OPEC earned about $711 billion in net oil export revenues (unadjusted for inflation) in 2018
Saudi Arabia accounted for the largest share of total OPEC earnings, $237 billion
India only imports between 4.5 and 5 million barrels per day of oil, but it is shaping up to be the biggest competitive space for producers
OPEC is still making money, despite challenges coming from every which way.
Be it falling prices, market volatility, regional insecurity, trade wars, armed conflict, talks of recession, US production, electric vehicles and renewable energy, or US Iranian sanctions, OPEC still finds a way to generate billions in revenues.
Now, mixed with current production leaders are a few new players making a splash.
The 2018 net oil export revenues increased by 32% from the $538 billion earned in 2017, mainly as a result of the increase in average annual crude oil prices during the year and a slight increase in OPEC net oil exports.
Saudi Arabia accounted for the largest share of total OPEC earnings, $237 billion in 2018, representing one-third of total OPEC oil revenues.
EIA expects that OPEC net oil export revenues will decline to about $604 billion (unadjusted for inflation) in 2019, based on forecasts of global oil prices and OPEC production levels in EIA’s August 2019 Short-Term Energy Outlook (STEO), according to Hellenic Shipping News.
EIA’s forecasts that OPEC crude oil production will average 30.1 million barrels per day (BPD) in 2019, 1.8 million BPD lower than in 2018.
For 2020, OPEC revenues are expected to be $580 billion, largely as a result of lower OPEC production.
Important countries to watch for in the oil sector
5. India—Right now India only imports between 4.5 and 5 million barrels per day of oil, but it is shaping up to be the biggest competitive space for producers.
India is the third-largest oil consumer in the world. Previously, the biggest competition ground for oil producers was for sales to China, but with 1.37 billion people, India has the potential to impact the market much like China has.
4. Saudi Arabia—This Arab Gulf nation owns the world’s most profitable (oil) company, houses the second-largest proven oil reserves in the world, and has the most spare capacity of any country. Oil from Saudi Arabia fuels much of east Asia. Aramco is also expanding its exports to India to compensate for lost Iranian oil.
2. China—This country is the second-largest consumer of oil and is the largest oil importer in the world at around 10.64 million barrels per day. China is such an important oil consumer that any indication that economic growth in China is slowing sends oil prices tumbling.
1. United States –The U.S. is currently producing oil at record levels (12.3 million barrels per day according to the EIA). This is being driven by the shale oil industry. The U.S has shown its ability to impact other countries’ oil business, as it did with Iran’s exports in recent months. Presidential tweets also impact prices.
Author Hadi Khatib is a business editor with more than 15 years’ experience delivering news and copy of relevance to a wide range of audiences. If newsworthy and actionable, you will find this editor interested in hearing about your sector developments and writing about it.
The state energy giant’s vast oil reserves – it can sustain current production levels for the next 50 years – make it more exposed than any other company to a rising tide of environmental activism and shift away from fossil fuels.
In the three years since Saudi Crown Prince Mohammed Bin Salman first proposed a stock market listing, climate change and new green technologies are putting some investors, particularly in Europe and the United States, off the oil and gas sector.
Sustainable investments account for more than a quarter of all assets under management globally, by some estimates.
Aramco, for its part, argues oil and gas will remain at the heart of the energy mix for decades, saying renewables and nuclear cannot meet rising global demand, and that its crude production has lower greenhouse gas emissions than its rivals.
But with the company talking again to banks about an initial public offering (IPO), some investors and lawyers say the window to execute a sale at a juicy price is shrinking and Aramco will need to explain to prospective shareholders how it plans to profit in a lower-carbon world.
“Saudi Aramco is a really interesting test as to whether the market is getting serious about pricing in energy transition risk,” said Natasha Landell-Mills, in charge of integrating environment, social and governance (ESG) considerations into investing at London-based asset manager Sarasin & Partners.
“The longer that (the IPO) gets delayed, the less willing the market will be to price it favourably because gradually investors are going to need to ask questions about how valuable those reserves are in a world that is trying to get down to net zero emissions by 2050.”
