Saudi Oil Rigs Slump to Lowest in 20 Years, Outpaced by Gas

Saudi Arabia’s oil drilling units declined for a sixth straight month, reaching its lowest level in over two decades, as investments in natural gas projects gain momentum.

Saudi Arabia’s oil rig count fell to 20 in July from 46 in early 2024, the lowest since February 2005, according to Baker Hughes data. The number has been on an 18-month downward trajectory, following Riyadh’s decision to scrap plans to boost Aramco’s capacity to 13mn barrels a day, keeping it at 12mn instead.

Several oilfield expansion projects to help maintain capacity “are finished or are mostly done,” said Robin Mills, founder of Dubai-based consultant Qamar Energy. “They can also slow down production maintenance on some of their older and larger fields.”

As the world’s biggest oil exporter, the number of rigs operating in Saudi Arabia is an important metric for global markets as it offers a glimpse into future supply dynamics. While the drilling installations targeting oil have slumped, those seeking gas have climbed as the country seeks to produce more of the cleaner fuel for its own consumption, and eyes future exports.

Saudi Arabia aims to save about 1mn barrels of crude daily by 2030, by using natural gas as a fuel instead. Aramco Chief Executive Officer Amin Nasser said on May 12 that more than 50% of the company’s upstream spending was for gas, rather than oil projects.

The Jafurah gas project is a crucial part of that plan with the first 650mn-cubic-feet-per-day phase slated to start up by the end of this year.

 Execution of phase 2, scheduled to start operating in two years’ time, as well as a gas pipeline project to reinforce supplies to the kingdom’s power plants and industry will be crucial to meeting its targets.

Saudi Arabia also wants to tap into growing global demand for natural gas. It previously said it would export gas as blue ammonia, but it’s since scaled back those plans and is considering alternative ways to export the gas.

While Saudi Arabia’s unconventional gas development program has offset some of oil’s decline, rig suppliers are feeling the pinch from lower demand.

Olivier Le Peuch, chief executive officer of services company SLB, attributed some of the reason for his company’s flat quarter-on-quarter revenue to a slump in Saudi Arabia. “Activity has declined ahead of our expectations with several additional rigs being demobilised,” he said in June.

Saudi Aramco said it signed 23 gas rig contracts worth $2.4bn in June. Another package of drilling expected to be awarded in the first quarter of this year is now anticipated in the fourth quarter, said Rahul Choudhary, a researcher at Rystad Energy A/S.

Rig suppliers also need to contend with lower demand stemming from rigless operations at mature fields, Choudhary said. “For mature onshore fields like Ghawar and Khurais, with low decline reservoirs, traditional drilling gives way to wireline and coiled tubing interventions instead of new rigs.”