Aramco growth helps Saudi Arabia realise its 2030 visionhttps://en.majalla.com/node/320796/business-economy/aramco-growth-helps-saudi-arabia-realise-its-2030-vision
Aramco growth helps Saudi Arabia realise its 2030 vision
Promising new discoveries, big new deals on gas, and a successful second public share offering is shaping one of the world’s biggest companies to beat its own high expectations.
AP
Saudi Aramco engineers walk in front of a gas turbine generator at the Khurais oil field during a tour for journalists in 2021.
Aramco growth helps Saudi Arabia realise its 2030 vision
Saudi Arabia’s giant state-owned oil and gas company Aramco has announced the discovery of two unconventional oil fields, a reservoir of Arabian light crude, two natural gas fields, and two gas reservoirs. The world’s sixth-largest company said new finds in the Eastern Region and the Empty Quarter will produce around 11,500 barrels of oil and 30 million cubic feet of gas a day.
This news came during a busy period for Aramco, whose second public offering last month reached 1.54 billion shares, 90% of which went to institutions and 10% to individuals. The government offered around 0.7% of its shares, hoping to raise around $12bn.
Renewed gas focus
In addition, contracts for Phase II of the Jafurah Field Project and Phase III of the expansion of the Kingdom’s main gas network were awarded. Together, they are valued at around $25bn. Saudi Energy Minister Prince Abdulaziz bin Salman indicated that gas production will grow by 63% by 2030, reaching 21.3bn ft3, compared to the current 13.5bn ft3.
The country’s gas network now stretches over 4,000km, with gas expansion expected to contribute about $20bn to Saudi Arabia’s gross domestic product (GDP). The energy minister also emphasised that the Kingdom remained committed to the environment. Its oil is among the world’s cleanest when it comes to extraction. Aramco has said it wants to emit no net greenhouse gases by 2050.
Saudi Aramco chief executive Amin Nasser said gas was crucial for all sectors and would lead to significant economic developments in the coming decades.
Built over decades
Aramco is the country’s main source of income. It was established in 1933 under a concession agreement between the Kingdom and Standard Oil of California, one of the descendant companies of John D. Rockefeller’s oil empire.
The Saudi government nationalised it in 1980 and first listed it on the financial markets in 2019. The Saudi government owns 82% of the shareholders’ rights, while the Saudi Public Investment Fund (PIF) owns 16%. Today, it is valued at around $1.8tn. Over the past year, it has raised billions from world markets. With new shares valued at $12bn being offered, Aramco received orders from places like the UK, Hong Kong, and Japan.
Saudi gas production is expected to grow by 63% by 2030.
Investor confidence in Aramco's performance and optimism about the Kingdom's economic future stem in part from the company's production of 11 million barrels per day (bpd) and its bid to increase this to 13 million.
This allows Saudi Arabia to play a leading role in the oil markets and influence the policies of the Organisation of Petroleum Producing Countries (OPEC) and OPEC+, which includes Mexico and Russia. OPEC+ has agreed to a coordinated production cut to stabilise oil prices to help meet members' government spending obligations, but Saudi Arabia's role in the global oil industry is not new. Riyadh has been involved in addressing economic and geopolitical crises since the 1960s.
Adjusting accordingly
Aramco executives and ministers have both helped shape company policies in areas such as crude oil production, refinery development, and building oil-dependent downstream industries. Due to major economic and political trends in consumer countries, Saudi Aramco is facing an important period as industries seek to reduce their carbon emissions and move to non-hydrocarbon energy alternatives.
It faces additional from the expansion of oil production in countries like Russia or the United States, or in new oil-producing countries like Brazil, whose bpd rate has reached 3.3 million. Due to its shale oil expansion, US production is up to 13.3 million bpd. The International Energy Agency (IEA) believes that oil consumption will peak in 2029, with reduced demand and prices to follow, but OPEC thinks it will peak later.
In Europe, a major consumer continent, the rise of right-wing parties may influence things, given that many oppose carbon emission reduction policies and any restrictions on industrial and agricultural activities for environmental reasons.
Analysing the numbers
As the main breadwinner, Saudi Aramco will play a central role in diversifying the country's economic base. Although its results for the first quarter of 2024 were lower than the first quarter of 2023, the company remains on a growth path.
Net income at the end of the first quarter was $27.3bn compared to $31.9bn at the end of the first quarter of the previous year. The company expects profits to hit $124.3bn by the end of this year. Lower oil prices in recent months have affected revenues, but the company has invested in other areas, not least $7.5bn in technology, including artificial intelligence (AI).
Nasser said that these investment programmes, business diversification, contributions to energy, and the transition aimed at protecting the environment will enable the company and its shareholders to achieve their goals.
Officials celebrate the first public offering of Aramco on the stock market in Riyadh on December 11, 2019.
Aramco journey
In 2016, Crown Prince Mohammed bin Salman first announced the Saudi government's intention to list 5% of Aramco's shares. That initial public offering (IPO) came in 2019 when almost $30bn was raised by selling 3 billion shares, representing 1.5% of Aramco.
Ever since, the company's financial data has been available and accessible to shareholders (and anyone interested in its activities and results). This has been a huge step towards transparency for the Kingdom, especially for its economic crown jewel. Yet transparency is expected to boost investor interest, leading to more shares being listed. Over time, this will reduce the Saudi government's stake. The idea is to use the funds to unlock the country's resources and meet the goals of Vision 2030.
Aramco is making efforts to expand its international business after a deal with Sempra, a US utilities company, to supply it with five million tonnes of liquefied natural gas (LNG) a year for 20 years as part of the Port Arthur expansion project in Texas. An agreement was also signed with NextDecade, a US LNG solutions company, to supply it with 1.2 million tonnes of LNG annually for 20 years.
Deals and diversifying
As the company presses on with deals and growth, it is also slowly transitioning from a state-owned monolith to a privately owned oil major beholden to shareholders around the world, not just to ministers in Riyadh.
Since performance data is now public and credit ratings agencies are interested, Aramco's managers need to diversify by seizing investment opportunities in oil-related businesses and the wider energy and tech sectors. There are salutary lessons to learn from analysing the foreign oil investments made by other Gulf states, however, such as the Kuwait Petroleum International investment in the Nghi Son refinery in Vietnam. Last year, it booked a $1bn loss.
Throughout this period and process, the growing professional development of Aramco's employees will only enhance national and international confidence in the Saudi offering as it pivots towards the knowledge economies of the future. For Gulf investors and sovereign wealth funds, Aramco shares will offer significant investment value and the likelihood of good returns, with a low level of risk and a high degree of excitement at the company's future prospects.
