OIL AND GAS

Global oil demand will rise to 99.7 million barrels per day this year, despite the economic slowdown and geopolitical tensions.

The latest report from the International Energy Agency (IEA) expects the market to be tight in 2022 due to a decline in Russian oil output.

“The prospect of large-scale disruptions to Russian oil production is threatening to create a global oil supply shock,” the IEA said in its latest monthly report published in March. It estimates that from April, around 3 million bpd of Russian oil output could be shut in, as sanctions take hold and buyers shun exports.

“Only Saudi Arabia and the UAE hold substantial spare capacity that could immediately help to offset a Russian shortfall,” the agency said.

Surging oil and commodity prices, if sustained, will have a marked impact on inflation and economic growth. While the situation remains in flux, the IEA lowered its expectations for GDP and oil demand, and now sees crude consumption growing by 2.1 million bpd on average in 2022, a downgrade of around 1 million bpd from its previous forecast.

Demand could also be hit by lockdown in key markets such as China, which could cause oil consumption growth in the first quarter to drop by 0.4 million bpd versus the same period in 2021, according to the Organization of the Petroleum Exporting Countries (OPEC).

 

With such dynamic playing out, OPEC and its allies continue to keep a steady hand on markets, as prices hover around USD 100 per barrel.

“Given the current uncertainty surrounding the recent developments, the geopolitical turmoil and the outlook for the summer months, the countries participating in the ‘Declaration of Cooperation’ continue to reaffirm their unwavering commitment to supporting oil market stability by ensuring adequate crude oil supply to the global market,” OPEC stated.

Structurally, demand is expected to be supportive of oil markets.

Diesel and gasoline, for example, are anticipated to record the highest gains among petroleum products, year on year, on the back of increasing mobility and healthy industrial activities worldwide.

“Improvements in supply chain bottlenecks in major consuming countries will support oil demand, with light distillates largely supported by strong petrochemical demand, notably in China, the US, and India,” OPEC said in its March report. “Finally, the recovery in global air travel amid declining COVID-19 cases is expected to further support jet kerosene demand.”

 

Saudi Arabian Oil Co.’s earnings in 2021 more than doubled to USD 110 billion, compared to USD 49 billion in 2020.

Cash flow from operating activities stood at USD 139.4 billion, versus USD 76.1 billion in 2020; the company declared a full-year cash dividend of USD 75 billion.

Aramco is also investing for the future.

The company, which is among the largest publicly listed firms in the world, invested USD 31.9 billion in capital expenditure last year, a jump of 18% from 2020, primarily driven by increased activities in relation to crude oil increments, Tanajib Gas Plant, and development drilling programmes.

I“Aramco expects 2022 capital expenditure to be approximately USD 40-50 billion, with further growth expected until around the middle of the decade. This is in line with the company’s belief that substantial new investment is required to meet demand growth, against a broader decline in upstream investment across the industry globally,” the
company said.

Aramco also plans to raise its maximum sustainable oil production capacity to 13 million bpd by 2027, and potentially increase gas production by more than 50% by 2030. In its downstream business, it plans to expand its liquids-to-chemicals capacity to up to 4 million bpd. Aramco also intends to develop a significant hydrogen export capability, and become a global leader in carbon capture and storage (CCS).

"We recognise that energy security is paramount for billions of people around the world, which is why we continue to make progress on increasing our crude oil production capacity, executing our gas expansion programme and increasing our liquids-to-chemicals capacity," said Aramco president and CEO Amin Nasser.

 

Aramco has also taken a final investment decision on a major integrated refinery and petrochemical complex in Northeast China. Huajin Aramco Petrochemical Company (HAPCO), a joint venture between Aramco, North Huajin Chemical Industries Group Corporation, and Panjin Xincheng Industrial Group, will develop the liquids-to-chemicals complex, subject to regulatory approvals.

The project presents an opportunity for Aramco to supply up to 210,000 bpd of crude oil feedstock to the complex, which is expected to be operational by 2024.

It will combine a 300,000-bpd refinery capacity and ethylene-based steam cracker, a building block petrochemical used to manufacture thousands of everyday products.

The facility, which will be built in the city of Panjin, in China’s Liaoning Province, will help meet the country’s growing demand for energy and chemical products

Separately, Saudi Aramco Asia Co. (SAAC) signed a memorandum of understanding with China Petroleum & Chemical Corporation (Sinopec) in March for potential downstream collaboration in China.

SAAC and Sinopec also aim to support Fujian Refining and Petrochemical Company, Ltd. in conducting a feasibility study into the optimisation and expansion of capacity.