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Saudi Aramco 2030 Mohamed A Saudi Aramco 2030 Mohamed A. Ramady Saudi Aramco 2030 Post IPO challenges Mohamed A. Ramady London, United Kingdom ISBN 978-3-319-67749-1 ISBN 978-3-319-67750-7 (eBook) DOI 10.1007/978-3-319-67750-7 Library of Congress Control Number: 2017954578 © Springer International Publishing AG 2018 This work is subject to copyright. All rights are reserved by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, express or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. Printed on acid-free paper This Springer imprint is published by Springer Nature The registered company is Springer International Publishing AG The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland Dedicated to my son, Faisal, and all past, present, and future male and female “Aramcons” of many nationalities who have made Saudi Aramco what it is today and what it aspires to be. May the “burst of energy,” embodied in the company logo, be with you. Acknowledgments While the book is dedicated to all Aramcons, I would also like to acknowledge the support and encouragement received from my many former students and friends in Aramco over the years, which prompted me to write the book as a thank you. Other non-Aramcon friends are gratefully acknowledged, including Wael Mahdi, Dr. Ziad Al Sudairy, Dr. Abdelrahman Al Zamil, Dr. Abdelaziz Al Fahad, Dr. Sadad Al Husseini, Prof. Bernard Haykel, Dr. Robert Walker, Mazyad Al Khaldi, Dr. Anas Al Hajji, Dr. Faisal Mirza, Llewellyn Lewis and Abdelsamad Al Awadhi for their moral support; and my eldest son, Ali, who opened my eyes to his world of seismic engineering, 4-D imaging, and vibroseis trucks. Needless to say, the author takes full responsibility for any errors, shortcomings, and omissions, and opinions expressed in the book are entirely those of the author without attribution to any Aramcons or those acknowledged. Finally, a special word of gratitude goes to Junaid Akhtar for his tireless typing work and dedication. Dr. Mohamed A. Ramady 2017 vii Contents 1 From Infancy to the Global Energy Warehouse: Looking into the Past Is a Guide for the Future ������������������������������������ 1 How It All Started: The Pioneering 1930s �������������������������������������������������� 1 From the “Seven Sisters” to Saudi Hands: 1950s–1980s ���������������������������� 7 Leading Aramco: Different Managers, Different Challenges, and Different Objectives ������������������������������������������������������������������������������ 10 Increasing Saudi Workforce Participation ��������������������������������������������������� 16 The Rise and Fall of Petromin �������������������������������������������������������������������� 19 Aramco in the Limelight: Rising to the New Challenges ���������������������������� 22 2 Not Your Average National Oil Company ������������������������������������������������ 25 Ensuring Long-Term Survival: Aramco’s Upstream Might ������������������������ 25 Adding Value: The Emerging Refinery Empire ������������������������������������������ 28 Domestic Refineries �������������������������������������������������������������������������������� 31 International Refineries �������������������������������������������������������������������������� 32 Crude or Refined Product Exporter? Economic Diversification and Vulnerabilities �������������������������������������������������������������������������������������� 34 Petrochemicals: The New Frontier �������������������������������������������������������������� 38 Increased Integration and a Changed Productive Mix: SADARA the Crown Jewel ������������������������������������������������������������������������������������������ 41 Challenges and Opportunities ���������������������������������������������������������������������� 46 The Glittering Prize: The Far East Connections ������������������������������������������ 49 Something New Under the Sun: Saudi Arabia’s Renewable Energy Program ������������������������������������������������������������������������������������������ 51 Technology and Research: A Must for Long-Term Survival ���������������������� 53 The Saudi Aramco Petrochemical Sector and the Planned IPO ������������������ 58 3 Aramco’s New 2030 Vision and Mission Mandate: Managing Expectations ���������������������������������������������������������������������������� 61 The Pillars of Saudi Energy Policy �������������������������������������������������������������� 61 Saudi Arabia Under New Management: Key Players and Institutions �������� 64 New Ministry: New Tasks for Aramco �������������������������������������������������������� 71 ix x Contents Saudi Aramco and Vision 2030 �������������������������������������������������������������������� 72 Strengths �������������������������������������������������������������������������������������������������� 74 Weaknesses ��������������������������������������������������������������������������������������������� 74 Opportunities ������������������������������������������������������������������������������������������ 75 Threats ���������������������������������������������������������������������������������������������������� 75 Poverty Amid Plenty: Tackling the Subsidies Program ������������������������������ 76 Fixing the Imbalance: The Energy Efficiency Program ������������������������������ 79 IKTVA: Rebooting the Saudi Energy Sector ���������������������������������������������� 82 Saudi Arabia’s Master Contractor ���������������������������������������������������������������� 87 Saudi Aramco’s Corporate Social Responsibility and the Saudi Knowledge-Based Society ���������������������������������������������������� 90 4 From NOCs to Privatized Oil Companies: A Comparative Country Experience ���������������������������������������������������������������������������������� 93 Why Privatization? �������������������������������������������������������������������������������������� 93 State Participation in the National Resource Sector and NOC Privatization Trends �������������������������������������������������������������������� 94 NOC Country Case Studies: Has Privatization Met Expectations? ������������ 99 Russia’s Rosneft ���������������������������������������������������������������������������������������� 100 Norway’s Statoil ������������������������������������������������������������������������������������������ 118 Brazil’s Petrobras ���������������������������������������������������������������������������������������� 132 China’s Sinopec ������������������������������������������������������������������������������������������ 147 The Partly Privatized NOCs: How Do They Compare? ������������������������������ 158 5 The Aramco IPO: Governance, Listing, Options, and Policy Implications ���������������������������������������������������������������������������� 167 Why the Need for an IPO? �������������������������������������������������������������������������� 167 Issues and Obstacles to Overcome �������������������������������������������������������������� 169 Aramco’s Key Asset: Its People ������������������������������������������������������������������ 172 Meeting Effective Governance and Oversight �������������������������������������������� 183 Reserves: Separating Fact from Fiction ������������������������������������������������������ 193 Where to List? ���������������������������������������������������������������������������������������������� 205 IPO Options and Valuation �������������������������������������������������������������������������� 219 What Value for Aramco? ������������������������������������������������������������������������������ 228 The Downstream Sector Could Add to the IPO Valuation �������������������������� 238 Launching the IPO �������������������������������������������������������������������������������������� 241 Aramco and Post-IPO Realities ������������������������������������������������������������������ 245 OPEC: One Foot In, One Foot Out? ������������������������������������������������������������ 247 6 Conclusion and Recommendations ���������������������������������������������������������� 249 References �������������������������������������������������������������������������������������������������������� 257 Index ������������������������������������������������������������������������������������������������������������������ 271 About the Author Mohamed A. Ramady is a former Visiting Associate Professor in the Faculty of Finance and Economics, King Fahd University
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