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The End of Easy Oil Money for Saudi Arabia?
02/24/2024![The-End-of-Easy-Oil-Money-for-Saudi-Arabia](https://images2.rextag.com/public/blog/H246_Blog_The End of Easy Oil Money for Saudi Arabia_.png)
- Saudi Arabia's spending at home and abroad has led to a significant reduction in its sovereign wealth fund.
- The Public Investment Fund's assets decreased from over $105 billion in 2022 to about $37 billion by September.
- This reduction in assets is likely linked to Saudi Arabia's decision to cancel an oil production capacity expansion earlier this month.
Last year, Saudi Arabia's sovereign wealth fund spent more than any other country in the world, making up a quarter of the $124 billion total spent by such funds globally. The kingdom has been pouring money into huge projects both inside and outside its borders, including the ambitious $500-billion Neom City and launching a new airline.
Due to this massive spending spree, the Public Investment Fund saw its cash and assets decrease from over $105 billion in 2022 to around $37 billion by September, as the Wall Street Journal reported. With oil prices hovering around $80 per barrel, financing these large-scale projects is becoming more difficult.
Saudi Arabia has been working hard to maintain high oil prices to fund Vision 2030, Crown Prince Mohammed's initiative to diversify the economy beyond oil. However, the kingdom is finding it challenging to balance this ambitious plan with the realities of its oil-dependent economy.
The drop in the sovereign wealth fund's assets might be a reason Saudi Arabia recently decided not to go through with expanding its oil production capacity. Energy Minister Abdulaziz bin Salman mentioned shifting investments within Aramco and focusing more on transitioning to renewable energy as reasons for this change.
Abdulaziz bin Salman pointed out that current production limits provide a safety net of about 3 million barrels per day in spare capacity, should there be a sudden tightening in supply. However, it's uncertain if Saudi Arabia would utilize this buffer in the event of a supply disruption, especially considering the country's extensive investment in projects costing over a trillion dollars.
Aramco recently shared a stark update on the state of global oil production, noting a significant drop. The company's CFO highlighted a yearly loss of 6 million BOE/D due to natural declines and insufficient efforts to find new reserves. This drop has led to a severe cut in the spare production capacity to just 3% of worldwide demand.
The Saudi energy giant has long cautioned that without more investment in exploration and future oil production, the industry faces a critical situation. This concern is especially pressing if OPEC's demand forecasts prove more accurate than those of the IEA.
This potential crisis could benefit Saudi Arabia by driving up oil prices to levels that would support the kingdom's ambitious plans to diversify its economy beyond oil. The big question remains: how long will Saudi Arabia need to wait for this shift, and what steps will it take in the interim? Currently, it's turning to the debt markets for solutions.
In the past year, the Public Investment Fund has gone to market twice, issuing a $5.5 billion bond, including a green bond, and a $3.5 billion dollar-denominated sukuk. Additionally, Saudi Arabia raised $12 billion in January this year through bonds, attracting $30 billion in orders due to high demand.
Aramco itself is looking to issue more debt, with plans for longer maturity bonds and even considering selling more stock, as mentioned by CFO Ziad Al-Murshed.
As the kingdom eyes lower interest rates, the attractiveness of borrowing grows, signaling more debt issuances may be on the horizon.
Moreover, the potential for higher oil prices (by expectations of slower U.S. production growth) adds another layer to the financial strategy. This slowdown could mean more centralized control over shale production.
Saudi Arabia is not short on ambition, with plans to venture into electric vehicle manufacturing, establish a new e-sports and video game industry, and significantly invest in local soccer. Realizing these grand visions will require substantial financial resources, and the kingdom appears ready to leverage every available option to make these dreams a reality.
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Tenaris Acquires Mattr's Pipe Coating Division for $166 Million
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Tenaris has successfully finalized the purchase of Mattr's Pipe Coating Division, previously known as Shawcor, for a total of $182.6 million. This figure includes working capital and $16.9 million in cash. Announced back on August 14, 2023, the acquisition has now received the green light from regulatory bodies in both Mexico and Norway.
Oil and Gas: Diamondback and Endeavor's $26 Billion Merger Redefines Permian Basin
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Diamondback's buyout of Endeavor happened about four months after ExxonMobil and Chevron made huge deals, with Exxon buying Pioneer Natural Resources for $59 billion and Chevron getting Hess for $53 billion. Even though 2023 was a slow year for company buyouts and mergers, with the total deals at $3.2 trillion (the lowest since 2013 and 47% less than the $6 trillion peak in 2021), the energy sector was still active. Experts think this buzz in energy deals is because these companies made a lot of money in 2022.
![$data['article']['post_image_alt']](https://images2.rextag.com/public/blog/297_Blog_Keystone XL Pipeline Controversy and Wildlife Disaster From Trump's Green Light to Biden's Red Light on the 15 Billion Project.jpg)
The pipeline industry in the USA faced and still faces a range of regulatory challenges, including permitting delays, environmental requirements, and public opposition to pipeline projects. In recent years, pipeline projects like the Keystone XL and Dakota Access pipelines had legal and regulatory obstacles that delayed or canceled their construction. Keystone XL Pipeline, proposed by TransCanada in 2008, aimed to transport crude oil from Canada (around Calgary and Edmonton) to refineries on the Gulf Coast (Port Arthur). The project faced opposition from environmental groups and indigenous communities, who argued that it would contribute to climate change and pose a risk to water resources. In 2015, President Obama rejected the project, citing concerns about its environmental impact. However, in 2017, President Trump revived the project, leading to further legal challenges. In June 2021, U.S. President Joe Biden officially canceled the project on his first day in office.
![$data['article']['post_image_alt']](https://images2.rextag.com/public/blog/282_Blog_Renewable Natural Gas How RNG Changes the Industry.jpg)
The renewable natural gas (RNG) industry in the United States is showing promising signs of growth. As of 2019, the U.S. consumed 261 billion cubic feet (BCF) of RNG, primarily utilized by independent power producers, electric utilities, and various commercial and industrial entities. However, this figure represents only a small fraction of its potential. Research indicates that the U.S. could theoretically produce up to 2,200 BCF of RNG through anaerobic digestion alone, which would equate to about 11% of daily national natural gas consumption.
![$data['article']['post_image_alt']](https://images2.rextag.com/public/blog/295_Blog_Renewable Efforts Lag as Global Oil and Gas Demand Continues to Rise.jpg)
Recently, the progress toward an energy transition is hitting a snag. Sales of electric vehicles are decelerating, and the growth in wind and solar power needs to be keeping pace with expectations. To make matters more challenging, electricity prices are climbing when they were expected to fall. Amidst these setbacks, the oil and gas sectors are proving resilient. According to BP's latest energy outlook, not only are these energy mainstays here to stay, but their demand is expected to remain relatively high even after reaching a peak. Interestingly, BP forecasts that oil demand will reach its zenith next year, marking a critical moment in energy consumption trends. This isn't the first time BP has projected a peak in oil demand. Back in 2019, their review anticipated a decline in demand growth, but the prediction fell flat. Instead, oil demand surged to unprecedented levels following the end of the global pandemic lockdowns, defying previous forecasts and underscoring the enduring dominance of traditional energy sources in the global market.