Reuters reported on Aug. 8 that Prince Mohammed was insisting on a $2 trillion valuation even though some bankers and company insiders say the kingdom should trim its target to around $1.5 trillion.
A valuation gap could hinder any share sale. The IPO was previously slated for 2017 or 2018 and, when that deadline slipped, to 2020-2021.
Aramco told Reuters it was ready for a listing and the timing would be decided by the government.
The company also said it was investing in research to make cars more efficient, and working on new technologies to use hydrogen in cars, convert more crude to chemicals and capture CO2 which can be injected in its reservoirs to improve extraction of oil.
SELLING THE STORY
Some would argue this is not enough.
A growing number of investors across the world are factoring ESG risk into their decision-making, although the degree to which that would stop them investing in Aramco varies wildly.
Some would exclude the company on principle because of its carbon output, while others would be prepared to buy if the price was cheap enough to outweigh the perceived ESG risk – especially given oil companies often pay healthy dividends.
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At a $1.5 trillion valuation, Aramco would be the world’s largest public company. If it were included in major equity indices it would automatically be bought by passive investment funds that track them, regardless of their ESG credentials.
And as the world’s most profitable company, Aramco shares would be snapped up by many active investors.
Talks about a share sale were revived this year after Aramco attracted huge investor demand for its first international bond issue. In its bond prospectus, it said climate change could potentially have a “material adverse effect” on its business.
When it comes to an IPO, equity investors require more information about potential risks and how companies plan to deal with them, as they are more exposed than bondholders if a business runs into trouble.
“Companies need to lead with the answers in the prospectus, rather than have two or three paragraphs describing potential risks from environmental issues,” said Nick O’Donnell, partner in the corporate department at law firm Baker McKenzie.
“An oil and gas company needs to be thinking about how to explain the story over the next 20 years and bring it out into a separate section rather than hiding it away in the prospectus, it needs to use it as a selling tool. And also, once the IPO is done, every annual report should have a standalone ESG section.”
Unlike other major oil companies, Aramco doesn’t have a separate report laying out how it addresses ESG issues such as labour practices and resource scarcity, while it does not publish the carbon emissions from products it sells. Until this year’s bond issue, it also kept its finances under wraps.
The company does however have an Environmental Protection Department, sponsors sustainability initiatives and is a founding member of the Oil and Gas Climate Initiative, which is led by 13 top energy companies and aims to cut emissions of methane, a potent greenhouse gas.
On Aug. 12 Aramco published information on the intensity of its hydrocarbon mix for the first time. It disclosed the amount of greenhouse gases from each barrel it produces.
Aramco’s senior vice president of finance Khalid al-Dabbagh said during an earnings call this month that its carbon emissions from “upstream” exploration and production were the lowest among its peers.
A study published by Science magazine last year found carbon emissions from Saudi Arabia’s crude production were the world’s second lowest after Denmark, as a result of having a small number of highly productive oilfields.
THE OIL PRICE
Aramco says that, with the global economy forecast to double in size by 2050, oil and gas will remain essential.
“Saudi Aramco is determined to not only meet the world’s growing demand for ample, reliable and affordable energy but to meet the world’s growing demand for much cleaner fuel,” it told Reuters.
“Alternatives are still facing significant technological, economic and infrastructure hurdles, and the history of past energy transitions shows that these developments take time.”
The company has also moved to diversify into gas and chemicals and is using renewable energy in its facilities.
But Aramco still, ultimately, represents a bet on the price of oil.
It generated net income of $111 billion in 2018, over a third more than the combined total of the five “super-majors” ExxonMobil (XOM.N), Royal Dutch Shell (RDSa.AS), BP (BP.L), Chevron (CVX.N) and Total (TOTF.PA).
In 2016, when the oil price hit 13-year lows, Aramco’s net income was only $13 billion, according to its bond prospectus where it unveiled its finances for the first time, based on current exchange rates. Its earnings fell 12% in the first half of 2019, mainly on lower oil prices.
Concerns about future demand for fossil fuels have weighed on the sector. Since 2016, when Prince Mohammed first flagged an IPO, the 12-months forward price to earnings ratio of five of the world’s top listed oil companies has fallen to 12 from 21 on average, according to Reuters calculations, lagging the FTSE 100 and the STOXX Europe 600 Oil & Gas index averages.
