middle east oil companies have begun to accelerate the pace of diversification and transformation and promote the transformation of the country's economy
article | caijing reporter xu peiyufrom september 10th to 13th, premier li qiang visited saudi arabia and the united arab emirates, and led chinese enterprises to hold discussions and exchanges with representatives of the business communities of saudi arabia and the united arab emirates respectively. participants in the discussion included traditional energy companies such as petrochina and sinopec, as well as envision,trina solarwait for new energy companies.
the lineup of chinese companies accompanying premier li qiang to the middle east reflects the new trend of middle east oil companies and middle east countries striving to reduce their dependence on oil and gas resources and actively participating in downstream chemical industries and new energy.
in july 2024, senior executives of the saudi public investment fund (pif) visited china and met withtcl central、jinkosolarsigned an agreement with three chinese new energy companies of envision technology group. the three companies will build factories in saudi arabia to manufacture photovoltaic silicon wafers, cells, components and wind power equipment.
relying on abundant oil and gas resources, middle east oil companies are some of the most profitable companies in the world. its leader, saudi aramco, has a net profit of us$121.3 billion in 2023, ranking first among listed companies in the world. qatar energy company, which has grown rapidly relying on natural gas, has a net profit of us$42.4 billion in 2022 (according to the fortune arabia 500 list). abu dhabi national oil company (adnoc) is not listed as a whole. its sustainability report states that adnoc will bring us$11.2 billion in revenue to the uae in 2023.
in order to cope with the situation that the peak of oil consumption is about to pass, middle east oil companies have embarked on a diversified transformation. there are two main types of transformation initiatives: one is to change the upstream-focused business structure and acquire midstream and downstream assets, such as saudi aramco’s acquisition of equity interests in many chinese private petrochemical companies; the second is to establish joint ventures or wholly-owned enterprises in new energy and new technologies. companies, such as adnoc's solar development company abu dhabi future energy company (masdar), have built more than 20 gigawatts (gw) of new energy power stations by the end of 2023.
dai sipan, chief economist of british petroleum group (bp), told the "finance" reporter that chemical raw materials are the most difficult to reduce among all types of oil demand. therefore, it is valuable for middle east oil producers to invest in downstream chemical projects. this provides it identifies stable downstream demand. on the other hand, the middle eastrenewable energyresources are also relatively abundant. the sun is strong during the day and the wind is strong at night, so it is natural for middle east oil producers to start paying attention to the development of renewable energy.
however, middle east oil companies are still continuing to increase reserves and increase production. after all, their current and medium-term jobs are still selling oil and gas. wang nengquan, a member of the expert advisory committee of the national energy commission, told caijing reporters that the core reason why middle east oil companies invest in or acquire midstream and downstream projects is to ensure upstream sales, which is their most important priority. as for the long-term operations of acquired midstream and downstream assets and invested new energy companies, it also depends on the specific pace of global energy and economic transformation in the future.
the operating conditions of middle east oil companies also directly affect the transformation of middle eastern countries. the fiscal revenue of middle eastern countries is highly dependent on oil and gas, and the transformation of oil companies is more urgent than that of oil companies. the sovereign funds of middle eastern countries have now invested more in new energy, low-carbon technology and other fields, and have also invested part of their funds in china.
invest downstream to expand the resource value chain
middle east oil companies, which are rich in oil and gas, have never worried about the market for more than half a century. since oil surpassed coal to become the world's leading energy source in 1965, oil and natural gas have been the main force in global energy consumption. the "2024 world energy statistical yearbook" released by the energy institute in june 2024 shows that global oil and natural gas will account for 49% of total energy consumption in 2023.
at present, the dominant position of oil and gas has not changed, but middle east oil companies have also begun to worry about the downstream market. because the oil market supply has changed from tight to loose, and will become a long-term state. the international energy agency (iea) predicts that global oil demand will peak in 2030. china, an important driver of global oil demand growth, will also usher in a peak demand for refined oil products. the "2023 oil and gas industry development report" released by the china national petroleum corporation economic and technology research institute predicts that china's demand for refined oil may reach its peak before 2025.
at present, the consumption of petroleum as fuel in the transportation industry accounts for about 60% of total petroleum consumption, and chemical raw materials account for about 30%. the industry believes that this ratio will reverse in the next 20 years. this means that the customer base of oil companies is gradually changing.
