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The world’s richest oil company may be forced to do the unthinkable
Saudi Arabia’s Aramco is the world’s richest oil company and the world’s second most valuable public company behind Apple
Saudi Arabia’s Aramco, the world’s richest oil company and the world’s second most valuable public company behind Apple, may be forced to do what was once an unthinkable thing: abandon deals and sell assets, according to a media report. There is a review of the company’s current business portfolio amidst the COVID-19 pandemic crisis, according to a Saudi Aramco source familiar with business strategies regarding the projects. The coronavirus pandemic is upsetting the energy industry and pushing the company, Saudi Aramco, the world’s largest and most profitable oil producer to make big changes.
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The dramatic crash in prices this year is weighing on Saudi Arabia’s state oil giant, which has its income reliant on pumping crude not just to pay dividends to investors but also finance a big chunk of government spending.
Deals to get into the refining business in China and India — two of the world’s biggest energy consumers — appear to have been put on hold in recent weeks, and there is a proposal that Aramco would also delay the expansion of a major refinery in the United States.
The repositioning of priorities could have long term consequences for the company and the Saudi kingdom, given that the nature of some of the projects is politically sensitive.
The big problem for Aramco is the position for oil prices, with Brent crude futures, the global benchmark, still 33% lower than they started the year. Between April and June, Aramco’s net profit plunged more than 73% to $6.6 billion as lockdowns necessitated by the coronavirus pandemic abruptly reduced demand for energy products.
Oil industry analysts believe that global oil demand has already peaked and therefore may not recover fully, fearing that demand may not reach pre-pandemic levels until at least the beginning of the second quarter of 2021 which could be facilitated with the containment of the virus and the invention of effective vaccines
Aramco now faces a difficult set of choices as it races to conserve cash. The company is also expected to make payouts to the Saudi government, which relies on oil income to fund heavy social and military spending.
First on the block could be its plan to build a network of refineries in the world’s biggest markets in a bid to extract more value from each barrel of crude it pumps.
Another will be to abandon some projects including a joint venture to build a $10 billion refining complex in China, a $6.6 billion investment to add petrochemical output at its Motiva Refinery in Texas, and a natural gas collaboration with Sempra Energy despite how geopolitically significant they are.
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