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AN INFLUX OF CAPITAL
Using a broad measure, there was global sustainable investment of $30.1 trillion across the world’s five major markets at the end of 2018, according to the Global Sustainable Investment Review here, more than a quarter of all assets under management globally. That compares with $22.8 trillion in 2016.
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“Given the influx of capital into the ESG space, Aramco’s IPO would have been better off going public 5-10 years ago,” said Joseph di Virgilio, global equities portfolio manager at New York-based Romulus Asset Management, which has $900 million in assets under management.
“An IPO today would still be the largest of its kind, but many asset managers focusing solely on ESG may not participate.”
The world’s top listed oil and gas companies have come under heavy pressure from investors and climate groups in recent years to outline strategies to reduce their carbon footprint.
Shell, BP and others have agreed, together with shareholders, on carbon reduction targets for some of operations and to increase spending on renewable energies. U.S. major ExxonMobil, the world’s top publicly traded oil and gas company, has resisted adopting targets.
Britain’s biggest asset manager LGIM removed Exxon from its 5 billion pounds ($6.3 billion) Future World funds for what it said was a failure to confront threats posed by climate change. LGIM did not respond to a request for comment on whether it would buy shares in Aramco’s potential IPO.
Sarasin & Partners said in July it had sold nearly 20% of its holdings in Shell, saying its spending plans were out of sync with international targets to battle climate change. The rest of the stake is under review.
The asset manager, which has nearly 14 billion pounds in assets under management, didn’t participate in Aramco’s bond offering and Landell-Mills said they would be unlikely to invest in any IPO.
Additional reporting by Ron Bousso in London and Victoria Klesty in Oslo; Editing by Carmel Crimmins and Pravin Char
Saudi Arabia clinched 37 deals worth $53 billion after announcing that
it intends to attract upwards of $426 billion in total over the next decade as
it seeks to advance Crown Prince Mohammed Bin Salman’s (MbS) ambitious Vision
2030 agenda of socio-economic reform. The young leader knows that his
majority-youthful country has no hope for the future if it doesn’t rapidly
transition to a post-oil economy before its world-famous reserves run dry,
which is why he’s doing everything in his power to court infrastructural,
industrial, defense, and technological investments in order to prudently give
his people a chance to survive when that happens.
This will naturally result in
far-reaching lifestyle changes whereby the relatively well-off native
population is compelled to leave their plush government jobs and segue into the
competitive private sector out of economic necessity. Relatedly, the Kingdom is
loosening its previously strict religious edicts that hitherto prohibited
Western-style social freedoms such as playing music in restaurants, going to
the cinema, and allowing women to drive. About the last-mentioned of these
three latest reforms, it’s inevitable that more women will move out of the home
and into the workforce as Vision 2030 progressively develops, though therein
lays the potential for serious social unrest.
The Saudi state is upheld by the dual
pillars of the monarchy and the Wahhabi clerics, the latter of which have been side
lined as a result of Vision 2030 and MbS’ previous crackdown on both radical
Islam and the corrupt elite. For all intents and purposes, the Crown Prince’s
rapid rise to power was a factionalist coup within the monarchy itself but also
a structural one of the monarchy imposing its envisioned will over the Wahhabi
clerics, both in the sense of curtailing any militant activities that some of
them might have been encouraging and/or funding and also when it comes to
counteracting their previously dominant influence over society.
As the country makes progress on
advancing Vision 2030 and its related economic reforms continue catalyzing
social ones as well, it’s very possible that the structural fault lines between
the monarchy & Wahhabis and the younger generation & the older one will
lead to political destabilization if they’re not pre-emptively and properly
dealt with. While it might sound overly dramatic, there’s a lot of objective
truth in the forecast that MbS might either end up as the first King of a New Saudi Arabia or the last Crown Prince of a country that might ultimately cease to exist if these naturally occurring Hybrid War variables
aren’t brought under control.
