Aramco plans to speed up big crude output rise: CEO

The speed with which Aramco can push its MSC to 13 million barrels per day will help determine the overall state of the global oil market. (AFP)
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Updated 18 March 2020

Aramco plans to speed up big crude output rise: CEO

  • Additional efficiencies may be required and 2021 plan is under review, says CEO Amin Nasser

DUBAI: Saudi Aramco, the world’s biggest oil company, is working on plans to speed up a big rise in productive capacity as the battle for market share in the global crude business increases.

Amin Nasser, president and CEO, told analysts in a web broadcast that Aramco could produce 12 million barrels per day by next month, and reach 12.3 million barrels from existing inventory within months. That level could be sustained without any additional capital expenditure.

Pushing the total maximum sustainable capacity (MSC) to 13 million — as the Kingdom’s government has ordered — would take longer. He declined to give a timetable for that increase.

“We’ve just had the request to increase the MSC, and we’ll be doing it on an accelerated basis,” Nasser said in response to an analyst who noted that the last time the MSC was increased it took about six years to do so, between 2004 and 2010.

“The last time we had such a significant increase, it’s true that it took a number of years, but it was a different time and a different state of capital availability,” Nasser said.

“We do have the flexibility to accelerate it if required, and we’re currently looking at that. It depends if it’s agreed it should be within existing fields or the grassroots increment that we’ll be bringing in,” he added.

“That’s being evaluated right now, and depending on that decision we’ll be considering the time frame.”

The speed with which Aramco can push its MSC to 13 million barrels per day will help determine the overall state of the global oil market, as well as the response of other producers in Russia and the US.

The conference call was to help elaborate on Aramco’s financial results for 2019, announced the previous day. 

The figures showed net income of $88.2 billion, down on the previous year as lower output and prices met with difficult global macroeconomic conditions. 

Nasser said 80 percent of the reduction in income was due to factors outside Aramco’s control.

The company said in its results that it would reduce its capital expenditure from the $35 billion to $40 billion range indicated last year, to between $25 billion and $30 billion in the current year.

Nasser told an analyst that because of the hit to global demand from the economic effects of the coronavirus outbreak, Aramco was considering a possible further reduction in capital expenditure for next year.

“Additional efficiencies may be required and the 2021 plan is under review,” he said, explaining that the increased gas output associated with higher oil production would enable Aramco to “optimize” spending on gas.

Much of the hour-long discussion — the first time Aramco has faced investors as a listed company — centered on the falling global demand from the global pandemic, which has led to a big fall in demand for energy.

“With regard to the impact of coronavirus, the situation is rapidly evolving and its impact on growth is uncertain,” he said.

“However, we’ll ensure that we’ll maintain the strength of our operations and our finances, and we’ve already taken steps to rationalize our planned 2020 capital spending,” he added.

“Our vision is clear. Our unique scale, low cost, low capital intensity and reliability deliver growth and outstanding returns while maintaining our position as the most reliable energy company. For example, we have more than five decades of reserves, so we don’t face the same production difficulties others do.”

In answer to an analyst’s question about future oil price levels, Nasser said: “We have lower costs than any other company. We can sustain a low oil price.”

The price of Brent crude fell to just above $30 per barrel during the conference call.

Nasser reiterated Aramco’s promise to prioritize dividend payments to nongovernment shareholders to maintain them at $75 billion per year, the latest dividend paid by a listed company in the world.

Aramco’s Chief Financial Officer Khalid Al-Dabbagh said the 2019 results showed that on four main financial criteria — profitability, cash flow, return on capital and dividends — Aramco was bigger than all the main independent oil companies combined.


