DUBAI - Saudi Aramco CEO Amin H. Nasser wants to end the Oil dependence by 2020 for the welfare of the society.
Saudi Aramco was in the process of concluding an agreement last year to acquire a stake in an Indian oil refinery. His boss quickly boarded a commercial plane in Paris and flew to New Delhi.
The Executive Director, Amin Nasser, arrived unexpectedly on April 11, 2018, finalized the agreement and signed it later in the day. The negotiators had just finished the details.
His last-minute flight, after a business trip to France with Crown Prince Mohammed bin Salman, underlined the importance of this agreement for Saudi Arabia and its huge oil company.
The planned $ 44 billion petrochemical and refining project on the west coast of India is a perfect example of how Aramco is trying to get value from every barrel of oil produced by increasing its refining capacity, mainly in a fast-paced Asia. increase.
But it also highlights the challenge Saudi Arabia faces in reducing its strong economic dependence on oil. The results of its diversification program have been mixed, some projects are moving slowly and others are too ambitious, according to economic and energy analysts.
Prince Mohammed's stated goal of "living without oil" by 2020 seems to be missing.
"The oil dependence of Saudi Arabia is as strong as ever, and on the economic front, the Saudi economy depends on oil, while oil still dominates GDP, exports and government revenues," said Jim Krane. Energy researcher at the Baker Institute of Rice University.
"That said, Saudi Arabia is changing its relationship with oil, the dependence remains, but the kingdom is gaining more value from its oil," he said.
Slow progress means that the Saudi economy will likely remain a hostage of oil prices longer than expected. Any delay in the implementation of the change can also damage the image of Prince Mohammed as a reformer.
SECURE THE FUTURE
In announcing his plan three years ago, Crown Prince said Saudi Arabia must end its "oil dependence" to prevent the world's largest oil exporter and second-largest producer from being "aware." Thank you for the volatility of commodity prices or foreign markets. "
He spoke after a fall in crude oil prices led the Saudi budget deficit to approximately 15 percent of the gross domestic product in 2015, which slowed public spending and economic growth.
According to the International Monetary Fund, the deficit could reach 7% of GDP this year, as oil-related growth will slow down as a result of production cuts from the Organization of Petroleum Exporting Countries.
Aramco is at the center of the Crown Prince's reform plan in several aspects, among other things because the planned partial privatization will generate revenue for the reforms.
The company has also participated in most of the kingdom's prestigious transactions in the last two years, increasing its investments in refining and petrochemicals.
During this period, Aramco announced investments of at least $ 50 billion in Saudi Arabia, Asia, and the United States. Its objective is to almost triple its production of chemical products, which will increase to 34 million metric tons per year by 2030, and increase its global refining capacity to 8-10 million barrels per day (more than 5 million barrels per day). barrels per day).
Last March, Aramco finalized an agreement to acquire an investment of $ 7 billion in a refinery and a petrochemical project with the Malaysian company Petronas. A month later, Nasser and a consortium of Indian companies signed the initial agreement that would allow Aramco to participate in the planned 1.2 million BPD refinery in the state of Maharashtra, in the west of the country. India.
In February of this year, Aramco signed a $ 10 billion contract for the construction of a refinery and a petrochemical complex in China. Last month, he signed 12 agreements with South Korea, worth several billion dollars, ranging from shipbuilding to the expansion of a refinery owned by Aramco.
"This is what I call the return to base strategy for economic diversification in the Gulf," said Robin Mills, general manager of the Qamar Energy energy consultancy in Dubai. "The energy sector has assets, capital, and skills, which makes it the engine of new projects: refining, petrochemicals, gas, etc."
UPSTREAM looks DOWN the STREAM
In March, Aramco announced the acquisition of a 70% stake in the petrochemical production company of Saudi Basic Industries (SABIC) (SE: 2010) for $ 69.1 billion from the National Investment Fund, the Public Investment Fund (PIF).
Aramco conquers new markets for its crude oil and strengthens its presence downstream, the end of the production chain for refining, processing, and purification. Its goal is to become a world leader in chemical products.
"We don't invest left and right, we invest in the right markets, we invest in the right refining assets, we invest where we create value from fuels through chemicals," he said. Abdulaziz al-Judaimi, senior vice president of Aramco for Downstream, told Reuters in May.
Nasser, formerly known to Aramco employees as Mr. Upstream, directs the downstream expansion. He wants to bring Aramco's refining capacity closer to its oil production potential, which is now 12 million BPD.
Aramco wants to gradually equalize the presence downstream of its main competitors and, like Saudi Arabia in general, reduce its vulnerability to any decrease in demand for crude oil or volatility in oil prices.
