A recent announcement was made by Saudi Aramco to cut down on its capital investments to make better returns. This comes at a time when the oil prices are still in limbo and with no positive sign for quick recovery in the coming 24 months. It has been shelving projects, , which are worth more than $ 40 billion, left and right, from upstream to downstream, and internally and globally.
This move is identical to that made by major oil companies to reduce their investments in its core oil and gas business. They, however, started with cutting the main cost elements in manpower. Any number, whether 5000 or even 10,000, does not matter as long as it can provide annual dividends to its shareholders.
Saudi Aramco has decided not to pursue investing about $7 billion in adding a petrochemical plant in its refinery Motiva in Texas. In addition, it has decided not to go ahead with the gas project in Sempra energy in the same state.
Locally, it is postponing its plan to seek an increase in the rate of its oil production to 13 million per day from its current production which is below 12 million barrels per day. Most oil companies, however, are reviewing such plans as the crude oil future forecast does not look good and there are doubts if the global demand can ever reach 100 million barrels per day – the 2019 level.
Revising down oil production will today be the right step in the right direction, as there is no need to invest in downstream for the next two years, until such a time when the demand on crude will pick up.
Saudi Aramco has to provide quarterly dividends of about $19 billion per quarter or a total of $ 75 billion for the next five years. The same should be applied to us here in Kuwait and in particular for KPC to review our upstream. Our current level of 3.5 million barrels capacity should be enough to cater to the needs of our three local refineries and our overseas refineries in Oman, Vietnam and Italy. We should have volume to meet our net crude oil sales.
Local oil companies must adopt the practice of reducing expenses, as now is not time for waste. They must by force cut costs, or at least expand in search of more oils. They must search for better utilizations of the current fields and look for a way to improve performances of the existing fields.
By Kamel Al-Harami
Independent Oil Analyst