Daily Management Review

Saudis considering gas investments before Aramco's IPO


04/11/2017


Saudi Arabia and international oil companies discussed a possibility of investing in gas business in the kingdom and beyond, as the country seeks to diversify its investments before the IPO of the energy giant Saudi Aramco, Reuters reports.



Gerry Dincher
Gerry Dincher
Saudi officials and a number of companies, including BP and Chevron, have studied investment opportunities to help develop the country’s gas reserves, the sixth largest in the world, during the booming energy demand in the region, four sources said. According to them, Aramco is also considering a possibility of investing in gas projects abroad, including with the Italian Eni.

Saudi Arabia has already negotiated with world companies in the late 1990s and early 2000s. – there was the so-called "Saudi Gas Initiative". However, these negotiations for the most part ended in failure, as the parties could not agree on profit from the investment. 

Now Aramco is preparing to place its shares on a stock exchange next year. Aramco's IPO will be held within plan of Crown Prince Mohammed bin Salman to create the world's largest sovereign investment fund and reduce dependence of the economy on the hydrocarbons. According to the kingdom’s calculations, Saudi Aramco can be estimated at about $ 2 trillion. 

"We have long-standing relations with Saudi Arabia, so we often negotiate with them. We always have discussions about business development, I cannot say anything definite about Saudi Arabia," Chevron’s CEO John Watson told Reuters last week.

BP’s CEO Bob Dudley, who visited Saudi Arabia late last year, said that he leaves open a possibility of "creative partnership" with Aramco, but BP's direct investment in an IPO is unlikely.

The kingdom has a long-term goal - to increase the use of gas to generate electricity, while reducing oil consumption within the country and releasing more oil for export.

This can help increase value of Aramco, as it receives more revenue from exports than from sale of oil in the domestic market at lower prices. Saudi Arabia is the fifth largest oil consumer in the world, despite the fact that it has only the 20th largest economy.

Saudi Energy Minister Khalid al-Falih said last year that Aramco is interested in investing in international mining companies, especially in the gas sector, and can invest in gas imports to the kingdom.

Diversification of gas assets abroad will help Aramco achieve a better estimate, which will attract investors, sources in the industry say. Riyadh also plans to raise domestic gas prices, which will serve as an incentive for foreign companies. 

source: reuters.com






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