"He wants to secure his demand in key markets," said an industry source familiar with Saudi Arabia's oil projects. "You need to be more dynamic, to be more adaptable, you must make sure you have a secure future, Malaysia was an example, India was another."
For years, Aramco has been a regular supplier of crude oil for Indian refineries through long-term crude oil contracts.
However, although it has stakes in refineries or storage assets in other important markets such as China, Japan, and South Korea, and owns the largest refinery in the United States, it has not obtained the same access in India, a market Fast growing for fuels and petrochemicals.
"India is a market that cannot be ignored," said an industry source.
Aramco has also changed its marketing strategy in China. He is now more focused on independent refineries to boost Saudi oil sales after years of negotiations almost exclusively with Chinese state-owned companies.
Also read: Google launches a new Gallery Go application, a lightweight version of Google Photos
Slow Progress
But, overall, plans to wean Saudi Arabia's oil have progressed slowly.
Few details have emerged about a $ 200 billion solar energy project announced by PIF and SoftBank in Japan in March 2018. It is not known when and how the project will be implemented, and the Ministry of Energy of Saudi Arabia will do so. Energy is carrying out its own solar projects.
The murder of journalist Jamal Khashoggi at the Saudi consulate in Istanbul last year undermined the image of Saudi Arabia and the reputation of the Crown Prince.
Entrepreneurs and politicians have boycotted an investment forum to present the kingdom's oil-free future, and only great agreements with Aramco have saved it.
In addition, the partial privatization of Aramco has been delayed since the announcement of the proposed acquisition of the stake in SABIC, despite the fact that senior Saudi officials, including Energy Minister Khalid al-Falih, have announced that this could happen for 2020-2021.
The FIP, chaired by Prince Mohammed, would receive around 100 billion US dollars. Instead, you will get around $ 70 billion for selling your stake in SABIC.
The FIP left its mark on the international scene three years ago by taking a $ 3.5 billion stake in Uber Technologies (NYSE: UBER). But since 2016, FIP's direct foreign investment is only $ 10.5 billion, according to Refinitiv data, and many commitments announced by the fund have not yet been fulfilled.
The fund's main investments in the past two years have been unfair actions in companies such as Tesla Electric Car Manufacturers (O: TSLA) and Lucid Motors and Gulf Noon.com, the online trading platform.
Such transactions would not necessarily attract foreign investment, would not contribute to industry development or job creation.
Saudi Aramco was in the process of concluding an agreement last year to acquire a stake in an Indian oil refinery. His boss quickly boarded a commercial plane in Paris and flew to New Delhi.
The Executive Director, Amin Nasser, arrived unexpectedly on April 11, 2018, finalized the agreement and signed it later in the day. The negotiators had just finished the details.
His last-minute flight, after a business trip to France with Crown Prince Mohammed bin Salman, underlined the importance of this agreement for Saudi Arabia and its huge oil company.
The planned $ 44 billion petrochemical and refining project on the west coast of India is a perfect example of how Aramco is trying to get value from every barrel of oil produced by increasing its refining capacity, mainly in a fast-paced Asia. increase.
But it also highlights the challenge Saudi Arabia faces in reducing its strong economic dependence on oil. The results of its diversification program have been mixed, some projects are moving slowly and others are too ambitious, according to economic and energy analysts.
Prince Mohammed's stated goal of "living without oil" by 2020 seems to be missing.
"The oil dependence of Saudi Arabia is as strong as ever, and on the economic front, the Saudi economy depends on oil, while oil still dominates GDP, exports and government revenues," said Jim Krane. Energy researcher at the Baker Institute of Rice University.
"That said, Saudi Arabia is changing its relationship with oil, the dependence remains, but the kingdom is gaining more value from its oil," he said.
Slow progress means that the Saudi economy will likely remain a hostage of oil prices longer than expected. Any delay in the implementation of the change can also damage the image of Prince Mohammed as a reformer.
SECURE THE FUTURE
In announcing his plan three years ago, Crown Prince said Saudi Arabia must end its "oil dependence" to prevent the world's largest oil exporter and second-largest producer from being "aware." Thank you for the volatility of commodity prices or foreign markets. "
He spoke after a fall in crude oil prices led the Saudi budget deficit to approximately 15 percent of the gross domestic product in 2015, which slowed public spending and economic growth.
According to the International Monetary Fund, the deficit could reach 7% of GDP this year, as oil-related growth will slow down as a result of production cuts from the Organization of Petroleum Exporting Countries.
Aramco is at the center of the Crown Prince's reform plan in several aspects, among other things because the planned partial privatization will generate revenue for the reforms.
