Saudi Aramco capacity increase on course; Reliance deal in question: Nasser

Saudi Aramco is continuing with plans to increase its maximum sustained capacity to 13 million b/d from 12 million b/d, despite the market downturn caused by the coronavirus pandemic, company President and CEO Amin Nasser has said.

The capacity hike, which was first announced in March, will not have a significant impact on the oil giant’s capex commitments for 2021, as it will be gradually expanded over a period of years, said Nasser, on a call to analysts and investors following the company’s Q2 results announcement Aug. 9.

The expansion follows Aramco hitting a new maximum production rate of 12.1 million b/d in April.

“We demonstrated that the maximum sustained capacity is solid for when it needs to be utilized. Not only from the upstream side but from the export side and terminals,” Nasser said. “The MSC is available for one year without any increase in capital.”

On the call, the company also threw its announced acquisition of a 20% stake of Reliance Industries’ oil-to-chemical business somewhat into doubt.

“The Reliance deal is going through the due diligence and we will make our decision after the due diligence,” Nasser said. “We need to take our time and then decide.”

The deal, which was first announced in August 2019, was originally set to be concluded before the end of March. Upon completion, it will enable to Saudi Arabia to expand its burgeoning footprint in India’s fast-growing refining sector. Progress of the deal has been impacted by the pandemic.

Aramco’s company’s capex plans for next year will also be curtailed.

“We had previously given a guidance of $40 billion to $45 billion for next year and we are expecting to be significantly lower than that,” Nasser said. “We will be looking at our flexible capital and our plan going forward.”

Aramco, which revealed a year-on-year drop in profits of 73% for Q2, is still grappling with demand levels that were diminished by the pandemic.

Saudi domestic demand is now between 4.3 million and 4.5 million barrels of oil equivalent, down from 4.7 million barrels pre-pandemic. During the peak of the crisis, domestic demand for gasoline fell by about 75% and jet fuel plummeted by 50%, Nasser said

“Our expectation is that global demand is around 90 million b/d, compared to 100 million b/d pre-Covid and our expectation is by year-end it will be in the mid-90s,” he said

For its crude exports, Aramco ships 75% to Asia, about 15% to Europe and 10% to North America. The company is currently exporting 1.6 million b/d to China, which is lower than pre-pandemic levels, Nasser said.

The current breakdown of the company’s investments is 40% for crude, 30% for natural gas and 30% for downstream.

“Gas is a growth area for us, especially considering increasing gas demand in the kingdom,” Nasser said. “The Northern area is declining, but there is pick-up in the Eastern province, the Jafurah Basin and South Ghawar in conventional gas.”

Work on developing the Jafurah Basin, the biggest unconventional gas field in the country has been ongoing throughout the pandemic, confirmed Nasser.

Saudi Aramco said in February it plans to invest $110 billion to develop Jafurah, estimated to hold 200 Tcf of unconventional and unassociated gas. It expects production from the field to start in 2024 and reach about 2.2 Bcf/d of sales gas by 2036, it said at the time.

For its official selling prices for crude, the company’s continued aim to the price crude competitively in each market so it can meet its sales targets.

“Based on our assessment on the market, driven by demand and supply fundamentals. We get some feedback from buyers that we take into consideration,” Nasser said. “Aramco determines the price it charges for its crude based on multiple market factors, with differ in each region.”

Between 60% to 70% of its sales are based on Aramco’s Far East formula. Therefore, the realization was impacted by Oman and Dubai prices declining at a steep rate, as it represents 70% of Aramco’s sales, according to CFO Khalid H al-Dabbagh.
Source: Platts