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Spotlight: Saudi Aramco IPO prospectus includes forecast of peak oil demand similar to Platts Analytics’ long-standing view

Highlights

Aramco expects global oil demand to plateau in late 2030s

Peak demand only one factor limiting upside to long-term pricing

Saudi Arabia needs $88.60/b Brent to balance its budget

Successful IPO required to diversify kingdom’s economy

Saudi Aramco included outlooks regarding long-term oil demand in its initial public offering prospectus released on November 9. According to the document, the company believes that "demand growth for crude oil, condensate and NGLs is expected to continue, with a levelling off around the year 2035."

Without supplying the actual forecast values, a supporting chart in the document clearly shows oil demand in 2040 slightly higher than 2035, implying some post-2035 growth, although at a far slower rate. The long-term oil demand plateau that Saudi Aramco presented is similar to S&P Global Platts Analytics' long-standing forecast of oil demand growth.

In our Scenario Planning Service's Most Likely Case, overall oil demand growth levels off significantly in the 2030s, showing marginal growth from 2035-40. Our demand outlook is driven by growth in emerging economies, as well as growth in the petrochemical and non-passenger vehicle transport sectors.

The similarity of the view presented in the IPO's prospectus and the Platts Analytics outlook gives us even greater confidence in the conclusions about Saudi Aramco's expected revenue trajectory from oil exports that we presented in our recent SPS Current News and Analysis.

Additionally, Saudi Aramco also offered an alternative long-term outlook where oil demand peaks a decade or more earlier. This was likely to show that because the company is the world's lowest cost producer, it will hold on to market share and remain profitable under even a far weaker oil demand scenario.

This is similar to our analysis of implied Saudi Aramco oil export revenues under our Low Price Case outlook. We similarly believe that Saudi Arabia has the lowest cost, and least energy intensive oil production in the world.

As a result, the company will remain extremely profitable in all scenarios although there are a number of structural challenges over the long-term that limit the upside to global oil prices, including an impending peak demand. The kingdom needs $88.60/b Brent to balance its fiscal budget, a level that is not expected to return on a sustainable basis. As a result, a successful IPO is essential to funding diversification of Saudi Arabia's economy and weaning itself off oil revenues.

For more Spotlight research published by S&P Global Platts Analytics go to http://plts.co/O3Xs50wHo6j.

-- Dan Klein, dan.klein@spglobal.com

-- Edited by James Leech, james.leech@spglobal.com