the trend that oil consumption is about to decline and that consumers are undergoing drastic changes began to emerge four or five years ago, and has become clearer in the past year or two. the pace of diversification transformation of middle east oil companies is basically in sync with this trend.
investing in new energy and new technologies requires a substantial capital base. the relatively high international oil and gas prices in the past two years have supported the diversified investment plans of middle east oil companies. since 2022, international oil prices have been at a high of above us$80/barrel. the "world energy statistics 2024" report shows that in 2023, the international crude oil trading benchmark price brent oil price will average us$83/barrel, 18% lower than in 2022 and 29% higher than before the epidemic.
many analysts believe that us$80/barrel to us$90/barrel is the most ideal price range for middle east oil companies. this will not only ensure that oil companies can obtain better profits, so that the entire country's fiscal revenue will not be in deficit, but will also not reduce the competitiveness of petroleum products and avoid a rapid decline in the oil market share.
after being listed on december 11, 2019, saudi aramco has entered a stage of large-scale external acquisitions. the year after its listing, saudi aramco completed the acquisition of 70% of saudi basic industries corporation for $69.1 billion in cash to enhance its refining and chemical capabilities.
in the past two years, saudi aramco’s downstream investment has accelerated. amin nasser, president and ceo of saudi aramco, said in mid-2023 that saudi aramco has launched the largest capital expenditure plan in history in order to increase oil and gas production capacity and expand downstream operations. in china, saudi aramco also frequently takes action. according to a search of public information, saudi aramco’s investment in china in 2023 will exceed 32.9 billion yuan. among them, the main investment targets are the mid-stream and downstream businesses of the petroleum industry, that is, refining and chemical integration projects.
another transformation activist among middle eastern oil companies is adnoc. on november 28, 2022, the adnoc board of directors announced at its annual meeting that capital expenditures in the next five years will reach us$150 billion and it will acquire foreign assets on a large scale. the focus is on european chemical companies, including german plastics and chemicals manufacturer covestro, austrian chemical giant omv, and dutch methanol producer fertiglobe. on january 23, 2024, the adnoc annual board meeting chaired by uae president sheikh mohammed announced that us$23 billion would be allocated for decarbonization and low-carbon projects in the future.
on october 1, adnoc reached an investment agreement with german chemical giant covestro. adnoc acquired all issued shares of covestro at a price of 62 euros per share, with a total value of 11.7 billion euros, and subscribed to covestro at a price of 62 euros per share. an additional 10% of the shares were issued, worth 1.17 billion euros. therefore, the total transaction value was as high as 12.87 billion euros. subject to approval by covestro shareholders and relevant regulatory authorities, the acquisition will become the largest transaction in the global chemical industry.
the advantages of middle east oil companies are abundant upstream resources and sufficient funds, but their disadvantages are also obvious. they lack midstream refining technology and most of the downstream markets rely on the international market. therefore, most of the midstream and downstream assets it acquires are only financial investments and are not deeply involved in management.
