How Saudi Aramco plans to win the oil endgame

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How Saudi Aramco plans to win the oil endgame

The Economist | June 2, 2024

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As less generously endowed rivals fall by the wayside, Aramco’s market share would be almost certain to rise with a few modest investments in maintaining reservoirs. Yet the company’s employees are busier than ever. That is because Aramco is the linchpin of the strategy of Muhammad bin Salman, Saudi Arabia’s crown prince and de facto ruler, to end his country’s reliance on its oil riches, diversify its economy and decarbonise its energy production.

Aramco is, for a start, the chief source of funds for this vision. On June 2nd it launched a long-awaited secondary share offering, hoping to raise $13bn in exchange for just 0.7% or so of its government-held stock. This followed a record-breaking $30bn initial public offering in 2019. Some of the money will again flow to the Public Investment Fund, the main vehicle for the kingdom’s sovereign wealth.

Yet Aramco is more than just a princely piggy bank. As the kingdom’s most important business, it also has to transform itself in line with the royal strategy. “Our goal is to make our energy source as affordable and sustainable as possible,” says Ahmad al-Khowaiter, Aramco’s head of technology and innovation.

Achieving that goal involves a three-pronged strategy. Its first element is to double down on oil, but to extract it in ever-cleaner ways. Aramco is planning to spend between $48bn and $58bn this year on capital investments.  In particular, Aramco is cracking down on methane, the main ingredient of natural gas, which is often produced alongside oil.  Recent analysis of satellite data by Kayrros, a French analytics firm, shows that methane intensity from Saudi oil and gas production last year was the second-lowest in the world, behind only greener-than-thou Norway.  The second pillar of Aramco’s strategy involves broadening its hydrocarbon portfolio to reduce its exposure to oil, which has historically dominated its production and exports.  One area of diversification is natural gas. Because it burns more cleanly than oil or coal, and because the resulting CO2 emissions are more concentrated and thus easier to capture and store.  This points to the third pillar of Aramco’s master plan—decarbonisation. The company has turned itself into one of the biggest green investors in the energy world.

2 key takeaways from the article

1. As less generously endowed rivals fall by the wayside, Aramco’s market share would be almost certain to rise with a few modest investments in maintaining reservoirs. Yet the company’s employees are busier than ever. That is because Aramco is the linchpin of the strategy of Muhammad bin Salman, Saudi Arabia’s crown prince and de facto ruler, to end his country’s reliance on its oil riches, diversify its economy and decarbonise its energy production.
2. Aramco is, for a start, the chief source of funds for this vision.  And achieving that goal involves a three-pronged strategy. Its first element is to double down on oil, but to extract it in ever-cleaner ways.  The second pillar of Aramco’s strategy involves broadening its hydrocarbon portfolio to reduce its exposure to oil, which has historically dominated its production and exports. And third pillar of Aramco’s master plan is decarbonisation. The company has turned itself into one of the biggest green investors in the energy world.

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Topics:  Energy, Oil, Environment, Sustainable Development