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Cyril Widdershoven

Cyril Widdershoven

Dr. Cyril Widdershoven is a long-time observer of the global energy market. Presently, he holds several advisory positions with international think tanks in the Middle…

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Who Will Buy The 1% Stake In Aramco?

In an interview on Saudi national TV, Saudi Crown Prince Mohammed bin Salman hinted at a possible sale of a 1% stake in Saudi Aramco. MBS claimed that “there are talks now for the acquisition of a 1% stake by a leading global energy company in an important deal that would boost Aramco’s sales in a major country.” Based on the current value of Aramco, the potential sale would bring in roughly $19 billion for the Kingdom. MBS did not go into further detail on the deal but he did indicate that more of Aramco may be sold in the future. The Crown Prince has been pushing this sale for a while now as he attempts to diversify the country’s economy and wean it off oil and gas. 

Confronted by population growth and unemployment, Saudi Arabia needs to develop new economic sectors to both provide job opportunities and supplement hydrocarbon revenues. MBS stated that “if we were to proceed with the same manner and in the light of the increased population number this will have quite an impact in 20 years on the standard of living we’ve become accustomed to for about 50 years”. The Crown Prince also addressed Saudi Arabia’s addiction to hydrocarbon revenues, saying that “this is in addition to the risk that the economy of the Kingdom of Saudi Arabia would be depending mainly on oil, and what will oil be facing as challenges in the forty or fifty years ahead. Limited utilization, or maybe the prices might be less, or there might be a dysfunction in the economic situation which might entail financial and economic repercussions”.  However, he also emphasized that “there is a wrongful perception that the Kingdom of Saudi Arabia would like to dispose of the oil. Not at all. We want to exploit everything whether the oil sector or other sectors”.  He also warned not to base strategies only on future demand projections but also take into account the fact that supply could become the major threat in future. In the words of MBS, “if we’re talking about the others in terms of the supply, you find that supply is lost more quickly, or it declines more quickly than demand for oil is reduced”.  MBS believes the U.S., Russia, and China are going to face a steep decline in oil production in the coming years. Saudi Arabia plans to be ready to take advantage of that.

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When considering the potential sale of a 1% stake in Saudi Aramco, there are only a few parties that would have the ability and desire to be involved. MBS hinted that a global energy company was interested in the stake, and with most IOCs facing financial constraints and energy transition regulations, that list is rather limited. It seems likely that the company would be linked to China, Russia, or India. When looking at the current Asian focus of the Kingdom, Aramco is more likely to sell some shares to Chinese parties than to Indian operators. At the same time, Russian operators or investment funds such as Gazprom, Rosneft, or RDIF could be very interested in the sale. Considering current China-Saudi relations, it seems most likely that a mainstream Chinese oil giant, backed by Chinese banks and the Beijing government, is behind the deal. Such a sale would fit within the broader context of the major multi-billion agreements that have been agreed between China and Saudi Arabia.

The improving relations between Beijing and Rhiyad are clearly based on existing and growing hydrocarbon links between the two. At present, China is the largest oil importer of Saudi oil and petrochemicals.

As one of the only growth regions in the world, China provides stable revenues to Saudi Arabia. Another potential contender, India, is still lagging behind but could become a force to reckon with in the next 5-9 years. Part of the upcoming Aramco production capacity expansion to 12 million bpd is expected to go to other Asian customers rather than China. 

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China also has become a major “Third Way” Global Power that has the power to mitigate negative repercussions from any U.S.-Russia confrontation or a U.S.-Saudi Arabia fallout. MBS when asked about the recent recalibration of U.S.-Saudi relations under Biden stated “that there will never be 100% agreement between two countries”. ”Between different White House administrations, the margin of differences could increase or decrease but we agree with the Biden administration” about 90% of the time, he added. A potential multibillion investment from Chinese energy companies or investment funds will only accelerate Saudi Arabia’s pivot to the East.

The revenues from the sale of a 1% stake of Aramco would go towards the growth strategy of the company and its parent the Saudi SWF Public Investment Fund. It is seen as a good way of entering financial markets without issuing debt. As shares are a risk for investors rather than the issuer, there will not be a risk increase for Aramco, only another option to monetize assets. Keep in mind, Aramco doesn’t own the Saudi oil and gas reserves, the ownership is still in the hand of the Kingdom’s rulers. 

By Cyril Widdershoven for Oilprice.com

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  • Robert Berke on April 29 2021 said:
    The odds are high that it's a Chinese buyer, as the the Saudi's remain in its position as China&;s biggest oil supplier. The betting is on China's soveriegn wealth fund or its national oil companies. At an estimated price of $19 billions for the 1%, who else has the money?

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