Energy Reporters posting an article on Libya’s oil chief being bullish amid his country’s chaos that does seem to be wanting to end.
aims to more than double its oil production to 2.1 million
barrels per day (bpd) by 2021 provided security and stability are boosted, said Mustafa Sanalla, the chairman of
the state oil company, the National Oil Corporation (NOC).
The war-torn state produces 953,000 bpd, compared
to its pre-war capacity of 1.6 million bpd, according to Sanalla.
The oil boss demanded increased security at El Sharara oil field to ensure the
315,000 bpd site – which on December 8 was overrun by tribal activists, protesters and
security guards demanding unpaid wages – could return to production.
El Sharara, around 750km southwest of the capital Tripoli, is the country’s
largest oil field. Until recently it was producing about 270,000 barrels of oil
per day, more than a quarter of Libya’s daily oil production.
The oil activists demanded the rebuilding of cities and towns affected by
post-2011 armed conflict and providing liquidity for banks in the south to
boost recovery efforts.
“What happened in El Sharara discourages foreign companies,” said Sanalla, who
announced a visit to China in early 2018 to discuss oil investment
“The legitimate and rightful concerns of the southern Libyan communities are
being hijacked and abused by armed gangs, who instead of protecting the field
to generate wealth for all Libyans, are actually enabling its exploitation and
looting,” said Sanalla.
He also confirmed the improved security conditions in the Sirte basin in
central Libya which would enable the launch of production at the Farigh gas
field to 24 million cubic feet per day in three months, with an eventual output
goal of 270 million cubic feet per day, Sanalla said.
Prime Minister Fayez al-Serraj (pictured) recently agreed to set up funds in
excess of US$700 million for the development of southern Libya, which has
suffered from decades of neglect after talks with the El Sharara militants. The
talks followed a warning from Sanalla that the government should not encourage
the militant groups at El Sharara with concessions as this would set a
dangerous precedent for other direct action.
Despite security problems, the NOC said it expected full-year revenue to surge
by 76 per cent to US$24.2 billion for 2018.
Prime Minister Fayez al-Serraj. Libya’s oil
producers struggle with security challenges, making the war-torn state an
unreliable member of Opec. Picture credit: Wikimedia
Although Qatar’s exit from OPEC does not
affect much OPEC’s oil production power since the Emirate contributes only 2
percent to the cartel’s production capacity, it does pose serious questions on
the future of the organization and the role it is expected to play in global
Qatar’s decision to pull out of OPEC may
well be driven by political considerations; however, it also reflects the
growing signs of discontent among OPEC’s members with how the organization is
governed and how its production policies do not necessarily align with those of
some member states.
Structural shifts of oil markets and the
existence of major imbalances of the needs and policies of OPEC’s members pose
a serious challenge to the organization’s unity and its ability to continue to
abide by its mandate to “coordinate and unify the petroleum policies of its
member countries”. OPEC, as an organization, is likely to continue to exist,
but its role has already been weakened and will continue to dissipate as
differences among its members become more pronounced and other producers like
Russia and the United States increase their market share.
What is OPEC and how it is governed?
OPEC, which stands for Organization of the Petroleum Exporting Countries, can be understood as a club of some of the oil producing countries that is primarily mandated with protecting the interests of its member states and ensuring “a steady income to producers”. At the time of its inception in 1960, OPEC was seen as a “revolt” against private oil companies that seemed to ignore the interests of the producing states.
With Qatar’s exit, the organization
currently lists 14 members including Saudi Arabia, Iran, Iraq and Venezuela,
who are also founding members of OPEC. In 2017, OPEC members produced around 42
percent of the total global oil supply — more than 39 million barrel per
day — with Saudi Arabia, alone, contributing about a third of OPEC’s
production. In terms reserves numbers, OPEC members host 70 percent of global
proven oil reserves.
On paper, OPEC’s governance and decision
making requires the agreement of all member states; however, Saudi Arabia is
the de facto leader of OPEC due to its market share and spare capacity that
could be utilized to implement OPEC’s policies. Effectively, Saudi’s ability to
substantially vary its production and thus directly impacting oil markets made
it a price setter.
