Aramco lifts spending plans to $414bn over next decade

Saudi Aramco CEO Amin Nasser, pictured here in 2016, said the state oil firm is ‘into so many sectors now.’ (Reuters)
Updated 13 December 2017
0

Aramco lifts spending plans to $414bn over next decade

DAMMAM: Saudi Aramco plans to raise its spending to $414 billion over the next 10 years, including on infrastructure and drilling, as the state oil giant moves into new businesses, executives said.
The spending plan is higher than Aramco’s projection last year of around $334 billion by 2025, as the oil producer has been expanding its businesses, the company’s chief executive Amin Nasser said on Tuesday.
“We are into so many sectors now,” Nasser told reporters on the sidelines of an industry conference aimed at promoting the Kingdom’s industrial base and the manufacture of a bigger share of products domestically.
Saudi Aramco’s plan includes $134 billion to spend on drilling and well services and $78 billion to maintain oil output potential, Nassir Al-Yami, general manager for procurement, told a conference in Dammam.
Aramco has already created a department for renewables to develop wind and solar projects and last month it signed a preliminary deal with petrochemical producer Saudi Basic Industries Corp. (SABIC) to build a $20 billion complex to convert crude oil to chemicals.
The project, which the partners said would be the largest crude-to-chemicals facility in the world and the first in the Kingdom, is part of the Saudi government’s effort to diversify the economy beyond exporting crude.
The Vision 2030 economic reform plan aims at ending its reliance on oil and to stimulate the domestic non-oil private sector. Its centerpiece is a plan to sell up to 5 percent of Aramco in an initial public offering (IPO) next year.
Saudi Aramco outlined a plan known as In-Kingdom Total Value Add (IKTVA) two years ago, aimed at doubling the percentage of locally produced energy-related goods and services to 70 percent of the total spent by 2021.
“Saudi Aramco is expected to spend more than 1 trillion Saudi riyals over the next decade. That has not changed, and we still want to see 70 percent of those riyals being spent locally,” Nasser said.
Supporting the growth of small and medium-sized enterprises (SMEs) is a main part of the IKTVA drive and Saudi Vision 2030, which would help create over 40,000 jobs and could add around SR30 billion to the Kingdom’s annual GDP, Nasser said.
Saudi Arabia’s Public Investment Fund (PIF) said in October it is creating a SR4 billion ($1.07 billion) “fund of funds” to support SMEs.
On Tuesday, Saudi Aramco signed 13 memoranda of understanding (MOUs) worth around SR6.3 billion with local and foreign companies as part a drive to expand the Kingdom’s industrial base and manufacture a bigger share of products domestically.
The MoUs signed were with companies such as China’s Sinopec, Dalma Gulf Drilling Co. and National Petroleum Technology.
Other agreements signed were part of the Kingdom’s plan to support the growth of small and medium enterprises (SMEs).
— REUTERS


Saudi Arabia seeks stable, not soaring, oil prices

Updated 22 September 2018
0

Saudi Arabia seeks stable, not soaring, oil prices

  • Due to market tightness, Brent rose to nearly $80 per barrel but deteriorated to $78.80 on Friday.
  • The average price for Brent crude per barrel over the past five months has been between $72.11 and $76.98

RIYADH: Oil prices rose this week on continuing market tightness. With the price rise, some Saudi-bashing has begun. Bloomberg reported that increasing prices were due to Saudi Arabia’s comfort with Brent crude above $80 per barrel. Such “analysis” is hogwash.

Due to market tightness, Brent rose to nearly $80 per barrel but deteriorated to $78.80 on Friday. WTI rose above $70 per barrel for the first time in three months and settled at $70.78 per barrel by the week closing.
The average price for Brent crude per barrel over the past five months has been between $72.11 and $76.98. As may be noted in those numbers, the Brent crude price has been resisting the psychological barrier of $80 per barrel. The fact is that, since October 2014, the Brent monthly average has never gone above $80.
The oil price outlook might be raised as a result of this upward tendency and the continuing tight oil market. For instance, with the latest numbers in hand, HSBC has revised its oil price forecast upward with Brent to average $80 per barrel in 2019 and $85 in 2020, before settling at about $75 in 2021.
Bloomberg was inaccurate about Saudi Arabia’s comfort with a Brent price above $80 per barrel. The Kingdom has never been among the bulls when it comes to oil prices. Again and again, Saudi Arabia has been a major advocate for stable oil prices, not increasing oil prices, which it views as unsustainable and damaging to the global economy. Bloomberg is also predicting that Saudi Arabia will follow its allegedly bullish nature and refrain from ramping up production to compensate for the oil lost once the US sanctions on Iran come into effect.
US Secretary of Energy Rick Perry has confirmed that Saudi Arabia, Russia and the US are well able to add enough crude oil supply into the market to compensate for Iran. Indeed, the Kingdom has begun to increase output to adjust for market needs, from 9.87 million barrels per day (bpd) in April to 10.42 million bpd in August.
The upward movement in oil prices came after strong fundamentals showed market tightness that spurred record levels of speculative traders, with nearly all betting on higher prices. The price rise also recognized that total US inventories are below the five-year average for the first time since May 2014. Oil prices have been gradually trending upward with gentle fluctuations. There have not been any steep surges or declines. There is nothing artificial about the trend. In reality, it is boringly predictable.
Last month, the International Energy Agency (IEA) reported OECD commercial crude oil inventories at 32 million barrels below the five-year average. Stocks at the end of Q2 2018 were up 6.6 million barrels versus the end of 1Q 2018, the first quarterly increase since 1Q 2017. The IEA also noted that global refinery throughputs in the second half of 2018 are expected to be 2 million barrels higher than in the first half of the year. These refined products stocks will draw down before building again in 4Q 2018.
Global crude oil inventories peaked in 2016. The OPEC+ agreement that worked for market balance was the reason for a fall in inventories. Since May 2017, global oil stocks have been on the decline and now global crude oil stocks are below the five-year average. Product stocks are also below that level, with strong demand and healthy refining margins.
Inventories have kept falling despite American producers pumping at all-time highs last month. It is only the massive flood of oil from the US which has kept crude oil prices at low levels from early 2015 to the end of 2017 — along with a resulting lack of upstream investment in the oil industry. Therefore, the IEA predicts that in 2022 spare production capacity will fall to a 14-year low.
Global oil markets are rebalancing. Oil prices started their upward momentum from the end of October 2017. They went above the psychological barrier $60 a barrel after 10 consecutive months of tireless efforts by OPEC and non-OPEC nations that started on January 2017. The market rebalancing will continue through the end of 2018, and beyond.
Such upward momentum in oil prices isn’t artificial movement because it came after many months without steep price fluctuations. In 2016, the Brent price average was $43. The 2017 Brent price average was $54, and prices just surpassed $60 in October 2017. The Brent average surpassed $70 in late March 2018 and has been hovering between $72 and $78 since. There is no evidence of a steep fluctuation or an artificial movement.
The claims of an artificial price movement have come just at the time when OPEC and the world are reaping the positive outcomes of 24 nations collaborating in output cuts that managed to successfully rebalance the oil market in a situation where global oil inventories were running at record highs. Also, these false claims came when the oil industry needs capital inflows to reactivate upstream investments for major international oil companies. Such investments are essential for the price stability that benefits oil producers and consumers globally. Low oil prices result in low investment in discovery and production of petroleum resources, which damages various industry sectors and energy needs. That leads to a vicious cycle of up-and-down price fluctuations.