Saudi Aramco CEO on oil markets: The worst is behind us

July 1, 2020
The worst is behind us in oil markets, says Saudi Aramco President and Chief Executive Officer Amin H. Nasser in the latest edition of CERAWeek Conversations.

The worst is behind us in oil markets, says Saudi Aramco President and Chief Executive Officer Amin H. Nasser in the latest edition of CERAWeek Conversations. Already-recovering demand has him “very optimistic” for the second half of 2020 and countries are now better prepared for a second wave of COVID-19 if and when it occurs.

In a conversation with Daniel Yergin, vice chairman, IHS Markit, Nasser talks about maintaining operations during the pandemic and how the 2012 MERS (Middle East Respiratory Syndrome Coronavirus) outbreak better prepared Saudi Aramco for COVID-19; the importance of shorter, more resilient supply chains; applying lessons from the US in developing its own shale resources; the strategy behind the acquisition of SABIC, and more.

  1. On Saudi Aramco being a publicly listed company:

“There is not much change except that it is more formalized now. We have been working as if we were a listed company before. We had one shareholder, but we were giving the same reports to our shareholders. COVID-19 started impacting the business from February going on. But in terms of the way we are doing business, not much changed, except now we see the results and the sentiment in the market by looking at the share price every day. Other than that – more communication that we are doing now with analysts and more shareholders to deal with.”

  1. The near-term outlook for oil markets:

“The worst is behind us. We went from -$40 to +$40 with WTI. In April we were looking at demand of about 75-80 million b/d with significant supply at that time. Currently you are looking at almost close to 90 million b/d. I’m very optimistic about the second half of this year. We see it in China today—it’s almost at 90%. In gasoline it’s around 95% in China. Gasoline and diesel are picking up to pre-COVID levels. Jet fuel is still lagging in terms of less air travel. More countries will start opening up. So, we see that reflected in the demand on crude.

“There are different forecasts looking at 95-97 million b/d by yearend. So, it will all depend on whether there will be a second wave of coronavirus or not. But I am also not as concerned about a second wave because I think we are much better prepared now. All countries, all medical establishments are much better prepared. We learned a lot during the first wave.”

  1. Saudi Aramco and COVID-19

“Even though [MERS] had less of an impact compared to COVID-19 we learned a lot of lessons during that time that helped us with COVID-19. We started that join venture with Johns Hopkins University in 2013 and it put us in a very good position in terms of tackling COVID-19.”

“The work between a corporation and an excellent medical provider definitely had its value because a pandemic is a sub-risk when we look at corporate risk for Saudi Aramco. Our preparation and readiness started much earlier than everybody else. For us, preparing for COVID-19 started early on in February working with Johns Hopkins and making sure we had all the necessary supplies available before that panic happened in March and April.”

  1. On flexibility of production

“You need to look at your subsurface, the surface facilities, and then your export infrastructure and making sure they are very reliable and tested for this. When we tested the whole system in 20 days to bring it from 9.7 million b/d to 12 million b/d—all of that you needed to make sure all your pump compressor system, including your export facilities, are working smoothly.

“Thanks to the professionalism and the commitment of the men and women from Saudi Aramco and the backing from their families, which was very important and critical because they did it during a pandemic where they are working remote fields, we had to use all of our workforce working full-time to put the maximum sustained capacity and making sure we maintained the highest reliability ever which is more than 99%.”

  1. On recent crises and the importance of resilient, shorter supply chains

“We have seen a lot of plants and factories and suppliers that support Saudi Aramco from Europe, including China and other places—they had to shut down because of the lockdown. That impacted us for a while. But because of the optimum level of inventory that we have and because of our in-Kingdom total value add, which is our local content—we are at 56% so a lot of things are being manufactured in the Kingdom—it helped us a lot.

“It helped us also during the crisis when we had the attacks on Khurais and Abqaiq. COVID-19 further confirmed that having your supply chain closer to you is very important. Globalization, when it comes to supply chains, is definitely successful and worked. But we are seeing, because of either the critical nature of the incident we had at Abqaiq and Khurais, or the lockdown that happened in different countries, having it closer to end use is very important these days.”

  1. On the quick bounce back post-Abqaiq and Khurais:

“Our supply chain was optimum, and we had all the needed spare parts and equipment to put the facilities back on. And also, our partners in-Kingdom and around the world helped a lot for us to restore these facilities. Everything worked together from a supply chain [perspective], from having the right trained and experienced workforce that knew what needs to be done during a crisis of this nature, and also the business continuity, the preparedness.

“We promised to bring the facility [back on] in days, rather than months. And through the talented men and women of Saudi Aramco we were able to bring these facilities on in days instead of months successfully, reliably, and no supplies to our international customers were interrupted even during the attacks.”

  1. On Saudi Aramco’s investments in unconventionals and lessons learned from the US model:

“The program is very successful in terms of the shale types that we are identifying. There are some similarities with what’s available in the US. Our basins, especially the Jafurah, are very rich with liquids. That definitely will help when it comes to the economics. The learning curve was very quick in terms of reaching a point where the cost is close to how much it costs in the US.

“We had to change our operation to something similar to the US. We put the project management, the operation, the explorer, everybody in one organization, and unconventional gas was done differently than what we do with other things in Saudi Aramco; because we learned from the US experience [that] speed, efficiency matters when it comes to unconventionals.”

  1. The strategic plan behind the SABIC acquisition:

“We acquired a 70% stake in SABIC. SABIC is definitely a global and a leading company when it comes to petrochemicals. Our aspiration from the beginning when we started our strategy plans, we decided that we needed to be a leading energy and petrochemical company. We have a leading position when it comes to upstream and refining. We needed to integrate further our refinery with petrochemical; in addition, we are looking at crude-to-chemicals. We could not do all of these aspirations in terms of adding value, extracting more value from our barrels, without a big acquisition.

“SABIC was ideal. It’s run based on best-in-class when it comes to operations. It works in more than 50 countries. There’s a lot of synergy with Saudi Aramco; we operate also in similar markets. There’s a lot of value that can be extracted by acquiring a significant position in SABIC. I’m sure we can achieve our goals of adding value to our shareholders, both shareholders in SABIC and Saudi Aramco, by turning our feedstock to petrochemicals and adding value. Crude-to-chemicals is very important to Aramco.”