Oil & Gas

In the past year, Saudi Arabia's sovereign wealth fund led global spending, accounting for a quarter of the $124 billion total spent by such funds. The country heavily invested at home and abroad, particularly in mega-projects like the $500 billion Neom project and a new airline. Consequently, the Public Investment Fund's assets dropped from over $105 billion in 2022 to about $37 billion by September, as per official Saudi data cited by the Wall Street Journal. This trend is challenging amid stagnant oil prices around $80 per barrel.

To support its Vision 2030 program for economic diversification, Saudi Arabia aimed to stabilize oil prices. However, declining sovereign wealth fund assets may have contributed to the recent decision to cancel a planned oil production capacity expansion. Energy minister Abdulaziz bin Salman mentioned plans to redirect investments within Aramco and to increase investment in the energy transition as reasons for this decision.

Aramco, the Saudi state energy company, has long warned of a global decline in oil production capacity, losing 6 million barrels per day annually due to depletion and insufficient reserve replacement. This has reduced spare production capacity to 3% of global demand, according to the company's CFO. Aramco has emphasized the need for increased investment in new exploration and production, but transition pressures have hindered such investment.

To fund transformation projects, Saudi Arabia turned to debt markets. The Public Investment Fund issued a $5.5 billion bond and a $3.5 billion dollar-denominated sukuk last year, while the country issued a $12 billion bond this year. Aramco is also planning to issue debt and sell stock to fund its projects.

Despite challenges, Saudi Arabia remains committed to its transformation plans, including projects in electric vehicle manufacturing, esports, video games, and soccer. The kingdom is prepared to explore various avenues, including increased borrowing, to finance these projects and achieve its ambitious goals.