Saudi Aramco mixes it up
While keeping oil at the core of its operations, Saudi Aramco is looking to a greener future and preparing to import gas for the first time
Amin Nasser's normally serious expression—the public one you would associate with the chief executive of a giant national oil company—can change in an instant to one softened by hearty laughter. This happened as soon as I switched on my voice-recording app. An image of an old-fashioned cassette player appeared on the screen, with the spindles turning. Nasser immediately saw the joke. "That's great," he said. "It tells you it's working!"
It's the business of the chief executive of Saudi Aramco to know that things are working, and how they work. Nasser is in a better position than most to understand what goes on in Aramco. He's been an employee of the Dhahran-based mega-giant for three decades, rising up through the ranks and holding some key positions along the way, including head of upstream.
Over the past two years, since Nasser was confirmed as chief executive, Aramco has expanded and diversified at the rate of knots. Oil remains the driving force, but the company now has its hands in a range of enterprises, inside and outside the energy sector—in the kingdom and in several parts of the globe. Indeed, it describes itself as "the world's leading integrated energy and chemicals enterprise".
Like all major oil and gas companies, Aramco is also keen to be seen playing its part in the drive for cleaner energy. When I met Nasser he'd just appeared with nine other oil-company chief executives on a panel in London organised by the Oil and Gas Climate Initiative (OGCI)—a group that came together three years ago with a commitment to achieve the goals of the Paris agreement.
Alongside the bosses of some of the top international oil companies—including BP, Shell, Eni and Statoil—Nasser emphasised Aramco's enthusiasm for the project. During the meeting the IOCs named the first three commercial ventures that would receive investment from a $1bn OGCI fund. The recipients work in the fields of cement manufacture, vehicle engines and carbon capture.
So far, Aramco is the only Middle Eastern oil company in OGCI, although Abu Dhabi National Oil Company looks set to join. After the meeting, Nasser said that Aramco had decided to become involved because the potential of a collaborative effort seemed more fruitful than if it was the company working in isolation. "A lot of collaboration is being done by the 10 companies," he said. "We're pooling the expertise that's within our companies to find solutions to climate issues."
Most of the headlines generated by OGCI have related to the $1bn investment fund. "A lot of people are talking about the $1bn," the Aramco chief executive continued, "but more important than this is the amount of expertise from all of our companies that's coming together. Working through these investments we're extending our technical knowhow and expertise."
'We're looking internationally to identify opportunities for gas that we can also bring to the kingdom'
Wasn't it somewhat counter-intuitive, I wondered, for Aramco and other carbon energy giants to be backing a scheme that would ultimately result in oil being increasingly marginalised?
"Actually, it's not," Nasser replied. "Oil will continue to play a major role. Renewables is growing and it's great that it's making a lot of good progress in alternatives, in terms of solar, wind and electric cars. But they constitute only 5% of the power sector. Coal was marginalised a long time ago—and during that transformation gas and oil were supposed to replace coal. Look at coal today, 40% of the power sector is coal, compared to 25% gas." It wouldn't be until 2035-40, he continued, that gas would overtake coal.
All of which brought the conversation back to Nasser's central thesis: "Oil is important. It's finite in terms of a resource. We need to utilise it the best way we can." The Aramco chief executive stressed that he wasn't turning a blind eye to developments in the energy scene. "There's a transformation that's happening in the industry," he went on, driven by climate change policies, energy policy regulators and technological advancement. "But it will take time for the transition."
A lot of the discussion at the OGCI meeting concerned the greater role that natural gas is playing on the global energy stage. On the Saudi stage, too. "Gas is important and we're giving it a lot of attention. It constitutes nearly 50% of our energy mix today and we're looking to take it to 70% in the next decade. Compared to 2016, we're looking to double our gas output to about 23bn cubic feet a day. So a lot of emphasis is being put on the development of gas, non-associated gas resources, offshore and onshore."
Doubling gas production in less than a decade is an enormous ask. Is it realistic?
"I think it is," Nasser replied. "We have programmes put in place that will achieve that amount of gas in the next decade. Already some of the plans that will boost our gas are under construction and some are under planning." Asked which of these projects we should look out for in 2018, he chose the Fadhil gas plant that will process 2.5bn cf/d of gas from the Khursaniyah field. The project will approach completion in the coming year for a 2019 start-up. Another key venture is the expansion of the Hawiyah gas-processing plant's capacity, from 2.4bn cf/d to 3.7bn cf/d. Projects relating to Hawiyah were among contracts worth $5.4bn signed with a range of companies on 9 November.
For decades, Saudi Arabia insisted that it would meet all its natural gas needs from its own onshore and offshore reserves. It wouldn't source gas from abroad to boost domestic volumes. In particular, it was a firm tenet of former oil minister Ali al-Naimi during his 21 years in the job that there would be no imports. Now, Nasser indicated, that strategy has been abandoned and the search is on for a suitable source of liquefied natural gas.
"We're looking to international gas to identify opportunities for gas that we can also bring to the kingdom," he said. "Our gas can bring us up to 70% [in the energy mix]. We're looking at ways of going beyond the 70% and adding more gas." Essentially, then, by importing gas? "Yes, yes," Nasser replied. "Saudi Aramco is engaging currently with a lot of companies to identify opportunities for gas internationally."
There's been speculation that Aramco might be keen to invest in the Arctic 2 LNG project that's being developed by Russia's Novatek. But when I suggested that, he came out for the second time with that infectious laugh of his, before saying he didn't want to comment on speculation. When a gas development and import deal was reached it would be announced.
Before leaving the subject of gas, the Aramco chief executive added that the 70% share in the energy mix that he referred to would also include renewables. The kingdom aims to produce 9.5 gigawatts of electricity—10% of the utilities sector—from renewables by 2013, a development requiring $30bn-50bn of investment. "Talk about bold decisions," Nasser said. "In a country of 260bn barrels of oil reserves and 300 trillion cf of gas, still we think that it's important to optimise our energy mix and make sure that renewables is part of it."
Oil capacity: no change
Nasser also insisted that while Aramco was becoming involved in a wide range of different upstream and downstream ventures, it wasn't abandoning oil. Far from it. "The kingdom is diversifying its economy," he said. "Instead of depending on only one engine, crude oil, it's looking at multi-engines for a sustained economy, which is something great and good." At the same time, "Vision 2030 talks about strengthening the position of oil by diversifying our investment in oil and gas. Going down the value chain, getting into more integrated petrochemicals, adding more and more value to our products."
When Vision 2030 was announced, senior figures in the kingdom suggested that crude oil capacity might be raised to 15m barrels a day, or even 20m b/d. But Nasser said nothing of this kind was on the cards for now. "At this stage, we're sticking to our maximum existing capacity. It has ample spare capacity. The maximum capacity for the kingdom is 12.5 [m b/d], for the company it's 12 [m b/d]. We're producing less than that. So for the time being we're not thinking about expanding."
So much for today, but what about the future? Was it a case of "never say never"? For the third time, Nasser burst out laughing. But now there was no reply, just an enigmatic smile. There was silence on another matter too: the Aramco initial public offering. Nasser refused even to take a question on this momentous issue. For senior executives of Aramco, one can only conclude, where, when—or even if—the listing will occur aren't laughing matters.