Aramco CEO: Energy Transition Lacks 'Constructive Dialogue'

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Energy Intelligence’s 2020 Energy Executive of the Year, Amin Nasser, CEO of Saudi Aramco, the world’s number one oil firm, spoke to the Energy Intelligence Forum on the threats facing the energy industry, the state of the market, his firm’s strategy and the energy transition. Edited highlights follow.

Q. From your unique perspective as the world's biggest oil exporter, can you tell us how you see the Ukraine crisis and the current energy crisis in Europe reshaping the flows?

A. The crisis between Russia and Ukraine and the amount of production that Russia is contributing to the market is significant, and it has its own impact on the global energy supply. However, I need to say that we have seen the tightness in the market even before the crisis. The crisis between Russia and Ukraine only intensified what's happening [already]. The embargo will only happen in December and then the products [in] first quarter next year. For the time being, the more serious issue, I think, is gas and LNG. First of all, there's no spare capacity available in the market. These are all long-term contracts and also you need to build LNG terminals, receiving terminals, that will take a couple of years so it's a much bigger issue for gas and LNG than [for] crude oil.

Q. In the short term, how do you see this impacting Aramco operations? Are you finding that there is more demand in Europe? Will you be cutting allocations to Asia?

A. First, you know, to us, the Asian market is the main market. We have a lot of our investment in Asia, and we are going to grow the number of investments that we have in Asia. So, it is a very critical and important market. We have long-term customers, great relationships, and we also have long term contracts with these customers. So, we will maintain our position, and we didn't see any impact because of the shifting of barrels from Europe to Asia. We also maintain good markets in Europe and North America. And we will continue to meet the call on us to the extent possible in Europe because they are really facing problems right now.

Q. You mentioned the discounted barrels, the Russian discounts. Is that affecting at all Aramco operations in terms of market share? Are there [concerns]?

A. None whatsoever. Let me put it that way. Even with these discounts, as I said, we have long-term relations, long-term contracts. These markets, we have to also understand, they don't want to create an overdependence on one source.

Q. In your view, how prepared is Europe for the embargoes?

A. Crude oil, it's a fungible commodity. It will be shifting. The issue, I think, for Europe is gas and LNG because there is no spare capacity available. These are all in long-term contracts. As you drop supply coming from Russia, no one else really can step up and meet the additional demand. So, it is going to be a major issue for Europe when it comes to gas and LNG. For crude oil, you know, these are markets and you know the right price crude will be shifting from one location to the other.

Q. I know that the Jafoura sour gas field [in Saudi Arabia] is one of the priorities for Aramco. Is there a potential for Aramco to export gas?

A. We are going to export hydrogen, blue hydrogen. So, our priority, you know, we are expanding our gas by close to 60% over the next eight years, which is significant growth in gas, and this is to satisfy local demand and eliminate liquid burning in the kingdom. We have close to a million barrels liquid burning in the kingdom. It will improve the economics, in terms of using gas. It will reduce the emissions and it will also help Aramco because we receive power to the grid, in [terms of] Scope 2 emissions.

Some of the Jafoura gas will be going to blue hydrogen and will be exported to different markets. Similarly, you know, LNG and others will be considered based on supply and the kingdom's needs.

Q. Are you finding markets for blue hydrogen at the moment, and when do you think this market is going to develop?

A. I think the challenge for hydrogen is infrastructure and costs. Customers would like to have hydrogen but not at any cost. That is the issue. So, today, we are identifying customers based mainly in East Asia—Japan and Korea, South Korea, and some of the Europeans.

For the prices of hydrogen to go down, you need to scale up. So, when you scale up, you know, technologies will be developed and efficiencies and all of that you will be able to reduce costs. But if you are going to develop it now, you need an offtake agreement, for at least 15 to 20 years, in order to develop all of this blue hydrogen.

Q. Why is the oil market behaving the way it is? Why is there a pressure on prices when we're seeing tightness around supply and also around the spare capacity?

A. I think the market is focusing on short-term economics rather than supply fundamentals. They are focusing on what could happen to demand if a recession happened in different parts of the world. They are not focusing, as you mentioned, on supply fundamentals. Today, inventories are extremely low, spare capacity is also extremely low. And if China opens up a little bit, you will find out that spare capacity will be eroded completely. The aviation industries by the way, compared to pre-Covid levels, we are still 1.7 million barrels per day in jet fuel lower than pre-Covid. And the spare capacity that we have currently is like almost one and a half percent of total supply, talking about 100 million [barrels per day]. So, even if the aviation industry picks up, you will erode that spare capacity, and when you erode that spare capacity ... the world should be worried, because there is not going to be any buffer for any hiccup, any interruption, any unforeseen events anywhere in the world.

Today, what's happening to gas is the same, LNG, everything available is long-term contracts going to certain markets. There is no available capacity to meet any interruptions in the system.

Q.  That leads well into my next question about underinvestment. When do you believe that there's going to be a return of investment into the sector?

