Saudi Arabia’s crown prince said the country is in negotiations to sell a 1 percent stake in state-owned oil giant Saudi Aramco to a “leading global energy firm,” predicting an economic recovery following the coronavirus pandemic.
Crown Prince Mohammed Bin Salman said in a rare interview on a Saudi television channel late Tuesday, that the kingdom is considering the offer, which could be worth about $19 billion based on the company’s current market value, as a way to lock in consumer demand for the country’s oil. He mentioned the sale could happen in the next two years, while providing some information about which company is involved in the talks.
Prince Mohammed, the country’s de facto ruler, said, “I don’t want to make any guarantees about deals finalising, but there are talks going on right now about a 1 percent takeover by one of the world’s leading energy firms.I can’t say who it is, but it’s a big corporation. This agreement may be critical in bolstering Aramco’s revenues in the country where it is based.”
Saudi Arabian oil is mostly purchased by China. According to Bloomberg reports, the Asian country received nearly 30 percent of the kingdom’s crude exports in the previous month. The following importers were Japan, South Korea, and India.
Aramco wants to expand its presence in India, which was the fastest-growing market for oil consumption before the pandemic. However, the company is up against stiff competition from other manufacturers, and Indian refiners are among the world’s most price-sensitive.
The crown prince is relying more and more on Saudi Aramco, the world’s largest oil firm, to help fund his Vision 2030 programme, which aims to change and diversify the Saudi economy. Investors were alarmed by the kingdom’s domestic political crackdown and the murder of Saudi journalist Jamal Khashoggi in 2018, and then by the Covid-19 pandemic in 2019.
Aramco received about $30 billion in its initial public offering in 2019, when it sold around 2 percent of its shares on the Riyadh stock exchange. The funds were allocated to the kingdom’s sovereign wealth fund to finance investments aimed at weaning the largest Arab economy away from oil sales. Since then, Aramco has taken on debt and begun selling off non-core properties, in order to retain a $75 billion dividend, the majority of which is paid to the government of Saudi Arabia.
Despite the fact that Aramco’s initial public offering (IPO) was the world’s largest, the bulk of the funds were raised from Saudi families and local investors. The valuation turned off several international investors, who withdrew. The sale only brought in a fraction of the expected $100 billion.Prince Mohammed stated that the company could sell additional shares on the Saudi stock exchange, but did not specify a timeline.
The kingdom is constantly looking for ways to benefit from the riches of Saudi Aramco. A US-led group will invest $12.4 billion in the country’s oil pipelines, the company revealed earlier this month. Bloomberg announced this week that the group is considering a contract for gas pipelines. Separately, Aramco has begun a strategic analysis of its upstream oil and gas properties, with the possibility of opening them up to foreign investors.
According to the crown prince, Saudi Arabia would most likely need to increase crude production even more, to meet rising demand over the next two decades. Although Chinese and Indian consumers consume more, production from producers such as the United States and Russia is expected to decline over the next 10-20 years, leaving a supply gap for Saudi Arabia to fill, according to Prince Mohammed.
Even if more gloomy predictions predicting a drop in demand by 2030 come true, supply would fall even faster, allowing Saudi Arabia to sell more oil, he said. Prince Mohammed did not specify the amount by which the country intended to increase production.
Last year, the government said it had told Aramco to raise its overall production capacity to 13 million barrels per day, up from the current 12 million barrels. Chief executive officer Amin Naser said in March that the strategy is “progressing very well,” but he didn’t elaborate on the timeline. Saudi Arabia pumps about 10 million barrels per day on average, but production has slowed this year due to the economic downturn.
According to figures from the International Monetary Fund, the kingdom’s economy shrank the most in more than three decades last year. However, the situation has since changed. In 2021, the budget deficit is expected to be 4 percent of GDP, down from 12 percent last year. Prince Mohammed said the nation’s unemployment rate will decline as the economy recovers in a “V-shaped” pattern on the fifth anniversary of the launch of Vision 2030.
In an interview with Rotana Khalejia, he said, “Unemployment will fall to less than 11% this year, about 10% next year, and then to 7% in 2030.” After peaking at 14.9 percent in September, Saudi unemployment fell to 12.6 percent at the end of last year.
