Saudi Arabia signals longer-term oil pact with Russia

Saudi Energy and Oil Minister Khalid Al-Falih arrives at the Future Investment Initiative (FII) conference in Riyadh. (AFP)
Updated 23 October 2018
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Saudi Arabia signals longer-term oil pact with Russia

  • Saudi energy minister says OPEC agreement with non-OPEC ministers expected to be ‘open-ended’
  • Landmark accord would underscore a growing energy alliance between KSA and Russia

LONDON: Khalid Al-Falih, the Saudi energy minister, said on Tuesday that OPEC and non-OPEC countries, principally Russia, are expected to sign an “open-ended agreement” at year-end that would extend, perhaps indefinitely, a supply agreement first struck in 2016.

It would be a landmark accord in that it would underscore a growing energy alliance between KSA and Russia at a time when both countries face intensifying competition from large-scale US production, propelled by the shale revolution. They would also be cementing a relationship during a period when both countries have angered US politicians in Washington.

Saudi Arabia faces hostility in the wake of the Khashoggi affair, while Russia has been roiled by the US sanctions on Moscow in the wake of Moscow’s intervention in Crimea and Ukraine. Russia has also been angered by President Donald Trump’s threat to pull out of a bilateral agreement to limit nuclear missile deployment.

The 2016 OPEC-plus supply-cuts accord aims to bring supply and demand back into alignment after the price of oil slumped to below $40 per barrel two and a half years ago.

Following an extension of that agreement, the price of crude has risen to about $80/bbl, and analysts have been trying to guess whether the accord would be ditched amid a dramatic fall in inventories and a better market balance.

Also, investors have been spooked by the looming threat of a possible supply crunch as the reimposition of US sanctions against Iran are forecast to take 1 million bbl/d out of the equation by early next year.

Falih’s statement showed that longer-term co-operation between OPEC and Russia is on the cards in a bid to keep the market adequately supplied post-Iran sanctions, and to offset any imbalances in supply and demand that could come into play as the US cranks up production and export volumes. The US is expected to become the largest oil producer in the world next year, according to the International Energy Agency.

Speaking at an investment conference in Riyadh, Falih said OPEC and non-OPEC producers are expected to sign in December an accord to continue cooperation in world energy markets.

“I don’t rule out that the Kingdom’s production, which has been 9-10 (million barrels per day) over the last decade or so will be a million to two millions (barrels) higher,” Falih said, without providing a time frame.

Saudi Arabia has already boosted its daily output to well over 10.5 million bpd to meet rising demand in the wake of several production disruptions in other countries — especially Venezuela.

KSA currently holds the biggest spare capacity of about 2 million barrels, which can be used when required.

“Investing in the capacity and producing the capacity will continue to be done,” Falih said, despite complaining about the high cost of raising and sustaining such capacity.

The Saudi minister expected demand for oil, which currently stands at about 100 million barrels per day, to rise to 120 million bpd over the next three decades.

Falih said that about 25 producing countries from OPEC and non-OPEC are expected to sign in December a long-term cooperation agreement following the success of their coordination that helped to boost prices.

“What we are hoping to do is to ink an agreement among at least the 25 (producers) that are signatories to the current agreement. Hopefully more countries will join,” he said.

“It will become an open-ended agreement to continue to monitor and work together to stabilize the markets. This is the objective of the agreement: monitor and stabilize,” he said.

Falih said that he believes the oil market is “in a good place today in terms of supply and demand balances and inventories” after lifting restrictions on output in June.

Falih said oil producers will continue to monitor supply and demand in the market, especially with the Iran sanctions about to kick in, and would be ready to act if needed.


Saudi Real Estate Refinance Co. plans up to $1.07bn sukuk sale this year

Updated 23 April 2019
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Saudi Real Estate Refinance Co. plans up to $1.07bn sukuk sale this year

  • The plan by SRC, a subsidiary of Saudi Arabia’s sovereign Public Investment Fund, comes as it prepares to purchase more home loan portfolios
  • SRC, formed in 2017, is also keen to tap foreign institutional investors for its debt sale this year

RIYADH: Saudi Real Estate Refinance Co. (SRC), modelled on US mortgage finance firm Fannie Mae, aims to issue up to 4 billion riyals ($1.07 billion) of long-term sukuk this year, its chief executive said on Tuesday.

The plan by SRC, a subsidiary of Saudi Arabia’s sovereign Public Investment Fund, comes as it prepares to purchase more home loan portfolios from mortgage financing companies and banks to boost the Kingdom’s secondary mortgage market.

SRC, formed in 2017, is also keen to tap foreign institutional investors for its debt sale this year, Fabrice Susini told Reuters in an interview.

“Our strategy is clearly to tap the market twice this year,” he said. “We are really looking at probably issuing something between ... 2 and 4 billion riyal that we may be issuing in two tranches.

He said SRC was looking at sukuk in the 10 to 15-year range, to help minimize refinancing risks. “Generally speaking we are trying to issue as long as possible,” Susini said.

He said the company was assessing whether it could also issue bonds in currencies other than the local riyal.

In March, SRC completed a 750 million riyal sukuk issue with multiple tenors, under a program that allows it to issue up to 11 billion riyals of local currency denominated Islamic bonds.

“The rule of the game for us is, like many projects across the Kingdom, attract liquidity from foreign investors,” Susini said.

He said SRC had spent 1.2 billion riyals from its balance sheet buying mortgages from local mortgage financing companies and provided liquidity to these firms.

It has also signed initial accords with several commercial banks to acquire housing mortgage portfolios.

Saudi Arabia’s housing ministry is targeting the mortgage market to reach a total value of 502 billion riyals by 2020 from around 300 billion riyals now.

The government wants to increase activity in the real estate market as it moves to revitalize the economy and is taking steps to reform the sector as part of its 2030 reform plan.

It has been working with developers and local banks to counter a shortage of affordable housing — one of the country’s biggest social and economic problems. Saudi Arabia wants 60 percent of its nationals to own homes by 2020, up from 47 percent in 2016.

The size of real estate financing relative to its gross domestic product is 5 percent in Saudi Arabia compared to 69 percent in the United States, 74 percent in the United Kingdom and 43 pct in Canada, the housing ministry has said.

“The goal of SRC in this market was to make sure that we will be able to refinance at least around 10 percent of the market in 2020, and 20 percent of the market by 2028,” Susini told Reuters.