Economic meltdown threatens Europe’s war on plastic waste

Plastic recycling at the Extruplas plant in Portugal. Europe produces 26 million tons of plastic waste each year. (Reuters)
Updated 08 August 2020

Economic meltdown threatens Europe’s war on plastic waste

  • Lower oil prices mean lower virgin plastic prices — and that spells trouble for the recycling industry

OUREM, Portugal: Giving a new life to plastic trash gets Carlos Bento out of bed every morning. But the coronavirus pandemic has seen revenues drop up to 40 percent at Micronipol, the large recycling facility he runs in central Portugal, and it faces an uncertain future.

Micronipol produces recycled polyethylene, the base for plastic bags and bottles. The product is piling up at its warehouses as clients, facing their own economic struggles, shelve their recycling goals. They are opting for cheaper alternatives: non-recycled plastics made from hydrocarbons.
As lockdowns were put in place worldwide, a drop in demand for oil pushed prices to historic lows, making virgin plastics — already becoming cheaper than the recycled equivalent — even more affordable.
“If we are no longer competitive and if we lose cash we have two options: Either someone has to subsidise us so we can keep working or we have to shut down,” said Bento, as he stood near a pile of colorful recycled plastic bales.
Lower virgin plastic prices could spell disaster for the future of European recyclers like Micronipol.
In Europe, virgin polyethylene terephthalate (PET) was over 7 percent, or €60 ($71) per ton, cheaper than the recycled equivalent last month, data from S&P Global Platts showed.
Industry group Plastic Recyclers Europe said firms in most EU member states have signalled their recycling facilities have reduced their operations or closed their lines for at least a few months.
“Without well-functioning and profitable plastics recycling there is no alternative, no environmentally sound option for plastic waste management,” said Antonino Furfari, the group’s managing director. “This waste will be incinerated or dumped.”
Piotr Barczak, senior policy officer for waste at the European Environment Bureau, called for a tax on all virgin plastics to eliminate the price gap.
The impact of the pandemic on recyclers is especially concerning at a time when consumption of plastics is expected to double to 600 million tons per year in the coming two decades, according to a report by Zero Waste Europe NGO. And as countries struggle to cope with the economic impact of the health crisis, fears abound that environmental policies are being left behind.

HIGHLIGHTS

● Virgin plastic cheaper than recycled alternative.
● European plastic recyclers struggling to stay afloat.
● Taxing virgin plastic could help industry survive.

EU Environment Commissioner Virginijus Sinkevicius told Reuters in a written interview that while the Commission had received relatively few requests for extensions or exemptions from EU environmental rules due to the pandemic, the crisis had a “significant impact” on countries’ administrative capacities.
The EU is to ban a range of single-use plastic items by 2021, a huge ambition which could now be under threat as more and more consumers and restaurants become more dependent on disposable plastic products due to contagion fears.
Portugal’s Environment Secretary of State Ines dos Santos Costa said her government’s ambition to cut disposable plastic products “still stands,” but the pandemic has transformed models of production and consumption worldwide.
Not far from Portugal’s capital Lisbon, recycling sorting facility Amarsul has raised concerns about the vast amounts of plastic gloves and masks it has been receiving.
“If the habit of using disposables continues, we may take a step back we will have to fix later,” said CEO Sandra Silva, adding that a recycling-based economic model “cannot stop because there is a pandemic.”
Europe generates 26 million tons of plastic waste annually, but less than 30 percent of that is collected for recycling. Experts say existing targets to improve plastic recycling could be in danger of not being met.
Sandra Castro, head of Extruplas firm that makes wooden-like outdoor furniture from plastics it recycles, is hoping the current situation is no more than a temporary bump in the road.
“We need the industry to be able to provide a solution to the waste we produce,” Castro said.
But for Sirpa Pietikainen, Finnish member of the European Parliament, the only way to tackle plastic pollution, which some scientists say is fueling climate change through greenhouse gas emissions, is to produce less waste.
“If you thought the coronavirus crisis was bad for the economy, climate change will be 100 times worse — and then you will not only talk about losing GDP points, you will talk about access to medication, water and food,” she said.
“We really need to act now.”