A. Unfortunately, the underinvestment is still going on. You know, it's the pressure the companies are seeing from regulators, policymakers, shareholders, about no need for investment.

We decided to go to 13 million b/d capacity in 2020. It's going to come in 2027. These things take time. So, we're talking about six to seven years from the time you take the decision for that additional barrels to come to the market. Unfortunately, because of all the pressure that we are seeing on companies, from different policymakers and regulators, and the sentiment that is there in the market, we see only short-cycle projects coming on, but not long-term projects that will sustain a plateau for a longer period of time. The increment we are talking about is going to sustain the plateau for 20 and 30 years. You need to believe in the long term.

Q. Can you tell us a little bit more about your plans to build capacity to 13 million b/d? Where are you exactly in the process? 

A. That additional capacity is coming mainly from offshore, a number of increments that we are bringing on stream. We are bringing Marjan, we are bringing Berri, Zuluf, heavy and also Safaniyah. Marjan and Berri is currently under construction, Zuluf contracts were awarded, and Safaniya is under FEED (front-end engineering and design). But progress is going very well. We are on target to meet our plan to add 1 million barrels, go from 12 million to 13 million barrels of capacity. 

Q. I am sure you've been asked this question a million times, but given the current market tightness, how fast could Aramco reach the 12 million b/d, and how long could you sustain it for?

A. You know, based on our maximum sustained capacity policy, it's 90 days to bring that capacity. But in 2020, we were asked by the Ministry of Energy... [and] we brought it in 30 days. But I said it before and I'm going to say it again, we should be really concerned if we reach that level, because it means you are running in the world with no spare capacity. You will have volatility and prices will escalate so fast. 

Q. Let's move to the demand side. Where does Aramco see it?

A. For us, what we believe is that demand will continue to grow to 2030 and beyond. And that's where we made the decision, as I said, in 2020, to expand our capacity to 13 million b/d.

If you think about it today, alternatives, solar, wind, only contribute 2% to the primary industry, 10% in electric power, electric cars 2% of the total global fleet. So, alternatives are not ready yet. Until they are ready, we need to work in parallel. We need to develop our oil and gas and make sure that we decarbonize our resources that by building carbon capture and sequestration. 

Also, we are involved in building our renewables, blue hydrogen, other means of alternatives to eliminate any emissions. We are for climate protection, but we need to work in parallel.

Look at what's happening globally today: 8 billion tons of coal [consumption]. This is the highest in history. So, if you think about it, we are transitioning to coal. Think about it. These are the signals. You know, affordability and availability is key. 

Q. You've mentioned renewables, and this is something that Aramco is working on, and you do have a net-zero target by 2050. What progress are you making towards reaching that target?

A. We are progressing very well. We issued our sustainability report this year. In that sustainability report we put our roadmap to achieve net zero Scope 1 and 2 by 2050. We had an interim target of reducing 52 million tons by 2035 compared to our baseline in 2018. We will be doing that by efficiency improvements in our existing facilities. By shifting the power sector to gas, we will reduce Scope 2 emissions coming to the company by carbon [capture and] sequestration [CCS]. 

The biggest element is CCS because we will be building the biggest [project] in the world. And of course, we will be building our low-carbon or no carbon energy in terms of renewables, blue hydrogens. At the same time, we're working on a lot of technologies that will also help us, in addition to nature-based solutions. We are talking about 300 million mangroves in kingdom and out of kingdom. And at the same time, we're working on deployment of separate carbon economies and creation of these separate carbon economies. Techniques and direct air capture, more engine efficiencies, and mobile CO2 capture, there's a lot of things that are part of our strategy to achieve our net zero Scope 1 and 2 by 2050.

Q. I don't know if you agree with me or not, but when we talk about the energy transition, usually what we see in the mass media are the extreme voices from both ends of the argument, and it ends up being a kind of shouting match. What is your view on arguments that oil companies should contribute to civil society?  

A. As I said, you know, we are for climate protection. And we are an integral part of the solution, the energy industry as a whole. We need to work together. We need to ensure that we have enough supplies of oil and gas with much less emissions than it is today going on. The energy industry has the experience. It has the capabilities, the subject matter experts to do the giga and mega projects, capabilities available for them to do all of these projects, in hydrogen—in green, blue, in renewables, in all of these things. 

Unfortunately, there is no constructive dialogue currently going on. Even though as I said, you see in some of these [demand] scenarios talking about 70 million [barrels per day of demand] in 2030. Why would you do an investment to start with if you are thinking in 2030 there will be 70 million barrels [per day of demand]? We need to have a much better dialogue, because this is only going to work if we put our heads together and find the solution to what's going on. Otherwise you will see more utilization of coal going on. And because we will need energy at the end of the day. So, I think the energy industry as a whole has the experience and capabilities available for creating the right transition that we're all aiming for.

Oil Supply, Upstream Projects, Capital Spending, Low-Carbon Policy, Forecasts, Carbon Capture (CCS), ENERGY INTELLIGENCE FORUM 2022
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