invest in new energy and promote low-carbon transformation
in addition to expanding downstream, middle east oil companies with abundant cash are also increasing investment in new energy and new technologies in an attempt to keep up with the direction of energy transformation.saudi aramco invests in non-oil assets mainly through its own venture capital company, which manages three funds, namely: digital/industrial fund with a scale of us$500 million, which invests in technology fields that are strategic for the company's development; prosperity7 fund it has a scale of us$1 billion and has offices in beijing and shanghai. it focuses on investing in disruptive technology companies outside the energy field. the special fund for sustainable development has a scale of us$1.5 billion and focuses on investment in start-up companies. a press release issued by saudi aramco stated that the venture capital project will promote the company’s long-term strategy, including focusing on the development of new energy, chemicals and transition materials, diversified industrial businesses, and digital technologies.amin nasser stated at the world economic forum held in riyadh, the capital of saudi arabia, on april 29, 2024 that saudi aramco is actively investing in the development of new technologies and new energy and looks forward to cooperating with partners outside saudi arabia.adnoc is the first oil company in the middle east to commit to net-zero emissions by 2045. adnoc has established a business unit called low carbon solutions and international growth, focusing on the development of new energy, natural gas, lng (liquefied natural gas) and chemicals. in addition, adnoc has established a subsidiary, masdar, which specializes in developing photovoltaic power generation.adnoc's 2023 sustainability report lists a number of its low-carbon development goals in recent years, including: producing 1 million tons of low-carbon ammonia every year, safely storing 10 million tons of carbon dioxide every year, and reducing operational emission intensity by 25% by 2025 (based on 2019 year-on-year basis), captures 5% of the global low-carbon hydrogen market, achieves near-zero methane emissions in operations, and deploys 100 gw of renewable energy generation capacity.sultan jaber, managing director and group ceo of adnoc, served as president of the 28th conference of the parties (cop28) of the united nations framework convention on climate change to be held in dubai, united arab emirates, in december 2023. it promoted the "uae consensus", calling on countries to "reduce the dependence of energy systems on fossil fuels in a just, orderly and equitable manner, and accelerate action in this critical decade to achieve net zero consistent with science by 2050" emission".although oman’s national oil company oq is not large, its transformation momentum is not low. on may 20, 2021, oq announced that it will develop a large-scale integrated green fuel project in oman, build a solar and wind power plant with a power generation capacity of 25 gw, and also produce millions of tons of green hydrogen per year. oq is committed to achieving net zero emissions by 2050. by 2030, oq aims to reduce carbon emissions by 25% compared to 2021.qatar petroleum, founded in 1974, was renamed qatar energy in october 2021 and is actively promoting energy transformation. the title of qatar energy's 2023 sustainability report is "your energy transition partner". qatar energy believes that natural gas is a transitional energy source for the energy transition. while oil demand declines, natural gas demand will rise significantly, and natural gas is the best choice for peaking renewable energy.the scale of investment in new energy by middle east oil companies is increasing, but compared with the scale of their oil and gas business, it is still a drop in the bucket. wang nengquan believes that middle east oil companies still believe that the prospects of oil and gas are better. they invest in new energy and new technologies just to cope with the new international political situation and to prevent themselves from falling behind in the new economic system. this can be regarded as a insurance.according to a previous article written by shang yanli, director of the middle east research office of the china national petroleum corporation economic and technology research institute, from 2021 to 2030, the proportion of non-hydropower renewable energy power generation capacity in the middle east is expected to only increase from about 3% in 2020 to 2030. about 11% in 2017, far lower than the 70% share of natural gas power generation in this region. from a global perspective, in 2030, non-hydropower renewable energy power generation capacity in the middle east and north africa will account for only 1% of the world's total power generation capacity, which is equivalent to sub-saharan africa and ranks last in the world.from corporate transformation to national transformationthe capital-rich middle east oil companies have not only given themselves the confidence to invest in non-oil products, but also provided a financial foundation for the economic transformation of their home countries, promoting the transformation of the national economy from oil and gas resources to diversification.middle eastern countries began to establish national sovereign funds in the 1960s. the main goal at that time was to increase and preserve the value of fiscal revenue. in the past two years, sovereign funds from middle eastern countries have increasingly invested in new energy and new technologies.according to statistics from the sovereign wealth fund institute swfi, in 2023, the asset management scale of sovereign funds in the gulf cooperation council (gcc), namely saudi arabia, the united arab emirates, qatar, kuwait, oman and bahrain, reached a historical peak of us$4.1 trillion, with transaction volume reaching $82.3 billion, slightly lower than in 2022.the "2024 middle east investment and m&a trends report" released by pwc stated that the investment portfolios of sovereign wealth funds and government-related entities in the middle east have been significantly diversified compared with before, and infrastructure and renewable energy are the focus of