THERE is a joke that used to make the rounds not too long ago: Due to a lack of interest, tomorrow has been cancelled.
Saudi Aramco’s uncertain tomorrow is facing a similar fate. The Saudi oil giant has cancelled marketing roadshows for its Initial Public Offering (IPO) outside of the Gulf, citing lack of interest from foreign institutional investors.
Petronas, our national oil company, is one such which gave the offer a pass. We think it to be a good decision. There are just too many unknowns in the distant “tomorrows” of the Saudi monolith. Consider just three.
One such is the terribly volatile crude oil prices. As this Leader was going to press, the benchmark Brent crude was trading at US$63.39 and West Texas Intermediate at US$57.77. Neither is expected to reach the dream price of more than US$100 of years gone by.
In fact, the dream is as old as five years. Since 2014, the crude pendulum has swung hither and thither in this most geopolitical of all industries.
Crude’s new low may not be a concern to Aramco — it costs the company only US$10 to produce a barrel of the black gold — but the price volatility should worry the hell out of investors around the world.
Two, geopolitics. One would not be wrong to think of Saudi Arabia as being in a war zone. The Middle East is a fragile and fractured region waiting to explode anytime.
It is made of fissile material. In fact, it is already exploding in places. Syria, Palestine, Yemen and Iraq. The list is a work in regress.
Last September’s drone attack revealed how vulnerable Saudi Arabia is. There are too many unresolved issues between Saudi Arabia and Iran for investors to put their money in a region, which is a tinder box.
Three, the place of crude in the scheme of renewal energy. Plenty of Aramco’s barrels are heading the way of Europe where renewal energy is having a second coming.
The International Energy Agency’s (IEA) latest renewable energy market forecast says the global solar photovoltaic (PV) market is set for spectacular growth over the next five years.
IEA says that this increase of 1,200 gigawatts — equivalent to the current total power capacity of the United States — is driven by cost reductions and concerted government policy efforts.
In the agency’s calculation, solar PV accounts for 60 per cent of the rise and the share of renewables in global power generation is set to rise from 26 per cent today to 30 per cent in 2024.
Headwinds are headed Aramco’s way. It may not be now, but certainly in the future.
Many are troubled by the high market valuation of Aramco — between US$1.6 trillion and US$1.7 trillion. We think Aramco to be worth more.
Today, the Saudi giant produces 10 per cent of the world’s oil. There is plenty more where it comes from.
More than 330 billion barrels of oil and gas reserves to be exact, translating to a quarter of the world’s reserves. These numbers alone are enough to make the kingdom a dominant producer for another 100 years.
But who is to say what the 100 years have in store for the energy world? Either way, Aramco’s black gold is in for a crude shock.