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Saudi Aramco CEO Warns of Oil and Natural Gas Underinvestment

Aramco, Saudi Aramco, Natural Gas, Oil

By: Natural Gas Intelligence – Saudi Arabia’s state-owned oil producer posted record profits for 2022, up nearly 50% year/year, lifted by soaring oil and natural gas prices.

Saudi Arabian Oil Co., better known as Aramco, tripled the 2022 profit recorded by ExxonMobil, lifted by higher sales volumes and improved margins for refined products. Commodity prices surged early in the year following Western sanctions on Russia following its invasion of Ukraine.

“Aramco delivered a record financial performance in 2022, as oil prices strengthened due to increased demand around the world,” CEO Amin H. Nasser said. “We also continued to focus on our long-term strategy, building both capacity and capability across the value chain with the aim of addressing energy security and sustainability.

“Given that we anticipate oil and gas will remain essential for the foreseeable future, the risks of underinvestment in our industry are real – including contributing to higher energy prices.”

To leverage Aramco’s “advantages of scale,” the company has begun its largest capital expenditure (capex) program in history. Last year capex rose by 18% to reach $37.6 billion. Capex now is set at $45-55 billion/year, with increases “until around the middle of the decade,” he said.

The CEO said there is not enough “investment getting into the markets right now…We encourage the industry, policymakers, investors…to avail additional investment to really increase the amount in the sector, so that we can meet future demand.”

Some integrated and independent producers have slowed capital for oil and natural gas projects to invest in the energy transition and to reward investors. Aramco, however, is spending more in all areas – and giving shareholders extra dividends.

The focus, said Nasser, “is not only on expanding oil, gas, and chemicals production but also investing in new lower-carbon technologies with the potential to achieve additional emission reductions in our own operations and for end users of our products.”

Aramco in October launched a $1.5 billion Sustainability Fund. The fund is directing investments to technologies that support the company’s Scope 1 and Scope 2 net-zero 2050 targets in operational assets, as well as to develop lower-carbon fuels.

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One project planned for Saudi Arabia is a carbon capture utilization and storage hub in Jubail, with a storage capacity of up to 9 million metric tons/year of carbon dioxide by 2027.

Meanwhile, the Upstream arm “continues to execute its growth plans to promote long-term productivity of Saudi Arabia’s reservoirs,” Aramco management said. To that end, the company is implementing a government mandate to increase Aramco’s crude oil production to 13.0 million b/d by 2027. The government owns about 95% of Aramco.

For its natural gas developments, compression projects at the Haradh and Hawiyah fields began commissioning activities. Full capacity is expected to be reached this year. Construction at the Hawiyah Unayzah Gas Reservoir Storage, the first underground gas storage project in the Kingdom, “is at an advanced stage and has commenced injection activities,” the company said. The program is designed to provide up to 2.0 Bcf/d of natural gas “for reintroduction into the Kingdom’s Master Gas System by 2024.”

Aramco also plans to participate in developing an integrated refinery and petrochemical complex in northeast China. Aramco could supply up to 210,000 b/d of crude oil feedstock to the complex if the project proceeds. In addition, Aramco and TotalEnergies in December sanctioned a large petrochemical complex in Saudi Arabia.

The global markets are facing some headwinds, though. Oil and gas prices have eased into this year. Inflation is high, and rising interest rates are stinging buyers. Still, China is resuming activity, with demand rising, following an extended pandemic-related lockdown last year.

“We are cautiously optimistic,” Nasser said. “If you consider China opening up, the pick-up in jet fuels, and the very limited spare capacity, we are cautiously optimistic in the short- to mid-term that markets will remain tightly balanced.”

Average hydrocarbon production last year was 13.6 million boe/d, including 11.5 million boe/d of liquids.

Meanwhile, Iran and Saudi Arabia last Friday struck a deal to resume diplomatic relations. Iran had been blamed for attacking Aramco facilities in 2019, which led to a spike in oil prices.

“The deal will hopefully result in less geopolitical tension and enhance regional stability, which will definitely have a positive impact on the global market,” Nasser said.

Aramco posted a record net income of $161 billion for 2022, up 46.5% year/year. Free cash flow totaled $148.5 billion, also a record, from $107.5 billion in 2021.

The fourth quarter dividend, to be paid by the end of March, was increased by 4% to $19.5 billion. Bonus shares are to be offered to eligible shareholders.

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