The company has also participated in most of the kingdom's prestigious transactions in the last two years, increasing its investments in refining and petrochemicals.
During this period, Aramco announced investments of at least $ 50 billion in Saudi Arabia, Asia, and the United States. Its objective is to almost triple its production of chemical products, which will increase to 34 million metric tons per year by 2030, and increase its global refining capacity to 8-10 million barrels per day (more than 5 million barrels per day). barrels per day).
Last March, Aramco finalized an agreement to acquire an investment of $ 7 billion in a refinery and a petrochemical project with the Malaysian company Petronas. A month later, Nasser and a consortium of Indian companies signed the initial agreement that would allow Aramco to participate in the planned 1.2 million BPD refinery in the state of Maharashtra, in the west of the country. India.
In February of this year, Aramco signed a $ 10 billion contract for the construction of a refinery and a petrochemical complex in China. Last month, he signed 12 agreements with South Korea, worth several billion dollars, ranging from shipbuilding to the expansion of a refinery owned by Aramco.
"This is what I call the return to base strategy for economic diversification in the Gulf," said Robin Mills, general manager of the Qamar Energy energy consultancy in Dubai. "The energy sector has assets, capital, and skills, which makes it the engine of new projects: refining, petrochemicals, gas, etc."
UPSTREAM looks DOWN the STREAM
In March, Aramco announced the acquisition of a 70% stake in the petrochemical production company of Saudi Basic Industries (SABIC) (SE: 2010) for $ 69.1 billion from the National Investment Fund, the Public Investment Fund (PIF).
Aramco conquers new markets for its crude oil and strengthens its presence downstream, the end of the production chain for refining, processing, and purification. Its goal is to become a world leader in chemical products.
"We don't invest left and right, we invest in the right markets, we invest in the right refining assets, we invest where we create value from fuels through chemicals," he said. Abdulaziz al-Judaimi, senior vice president of Aramco for Downstream, told Reuters in May.
Nasser, formerly known to Aramco employees as Mr. Upstream, directs the downstream expansion. He wants to bring Aramco's refining capacity closer to its oil production potential, which is now 12 million BPD.
Aramco wants to gradually equalize the presence downstream of its main competitors and, like Saudi Arabia in general, reduce its vulnerability to any decrease in demand for crude oil or volatility in oil prices.
"He wants to secure his demand in key markets," said an industry source familiar with Saudi Arabia's oil projects. "You need to be more dynamic, to be more adaptable, you must make sure you have a secure future, Malaysia was an example, India was another."
For years, Aramco has been a regular supplier of crude oil for Indian refineries through long-term crude oil contracts.
However, although it has stakes in refineries or storage assets in other important markets such as China, Japan, and South Korea, and owns the largest refinery in the United States, it has not obtained the same access in India, a market Fast growing for fuels and petrochemicals.
"India is a market that cannot be ignored," said an industry source.
Aramco has also changed its marketing strategy in China. He is now more focused on independent refineries to boost Saudi oil sales after years of negotiations almost exclusively with Chinese state-owned companies.
Also read: Google launches a new Gallery Go application, a lightweight version of Google Photos
Slow Progress
But, overall, plans to wean Saudi Arabia's oil have progressed slowly.
Few details have emerged about a $ 200 billion solar energy project announced by PIF and SoftBank in Japan in March 2018. It is not known when and how the project will be implemented, and the Ministry of Energy of Saudi Arabia will do so. Energy is carrying out its own solar projects.
The murder of journalist Jamal Khashoggi at the Saudi consulate in Istanbul last year undermined the image of Saudi Arabia and the reputation of the Crown Prince.
Entrepreneurs and politicians have boycotted an investment forum to present the kingdom's oil-free future, and only great agreements with Aramco have saved it.
In addition, the partial privatization of Aramco has been delayed since the announcement of the proposed acquisition of the stake in SABIC, despite the fact that senior Saudi officials, including Energy Minister Khalid al-Falih, have announced that this could happen for 2020-2021.
The FIP, chaired by Prince Mohammed, would receive around 100 billion US dollars. Instead, you will get around $ 70 billion for selling your stake in SABIC.
The FIP left its mark on the international scene three years ago by taking a $ 3.5 billion stake in Uber Technologies (NYSE: UBER). But since 2016, FIP's direct foreign investment is only $ 10.5 billion, according to Refinitiv data, and many commitments announced by the fund have not yet been fulfilled.
The fund's main investments in the past two years have been unfair actions in companies such as Tesla Electric Car Manufacturers (O: TSLA) and Lucid Motors and Gulf Noon.com, the online trading platform.
Such transactions would not necessarily attract foreign investment, would not contribute to industry development or job creation.
Post a Comment