Saudi Arabia will prioritize non-oil sectors in a $1 trillion investment plan

Saudi Arabia is to direct a smaller share of its $1 trillion in strategic investments to the oil industry than previously estimated, Goldman Sachs said in a report this week.

The world’s largest crude oil exporter’s 2030 investment plan will see a “super-investment cycle” with $1 trillion worth of investments in six strategic sectors by 2030.

“But the oil industry will likely get a smaller share of it than previously forecast,” Goldman Sachs analysts wrote.

Saudi Arabia will spend about 73% of planned investment on non-oil sectors, up from a previous forecast of 66% of investment in non-oil activities, Faisal AlAzmeh, who heads CEEMEA equity research and covers natural resources, chemicals and infrastructure. in the Middle East, he writes in his team’s report.

Investments in the oil sector could fall by $40 billion between 2024 and 2028, according to a directive from Saudi Arabia’s Energy Ministry, Goldman Sachs said.

However, natural gas continues to be “a key contributor to the country’s decarbonisation, economic development and diversification plans,” writes AlAzmeh.

Saudi Arabia will face a number of challenges in finding the money to cover what Goldman analysts have called the “capex supercycle.”

The Saudi liquidity situation remains tight, according to the latest banking system data for May 2024 cited by Goldman.

Wall Street bank analysts have estimated that the Kingdom will have an estimated $25 billion a year funding shortfall for its investment projects.

So, “Saudi Arabia will have to turn to alternative sources of financing,” according to Goldman Sachs Research.

Saudi Arabia’s gross domestic product contracted again in the second quarter from year-ago levels, pushed down by an 8.5% drop in oil activity as the Kingdom cuts oil output as part of the OPEC+ deal and further voluntary output cuts.

“With oil prices remaining in the $80-$85 range and production up to 9 million barrels per day, Saudi Arabia faces a modest increase in pressure on the government’s budget,” Goldman Sachs said.

By Tsvetana Paraskova for Oilprice.com

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