their investments. deal activity in the middle east in 2023 is primarily aimed at accelerating the energy transition, in line with the region’s ambitious net zero targets.among them, the saudi sovereign wealth fund pif made a total of 49 investments in 2023, totaling us$31.6 billion, an increase of 33% from 2022. it is expected that by 2030, its assets will reach us$2 trillion, becoming the top two sovereign wealth funds in the world. in 2023, saudi pif and four other middle eastern countries’ sovereign wealth funds (three abu dhabi sovereign wealth funds, namely adia, mubadala, adq, and qatar’s qia) once again ranked among the top ten most active traders in the world. among the list.relying on the foreign investment of sovereign wealth funds, the economic diversification transformation of middle eastern countries is faster than that of middle east oil companies. before saudi aramco's active foreign acquisitions, saudi arabia promulgated the "vision 2030" national development strategy in 2016, planning to increase investment in the non-oil field, emerging technologies and private enterprises. saudi pif is a key driver of the country’s vision 2030 and transformation.in 2019, saudi arabia launched the national industrial development and logistics plan (nidlp) to promote saudi arabia's transformation into a global leader in energy, mining, logistics and industry. saudi arabia plans to reach net-zero emissions by 2060.saudi arabia's mineral resources are accelerating exploration and development, and saudi arabia's official valuation of its domestic mineral resources is us$1.3 trillion. saudi arabia is trying to build its leading position in the mining industry by optimizing industrial regulations and legislation. saudi arabia has also launched an "industrial strategy" to ensure saudi arabia's position in the global supply chain and promote the international export of its high-tech products.the saudi nidlp 2023 annual report stated that in 2023, the non-oil industry accounted for 50% of saudi arabia's gross domestic product (gdp) for the first time in history, a 74% jump compared to 2022.the uae has developed the uae energy strategy 2050 and will update the strategy in 2023. the updated strategic goals include: increasing energy consumption efficiency to 42%-45% by 2030, and increasing clean energy installed capacity to 19.8 gw, accounting for 30% of the total energy structure. by 2050, 44% of energy supply will come from renewable energy, 6% from nuclear power, 38% from natural gas, and 12% from the clean utilization of coal, achieving net zero emissions of greenhouse gases.the "2024 middle east investment and m&a trend report" states that saudi arabia and the uae are leaders in the clean energy field in the middle east and are actively exploring renewable energy. this is reflected in the foreign investment and m&a actions of middle east sovereign funds. the sovereign funds of saudi arabia and the uae all have pledged to achieve net-zero emissions by 2050. the region will play a key role in global efforts to mitigate climate change as countries in the middle east struggle to wean themselves off dependence on oil and gas revenues.under the guidance of diversified policies, new energy companies have begun to receive more attention in the middle east. local uae solar developer yellow door energy completed a $400 million financing round in 2022. adnoc-owned masdar's growth target is to reach at least 100 gigawatts of renewable energy generation capacity and up to 1 million tons of green hydrogen by 2030.saudi arabia's acwa electric power company and the united arab emirates' masdar have also begun large-scale investments in solar and wind energy businesses outside the middle east. the two companies have each signed 10 gw of wind power and other new energy power generation project contracts with the egyptian government. masdar is also making frequent moves in europe and has won contracts to develop new energy sources in greece and spain.hydrogen energy is a key new energy industry that middle eastern countries are optimistic about. saudi utility developer acwa power company and american air products company signed a contract to build a green hydrogen project worth us$5 billion in neom new city in saudi arabia. this is the largest green hydrogen project in the world and is scheduled to be put into operation in 2025. in addition, ta'ziz company in abu dhabi, united arab emirates, and saudi companies have increased investment activities in the hydrogen energy industry.in september 2020, saudi arabia exported the world's first batch of 40 tons of blue ammonia (an industrial gas produced based on hydrogen, which is more stable than hydrogen) to japan. the saudi government and saudi aramco are seeking partners in key global markets and seeking to expand hydrogen energy exports.qatar has established a company specializing in the development of new energy - qatar hydropower corporation. the company develops and is responsible for organizing the implementation of the qatar national renewable energy strategy (qnres), which aims to increase the use and diversification of renewable energy. its goal is to expand large-scale renewable energy facilities to about 4 million kilowatts, while installing about 200 megawatts of distributed solar power generation equipment.zou zhiqiang, a researcher at the middle east research center of fudan university, told caijing that the middle east petroleum company controls oil and gas resources on behalf of the country, and its income will naturally support the economic development and transformation of the entire country. with the transformation of the global economy towards low-carbonization, the foreign investment of middle eastern countries' sovereign funds has been adjusted from the main goal of maintaining and increasing value to taking into account both national economic security and energy security. therefore, its foreign investment structure has also changed, and it has begun to invest in new energy and new technology projects in emerging markets such as china; however, currently 78% of its foreign investment is still invested in mature markets in europe and the united states, and a larger proportion of changes are needed. time.editor | wang yi
