Saudi Aramco released its 2014 annual report in mid-May and reported record oil and gas production, as well as the prospect of an extremely busy couple of years ahead.

The figure for oil and gas production came as no real surprise to the industry, although many observers remain bewildered at the counter-intuitive nature of the oil strategy being executed by Riyadh.

Aramco pumped 9.5 million barrels a day (b/d) in 2014 and there is a promise of more to come in 2015 as the kingdom keeps production high to maintain its global market share in the face of $60-a-barrel crude.

What the kingdom does with its oil is its own prerogative and many in Riyadh actually believe it is working and the threat of unconventional oil from the US is abating.

Riyadh’s strategy is not without its merits, but the relative virtues of the plan counter the belief that shale oil is dead. Being proactive and securing long-term customers is going to help because US shale oil is very much alive.

Tackling competition from the US is something all major producers should get used to because it is likely to be the case for at least another decade and lower crude prices along with it.

Investing in domestic and international downstream facilities is going to be a vital cog in Aramco’s long-term strategy to become the world’s largest integrated energy company.  

Two domestic 400,000-b/d refineries are now operational and the Sadara complex, the world’s largest single-phase petrochemicals complex, starts commissioning this year.

Aramco is also looking to ramp up investment in downstream facilities in key overseas markets, basically creating its own customer base for its products.

Increasing gas output to feed domestic demand is another important factor in the oil firm’s strategy and investment in this sector is being ring-fenced.

However, there are still some doubts regarding Aramco’s commitment to unconventional gas, especially around the costs and the lack of water. It could easily turn into an expensive folly, especially with liquefied natural gas (LNG) prices being at their lowest for years.

It would be refreshing if the separation of Aramco and the Ministry of Petroleum & Mineral Resources allowed the oil company to operate completely free of politics. If it is, dropping all unconventional gas plans and building an LNG terminal on the Red Sea coast should be first on the agenda.

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