OPEC’s destabilizing factors
Infighting and cheating: Despite being oil
producing countries, OPEC members have different political, social and economic
realities. These differences translate into different needs at different times
and consequently, and naturally, creates tension and discontent within the
group. These different needs are manifested by the “budget break-even” price of
oil that each member states requires to fully cover its budgetary expenses (see
The numbers shown in the chart above are
largely dependent on the production in each country. For example, Venezuela’s
very high break-even price is due to its diminished production share of just 4
percent of OPEC’s basket — 500,000 barrel per day below its OPEC output target. Libya is also in
similar situation where it is looking to increase production to meet its
Because of these imbalances, OPEC members
continue to cheat to maximize their gains. Cheating is particularly rewarding when
production cuts are made and prices are elevated as countries with low
compliance eat into the market share of other oil producers. Iran, Iraq, Libya
and Nigeria have all attempted to cheat their way to produce more than they are
supposed to do.
Cheating has been reported in the academic literature as
the one of the main reasons that lead to cartels’ eventual collapse.
Shale oil: It was in 2014 when, driven by
Saudi Arabia’s interest in putting pressure on US
shale companies, oil supply exceeded demand, despite resistance of other
OPEC members with lower tolerance thresholds. The resulting glut sank oil
prices below $30 per barrel. Although many US shale companied filed for
bankruptcy, the industry emerged much stronger after the crisis due to
better adaptation to lower
prices, cost cutting measures, and technological efficiencies.
What makes shale oil a destabilizing factor
for OPEC is its relatively quick response to oil prices, limiting OPEC’s
ability to manipulate prices. The many independent shale companies in the US
can gradually increase their supply in response to higher prices, which would
eventually exert a downward pressure on prices.
Additionally, advancement in shale
technologies and reduced costs of offshore exploration and production allowed
new counties to become oil and gas producers, reducing their reliance on
Is OPEC still relevant?
Yes, but its power is diminishing. OPEC remains a dominant player in the global oil markets with production flexibility to smoothen price volatility. Additionally, OPEC members still have a major cost of production advantage compared to non-OPEC and shale rigs in the United States. However, market shifts such as increased share of unconventional oil and gas, especially in big oil consuming countries, and the increasing use of natural gas in power production are increasingly limiting OPEC’s ability to manipulate oil prices as it used to do. Now, shale producers are carefully watching prices and stand ready to react accordingly.
Zawya#sme posted this article dated 13 December 2018 after conducting a series of interviews with many stakeholders in the Arab entrepreneurship space to gauge their views on the opportunities and the challenges that they face.
The image above is of a technology start-up firm used for illustrative purpose. Getty Images/Caiaimage/Agnieszka Olek
Governments across the Arab world have been spending money on consultants to set up incubators and other tools to help those with business ideas create new firms and scale them, as more private sector jobs will be needed to provide employment for a young and fast-growing population.
But how successful are these, and what are conditions like for those brave souls who take a plunge and quit their jobs to start their own businesses? Are there enough opportunities, how hard is the journey and which track should the Arab entrepreneurs take to achieve their goals? And what happens if they fail?
Over the past three months, Zawya has conducted a series of interviews with many stakeholders in the Arab entrepreneurship space to gauge their views on the opportunities and the challenges that they face.
There are two major annual reports into the funding for start-ups in the Arab region carried out by Dubai-based research and funding platforms. One, carried out by Arabnet in collaboration with Dubai’s Mohammed Bin Rashid Establishment for SME Development (Dubai SME), looks at the investments in the digital space across 11 countries in the Arab world.
The second, by Magnitt, a Dubai-based start-up platform that provides entrepreneurship research and data, looks at funding from angel to growth capital stages in 16 Arab countries.
According to the Arabnet/Dubai SME report, the number of active investors in the market increased by a compound annual rate of 31 percent between 2012 and 2017, from 51 in 2012 to 195 last year. It said around 40 new funds were created between 2015 and 2016 and around 30 new funds between last year and May 2018. Of these 30 new funding institutions, around one third are based in the UAE, while one quarter are based in Lebanon.
A majority of the investors are based in four Arab countries: The UAE hosts 32 percent, Saudi Arabia 17 percent, Lebanon 13 percent and Egypt 10 percent.
