The role of Saudi Aramco has always been seen as that of a national oil company, deeply integrated into the Kingdom's operations and serving as a significant player in the oil market. It has aimed to avoid discussions about market power and the influence on oil prices, issues that often concern international oil companies (IOCs) like Shell, TotalEnergies, ENI, and their American counterparts.
As of now, Saudi Aramco is officially recognized as a National Oil Company (NOC), and the markets view it as a stable and conservative presence in the oil industry. However, this perception is evolving, and the transformation is happening faster than many analysts realize. While it remains owned and influenced by the Saudi government and Crown Prince Mohammed bin Salman's strategies, beneath the surface, Aramco has become a significant international player. It has acquired numerous assets in Europe, Africa, and Latin America, reshaping its overall structure more into that of an International National Oil Company (INOC) than a traditional NOC.
Simultaneously, the connection between Aramco and the Saudi sovereign wealth fund, the Public Investment Fund (PIF), is still somewhat underestimated. Revenues, both internal and external, flow between these two powerful entities, although the process might seem somewhat diffuse. Much of the capital flowing into the PIF within the Kingdom originates directly from its holdings and ownership of Aramco. At the same time, the PIF is increasingly supporting international acquisitions in the oil and gas sector that align perfectly with Aramco's interests.
Recently, attention has returned to the high-profile initial public offering (IPO) of ADES, a Saudi drilling giant backed by the PIF. ADES Holding has announced its final IPO price, exceeding initial expectations and valuing the company at over $4 billion. The IPO has garnered significant interest from institutional investors, with orders totaling $76.5 billion. This success underscores the attractiveness of the Saudi oil and gas sector. Related: Europe’s Natural Gas Prices Dip As Supply Concerns Ease
ADES's success is closely tied to its significant presence in Saudi Arabia as a major driller for Aramco, but it also signals opportunities for international expansion in the coming years. What began as an Egyptian drilling company has become a leading player, promoting Saudi interests not only in the Middle East and North Africa (MENA) region but likely extending to Aramco's endeavors in Africa and Latin America.
As the PIF acts as Aramco's financial investment arm abroad, we can expect more developments in the future. In 2022, the PIF acquired minority stakes in several Egyptian hydrocarbon-related entities, indicating a growing interest in the region's energy sector. Further investments in Egypt's gas and oil infrastructure, potentially including a share in TAQA Arabia, are possibilities. Additionally, TAQA Arabia has established a joint venture within the Kingdom, aligning with Saudi Arabia's growing logistics and maritime industry investments.
While the PIF is acquiring a range of assets, Aramco is also active. Aramco's acquisition of Chile's Esmax Distribución SpA from Southern Cross Group, with revenues of $2.5 billion in 2022, demonstrates its interest in Latin America's downstream expansion. This move opens doors for Aramco to secure outlets for its refined products and bolster its international retail operations, particularly for Valvoline branded lubricants.
The broader picture reveals that Saudi Arabia is embarking on a significant international acquisition campaign to strengthen its hold on the downstream sector, with potential expansion into upstream in the near future. Unlike Abu Dhabi National Oil Company (ADNOC), which has focused on upstream assets, Aramco's growing financial resources, coupled with PIF's support, suggest a similar move may be imminent. The current Saudi leadership is increasingly outward-looking, recognizing the importance of geopolitical power and economics on the international stage. Aramco's strength is likely to be leveraged in global affairs, with initial targets in Egypt or Iraq, and expansion into Latin America, Africa, and other energy-producing regions. The combination of Prince Abdulaziz bin Salman and Amin Nasr, with the backing of Crown Prince Mohammed bin Salman, presents a formidable force on the international energy stage.
By Cyril Widdershoven for Oilprice.com
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But beyond being the world’s largest and most profitable oil company, Aramco’s global strategic, economic and geopolitical influence extends across the world. Its influence has become a very significant factor in the colossal battle raging now between the petrodollar and the petro-yuan for dominance in the global oil trade.
However, I believe firmly that behind the suggestion that Aramco may acquire international oil and gas assets is a serious attempt to bolster its declining oil production. That is what is really behind the Saudi production cut.
The Saudi cut has nothing to do with the market and prices and everything to do with Saudi production difficulties.
90% of Saudi production has for the last 70 years been coming from five giant fast-depleting and aging oilfields which are more than 75 years old and are being kept producing by injection of billions of barrels of water. That is why a reduced Saudi production is going to become a permanent feature of the market. By 2030 I project that Saudi Arabia could be left with an estimated 120,000-400,000 barrels a day (b/d) to export at which time it would have virtually ceased to remain an exporter.
According to my assessment of Saudi proven reserves over a period of 20 years, I estimated Saudi reserves at this minute at 35.31 billion barrels (bb) enough for almost 10 years of Saudi production of 10.0 million barrels a day (mbd) and not 267 bb as the Saudis have been declaring for the last 25 years despite their production and absence of new discoveries.
Dr Mamdouh G Salameh
International Oil Economist
Global Energy Expert