil markets rebounded in 2021 when the global economy began to recover from the Covid-19 pandemic, Saudi Arabia announced plans to increase its maximum sustainable oil production capacity from 12m to 13m barrels per day (bpd) by 2027. However, in January 2024 the Ministry of Energy scaled back these plans, opting to maintain capacity at 12m bpd.
This shift aligns with the strategy of Vision 2030, which emphasises a diversified and sustainable energy mix. Despite this pivot, Saudi Arabia remains a key player in global oil markets, with robust spare production capacity to adjust output and stabilise prices, reflecting its dual focus on maintaining market influence while advancing long-term energy transition goals.
Market Dynamics
The Kingdom’s decision to scale back capacity expansion plans is in response to prevailing global oil market dynamics, where demand has stabilised, prices have softened and capital expenditure costs have risen. In October 2024 the Organisation of the Petroleum Exporting Countries announced a third consecutive downward revision of its oil demand forecast, expecting a rise of 1.9m bpd in 2024 – down from the previous estimate of 2.03m bpd, primarily due to reduced demand from China. For 2025 the estimate has also been cut to 1.6m bpd from 1.7m bpd.
In the second half of 2023 Saudi Arabia’s crude oil production averaged 9m bpd. The country maintains a spare production capacity of 3m bpd. This is higher than the typical 2m-2.5m bpd cushion, reducing the urgency for capacity expansion. The International Energy Agency predicts oil demand will peak at 106m bpd by 2030 – up from around 102m bpd in 2023 – due to the rise of electric vehicles, renewable energy and fuel efficiency. S&P Global Commodity Insights forecasts a peak of 109m bpd by 2034. Regardless of whether the outlook is more moderate or aggressive, Saudi Arabia can maintain its market share by producing less than 11m bpd in 2030, while retaining over 1m bpd in spare capacity. This allows the Kingdom to quickly ramp up production when necessary, ensuring it can stabilise global markets or meet demand surges.
Energy Transition
Central to Vision 2030 is the understanding that Saudi Arabia can no longer rely solely on oil as its primary economic driver. The Kingdom aims to achieve net-zero emissions by 2060 and generate 50% of its power from clean energy sources by 2030. Consequently, Saudi Arabia is investing heavily in alternative energy sources such as solar, wind and green hydrogen, as well as carbon capture, utilisation and storage (CCUS) technologies, all of which are rapidly advancing in scope and scale.
Between 2022 and early 2024 the Kingdom added 2.1 GW of renewable power capacity – a 300% boost compared to the 700 MW added between 2012 and 2022. Under the National Renewable Energy Programme, Saudi Arabia has awarded over 19 GW of projects through the Saudi Power Procurement Company (SPPC). In September 2024 the country added 4.5 GW of renewable energy capacity after SPPC’s request for qualifications for its sixth round of solar and wind projects. In parallel, Saudi Arabia is reducing its reliance on liquid fuels for power generation, focusing on natural gas. As of December 2023 four gas-fired power plants with a combined capacity of 5.6 GW were operational. Additionally, the Kingdom is building power plants with CCUS technologies, adding another 8.4 GW to the grid. Saudi Arabia is also advancing the development of the world’s largest green hydrogen plant in NEOM.
Saudi Arabia’s decision to reduce its maximum sustained oil production capacity can be seen as a strategic move aligned with its decarbonisation goals. Under Vision 2030, the Kingdom is focused on diversifying its economy, cutting carbon emissions and adopting new energy technologies. Aramco’s dual role as a leading oil producer and a pioneer in renewable energy highlights the Kingdom’s commitment to maintaining its dominance in global energy markets while positioning itself at the forefront of the global energy transition.
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