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G7 price caps add new uncertainties to market: Aramco CEO

Highlights

Aramco CEO gives pessimistic view of market

Aramco to invest $1.5 bil in 'inclusive energy transition'

Japan, South Korea key markets for blue hydrogen

  • Author
  • Jennifer Gnana
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  • Shashwat Pradhan
  • Commodity
  • Coal Electric Power Energy Transition LNG Natural Gas Oil Shipping

The Group of Seven's plans to impose price caps on the export of Russian crude and products in December and February, respectively, will add a new layer of uncertainty to the oil market, Saudi Aramco's CEO said Oct. 26 at a conference in Riyadh.

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"Depending on what's happening on Dec. 5 with the total embargo by the Europeans that they will implement on crude and in February of next year, when they will do on products, there is a lot of uncertainty that is shaping the markets," Amin Nasser told the Future Investment Initiative in the Saudi capital.

G7 and the EU have agreed to impose restrictions on the seaborne transport of crude and products that originate from Russia, as a way to curtail Moscow's ability to earn energy revenue that could fund its ongoing invasion of Ukraine.

Tanker owners, insurers and other marine service providers subject to their jurisdictions are expected to be prohibited from servicing Russian oil trade unless the barrels are sold below yet-to-be-defined price caps.

Oil prices have remained elevated following the invasion in February, with Platts-assessed Dated Brent up 6.7% year on year at $91.555/b on Oct. 25.

Nasser cited continued risks to the global economy and COVID-19 restrictions as weighing on demand for crude globally.

"A combination of factors, rising interest rates, central banks, inflation-impact and all of these things [make for] a very pessimistic view of the markets," he said.

Saudi Arabia's energy minister on Oct. 25 said the kingdom's supply of crude to Europe through Aramco's trading unit will remain "business as usual."

"We are engaged with so many governments. Just to give you an example, Germany, Poland, the Czech Republic, Croatia, Romania and others. They are going through a phase of debottlenecking their supply chains and supply systems to ensure that we can come in," Prince Abdulaziz bin Salman said.

Supplies into Europe from Saudi Aramco have nearly doubled from 490,000 b/d in September 2021 to 950,000 b/d during the same period this year.

"Where would we be in the next few months? We will be the same. We will be the supplier to those who want us to supply them," the minister said.

'Flawed' energy transition

Aramco's Nasser also spoke out against what he termed as a "flawed" energy transition plan, noting that the global economy was switching more toward polluting coal over lower-carbon intensive fuels.

"Honestly, it's not really delivering. What we need is an optimal, realistic transition plan," Nasser told FII.

"If you look at coal today, it's 8 million tons. This is the highest since 2015. The cost of coal -- barrel of oil equivalent -- is $60 to $80. So basically, we're transitioning to coal. It used to be $20 [per barrel of oil equivalent]," he added.

The Aramco CEO previously likened global energy transition plans to "sandcastles" that were being washed away by the waves of reality.

"Because when you shame oil and gas investors, dismantle oil- and coal-fired power plants, fail to diversify energy supplies (especially gas), oppose LNG receiving terminals, and reject nuclear power, your transition plan had better be right," Nasser said at a conference in Switzerland on Sept. 26.

"Instead, as this crisis has shown, the plan was just a chain of sandcastles that waves of reality have washed away and billions around the world now face the energy access and cost of living consequences that are likely to be severe and prolonged."

In Riyadh, he continued his criticism of most current energy transition plans noting that they were modeled after "a western point of view" that the rest of the world needed to follow.

"No, it's not going to work like that. That's why everybody's moving to coal," Nasser said.

Financing transition

Saudi Aramco also announced plans for a $1.5 billion fund on Oct. 26 that facilitates "inclusive energy transition."

The world's largest oil-exporting company will invest globally through its venture capital arm, Aramco Ventures, in "carbon capture and storage, greenhouse gas emissions, energy efficiency, nature-based climate solutions, digital sustainability, hydrogen, ammonia and synthetic fuels," it said in a statement.

Aramco will continue to develop blue hydrogen, produced from the steam methane reformation of natural gas, with the fugitive carbon dioxide captured and sequestered.

The gas is stored in the form of ammonia, which is the more easily transportable form of hydrogen.

Aramco has earmarked Japan and South Korea as key markets for sale of blue hydrogen produced at its facility, Nasser said.

"But for companies like Aramco, we need an offtake agreement for these projects, because these are costly projects and without an offtake agreement, you cannot grow that market big time," he added.

Aramco plans to reach net-zero emissions by 2050.