Saudi Arabia has opted to cancel its plans for increasing its oil production limit, raising hopes among climate campaigners that the government may acknowledge expert projections of an impending peak in oil demand.
According to an announcement by state-owned oil giant Saudi Aramco on Tuesday, the energy ministry instructed the company not to proceed with the planned hike of its production cap from 12 to 13 million barrels per day, without providing any specific reasons for the decision. Some analysts speculate that this move indicates a diminishing belief by the Saudi government in the notion of continually expanding oil demand.
Currently producing around 9 million barrels per day, Saudi Arabia’s output represents just over 1% of global oil production, equivalent to that of medium-sized oil producers like Angola or the United Kingdom.
The decision was hailed by Oil Change International campaigner Romain Ioualalen, who suggested that Saudi Arabia is recognizing global commitments to transition away from fossil fuels, particularly following the COP28 summit. However, energy geopolitics researcher Francesco Sassi suggested that the decision might be aimed at boosting oil prices to stabilize the country’s budget.
While climate campaigners celebrated the move as a signal of progress, others like energy strategist Peter Wood cautioned that the market’s need for increased oil production capacity could change over time, even if oil demand growth slows.
Francesco Sassi highlighted Saudi Arabia’s decreasing domestic use of oil for electricity generation in recent years, leaving more available for export. Carbon Tracker analyst Guy Prince noted that although the new production cap is still three million barrels above the current level, it represents a potential shift towards restraint, aligning with Saudi Arabia’s long-term goal of diversifying its economy away from fossil fuels.
The decision also reflects the ongoing debate between OPEC and the International Energy Agency (IEA) regarding future oil demand. While OPEC predicts continued growth in demand, the IEA foresees a peak on the horizon due to the accelerating energy transition. Despite disagreements, both organizations acknowledge uncertainties surrounding the rise of electric vehicles and shifting government policies.
Recent reports suggest that Saudi Arabia has been investing in technologies to maintain oil demand in Asia and Africa. The clash between OPEC and the IEA intensified during COP28, with the latter urging the oil and gas industry to embrace the shift to clean energy. While OPEC warned of potential consequences of transitioning away from fossil fuels, the Saudi energy minister downplayed the significance of the decision, suggesting it was optional.
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