The investor community is almost equally spread between early stage funders such as angel investors, seed funders and incubator programmes, and later-stage venture capital, growth capital and corporate investors.
According to Magnitt’s report, 318 start-up funding deals were made in 2017, up from 199 in 2016. However, deal volumes for the first nine months of this year declined 38 percent to $238 million, from $383 million achieved in the same period last year.
The start-up success stories in the region are growing, with the best-known so far being Dubai-based Careem and Souq.com.
Careem, which started in 2012, is a local ride-hailing app which has been through many rounds of venture funding, with the most recent $200 million fundraising completed in October bringing its valuation to over $2 billion, according to a Reuters story, citing an unnamed source.
Souq.com was founded in 2005 by Syrian entrepreneur Ronaldo Mouchawar and was sold to online retailer giant Amazon for $580million, according to documents filed by Amazon in April 2017.
Egypt was home to one of the region’s first
incubators, Flat6Labs. It was founded in Cairo in 2011. It was deemed a success
and later opened branches in Tunisia, Bahrain, Saudi Arabia, the UAE and
Mirek Dusek, the World Economic Forum’s deputy head
for geopolitical and regional agendas, told Zawya in a telephone interview in
September that the increasing interest by investors in the start-up scene is
driven partly by governments, but also by local, private sector interests.
“We have a different picture than from five to ten years ago and that picture has changed dramatically because of the involvement of the family businesses, the traditional long-standing family firms that we have seen in the Arab world are now setting up venture capital arms and also sovereign entities, PIF (the Pubic Investment Fund) in Saudi Arabia or elsewhere are increasingly active in this space.”
“Sovereign entities, particularly through
sovereign wealth funds are setting up arms that are specifically targeting SMEs
or start-ups in their home economy… This is quite healthy as long as it does
not crowd out other competitors,” he added.
The Pubic Investment Fund (Saudi Arabia’s
sovereign wealth fund) is an investor-partner in ecommerce platform Noon,
which was founded by UAE-based businessman Mohamed Alabbar. The portal
was launched late last year with an initial investment of $1
Abu Dhabi’s Mubadala, a state-owned investment
company, has pledged $15 billion to the $100 billion Softbank Vision Fund, a tech fund
run by Japanese technology company Softbank in May last year, while Saudi
Arabia’s PIF was the fund’s biggest investor, with a $45 billion commitment.
According to the Arab Competitiveness Report 2018
released in August, “research has shown that countries and regions
characterized by higher entrepreneurial activity tend to have higher growth
rates and greater job creation, the main pathways through which to grow the
global middle class”.
The report, which was compiled by the International Finance Corporation (IFC), the World Economic Forum and the World Bank, added: “Global experience shows that entrepreneurship stimulates job creation in the economy, as most new jobs are created by young firms, typically those three to five years old.”
Saudi Arabia, the Arab region’s biggest economy, needs to create 1.2 million jobs by 2020 to reach its unemployment targets, Reuters reported in April, quoting an official in the Ministry of Labor.
The unemployment rate for Saudi nationals stood at 12.9 percent of the population in the second quarter of 2018 – the latest for which figures are available.
Anass Boumediene, one of the founders of Dubai-based eyewa.com, an online portal that sells spectacles and contact lenses that expanded to Saudi Arabia last year, said the region still lags behind others with regards to the size and type of support provided by governments to start-ups.
“What needs to be improved in the region is governments’ involvement in fostering entrepreneurship. In Europe, Asia, or the U.S., governments are a lot more active in supporting entrepreneurs, providing access to simple and cheap legal frameworks for startups and VCs (and) government funding in the form of grants, loans or equity to both startups and VCs, and other ecosystem-building infrastructure facilitating access to talent and technologies,” he told Zawya in an interview in September.
Aysha Al-Mudahka, the CEO of Qatar Business Incubation Center (QBIC), told Zawya in a phone interview in September that it is important both for start-ups and investors to feel they have “the consent of the government”. This will make “the private sector feel comfortable to invest in start-ups, especially in the Arab world, as that will lead to better regulations and support for start-ups.”