Saudi Arabia has decided to allocate a mere 25% of its $1 trillion strategic investment plan to the oil sector, which is less than what was initially anticipated. This move is part of the Kingdom’s broader initiative to pour significant capital into non-oil sectors, aiming to diminish its dependence on oil revenues.
The country is confronted with an annual funding shortage of about $25 billion to support its ambitious capital expenditure (capex) initiatives, signaling a need to explore alternative financing methods.
According to a recent report by Goldman Sachs, Saudi Arabia’s capex plan through 2030 will trigger a ‘capex super-cycle,’ distributing investments across six strategic sectors by the end of the decade.
Goldman Sachs analysts have observed a shift in the investment distribution, with approximately 73% of the planned capex now directed towards non-oil sectors, marking an increase from the previously estimated 66%. Faisal AlAzmeh, Head of CEEMEA equity research at Goldman Sachs, notes a probable reduction in oil sector capex by $40 billion between 2024 and 2028 as directed by Saudi Arabia’s energy ministry.
Nevertheless, natural gas remains an integral part of the country’s decarbonization, economic progress, and diversification strategies. Despite these shifts, Saudi Arabia faces the daunting challenge of securing sufficient funds for what Goldman Sachs labels as the ‘capex super-cycle.’
Banking system data from May 2024 indicates a tight liquidity situation in Saudi Arabia, leading to an estimated annual $25 billion funding gap for its capex projects. This financial gap necessitates the pursuit of alternative sources of financing.
Goldman Sachs points out that Saudi Arabia’s GDP has contracted in Q2 compared to the previous year, influenced by an 8.5% decrease in oil activities due to the country’s adherence to OPEC+ production cuts and additional voluntary output reductions. The analysts note that with oil prices stabilizing between $80-$85 and production declining to 9 million barrels per day, the Saudi government is experiencing a slight increase in budgetary pressures.