OIL AND GAS

OIL PIPELINE NETWORK ATTRACTS FOREIGN INVESTORS

A group of international investors bought a 49% stake in Aramco Oil Pipelines Company (AOPC), a unit of Saudi Aramco, for USD 12.4 billion.

The international investor consortium, including EIG and Mubadala, features a broad cross-section of investors from North America, Asia and the Middle East.

“This long-term investment by the consortium underscores the compelling investment opportunity presented by Aramco’s globally significant pipeline assets, the company’s robust long-term outlook and the attractiveness of the Kingdom of Saudi Arabia to institutional investors,” Aramco said.

As part of the transaction, first announced in April 2021, AOPC and Aramco entered into a 25-year lease and leaseback agreement for Aramco’s crude oil pipelines network. AOPC will receive a tariff payable by Aramco for crude oil flows, backed by minimum volume commitments.

Aramco will also remain a 51% majority stake in AOPC and retain full ownership and operational control of its pipeline network.

“It is a significant milestone that reflects the value of our assets and paves the way forward for our portfolio optimisation strategy,” said Amin H. Nasser, Aramco president and CEO. “We plan to continue to explore opportunities to capitalise on our industry-leading capabilities and attract the right type of investment to Saudi Arabia.”

 

DOLLAR-DENOMINATED SUKUK

In June, Aramco also successfully raised USD 6 billion, following the sale of US dollar-denominated Shariah-compliant securities to leading institutional investors.

The three-tranche issue included USD 1 billion set to mature in 2024, carrying a profit rate of 0.946%; USD 2 billion maturing in 2026, carrying a profit rate of 1.602%; and USD 3 billion maturing in 2031, carrying a profit rate of 2.694%.

Khalid Al-Dabbagh, Aramco senior vice president of Finance, Strategy and Development, said the issue garnered strong interest with orders exceeding USD 60 billion.

“The success of the transaction is a strong endorsement from the global investment community of our leading position in the industry, and our ability to deliver on our long-term business strategy. The issuance attracted more than 100 new investors across the globe,” Al-Dabbagh said.

Global oil prices have been trading above USD 75 per barrel, primarily due to OPEC’s effort to keep markets balanced. The group and its allies maintained their OPEC quota after being unable to come to a decision during its periodic meeting in July.

But the outlook for oil prices looks robust.

Energy prices gained 9.4% in June, following increases in all components – oil (+8.1%), coal (+21.4%), and natural gas (+13%), according to the World Bank. Non-energy prices eased 1.4%

“In the seven months since the last OPEC Conference, the global economy has shifted from reverse to forward gear. Global growth is now expected at 5.5% this year – from a contraction of 3.4% in 2020,” Dr Diamantino Pedro Azevedo, OPEC president, said at the 181st meeting of the OPEC Conference on 1 July 2021, via videoconference.

“The outlook for worldwide oil demand is also moving in the right direction, and is now on course to grow by 6 [million barrels per day] mbpd in 2021, after its turbulent 9.3 mbpd decline last year,” the president noted. “The latest OPEC Monthly Oil Market Report projects a strong rebound of oil demand in the second half of the year, putting us within striking distance of pre-pandemic levels in the fourth quarter.”

The International Energy Agency (IEA) said global oil demand surged by an estimated 3.2 mbpd to reach 96.8 mbpd in June.

“Global oil demand is expected to increase by 5.4 mbpd in 2021 and 3.0 mbpd in 2022, although escalating COVID-19 cases in a number of countries remain a key downside risk to the forecast,” the IEA said in its July report.

The rising demand comes as global inventory levels are also being drained out of the system.

The oil inventory of the world’s most developed countries stood at more than 2.9 billion barrels, around 75.8 million barrels below the 2016-2020 average and 10.8 million barrels below the pre-COVID-19 2015-2019 average.

“Preliminary June data for the US, Europe and Japan show that industry stocks fell by a combined 21.8 mb,” the IEA said.

In order to meet rising global demand, IEA estimates OPEC+ crude oil production will have to rise to 42.8 million bpd in the third quarter of 2021 and 44.1 million bpd in the fourth quarter, compared with June production of 40.9 million bpd.