Old habits die hard: Saudi Arabia struggles to end oil addiction
July 25, 2019 @ 11:11 UTC
Announcing his plan three years ago, the Crown Prince said Saudi Arabia must end its “oil addiction” to ensure the world’s biggest oil exporter and second largest producer cannot be “at the mercy of commodity price volatility or external markets.” He spoke after a fall in crude oil prices boosted the Saudi fiscal deficit to about 15% of gross domestic product in 2015, slowing government spending and economic growth. This year the deficit could hit 7% of GDP, according to the International Monetary Fund, as oil-related growth slows following production cuts led by the Organization of the Petroleum Exporting Countries.
Aramco is central to the Crown Prince’s reform plan in several ways, not least because its planned partial privatization will generate income for the reforms. The company has also been involved in most of the kingdom’s high-profile deals in the last two years as it increased investment in refining and petrochemicals. In that time, Aramco has announced at least $50 billion worth of investments in Saudi Arabia, Asia and the United States. It aims to almost triple its chemicals production to 34 million metric tons per year by 2030 and raise its global refining capacity to 8-10 million barrels per day (bpd) from more than 5 million bpd. In March last year, Aramco finalised a deal to buy a $7billion stake in a refinery and petrochemicals project with Malaysia’s Petronas. A month later, Nasser and a consortium of Indian companies signed the initial deal that would give Aramco a stake in the planned 1.2 million bpd refinery in India’s western Maharashtra state.
In February of this year, Aramco signed a $10 billion deal for a refining and petrochemical complex in China. Last month it signed 12 deals with South Korea worth billions of dollars, ranging from ship building to an expansion of a refinery owned by Aramco.
But overall, plans to wean Saudi Arabia of oil have advanced slowly. Few details have emerged of a $200-billion solar power-generation project announced by the PIF and Japan’s SoftBank in March 2018. It is unclear how or when the project will be executed, and Saudi’s Arabia’s energy ministry is moving ahead with its own solar projects. In a blow to potential investment, the image of Saudi Arabia and the reputation of the Crown Prince have been damaged by the murder of journalist Jamal Khashoggi in the Saudi consulate in Istanbul last year. Leading businessmen and politicians boycotted an investment forum meant to showcase the kingdom’s new future away from oil, and it was only big deals with Aramco that saved it.