Editorial comment
Changes are afoot in the oil industry.
Saudi Arabia is perhaps the state most heavily associated with oil production, yet it is here that moves are being made to diversify away from hydrocarbons. The low oil price is driving a need for rapid economic diversification, and Deputy Crown Prince Mohammed bin Salman al-Saud has been appointed to oversee this process. Through a project entitled 鈥榁ision 2030鈥�, Prince Mohammed has announced plans to increase the private sector contribution to the economy by 15% to 60% overall, with the added goal of cutting unemployment to 7%.
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A key step in this process is the decision to privatise the national oil behemoth, Saudi Aramco. According to Prince Mohammed, a 5% share of the company will be floated on the stock market by 2018 鈥� this might not seem like much, but early valuations give Saudi Aramco a staggering total value of more than US$2 trillion and the stock market listing is likely to generate an immediate cash windfall of US$100 billion 鈥� as a point of comparison, the Kingdom鈥檚 projected budget deficit for 2016 is US$87 billion.1 The obvious irony in all of this is that the current low oil price is a direct result of the Kingdom鈥檚 decision to renounce its role as swing producer and focus on defending market share instead of supporting higher prices.
The Kingdom has also taken the surprising step to replace its oil minister, Ali al-Naimi, one of the most powerful individuals in OPEC and the global oil industry, who had been minister since 1995. Al-Naimi had been a vocal proponent of lower oil prices and the Kingdom鈥檚 right to defend its market share. Sadly for those hoping his departure would herald a change of attitude, al-Naimi鈥檚 successor, Khalid al-Falih, is equally in favour of lower oil prices, having previously 鈥渢old an audience of oil executives, bankers and policymakers at the 91天堂原創 Economic Forum in Davos that the world鈥檚 top oil exporter might benefit from oil below US$30/bbl.鈥�2
Saudi Arabia鈥檚 decision to diversify and step away from the role of de facto swing state looks likely to have repercussions on the global oil and gas industry for years to come. Without a guiding hand at the helm, it鈥檚 likely that oil markets will become more volatile as they are increasingly exposed fluctuations in supply and demand.
It鈥檚 therefore more important than ever for companies operating in this industry to adapt to the new environment, secure their ability to survive downturns, and make the most of upswings. As always, technology will play an important factor: investing in the development and deployment of more cost-effective and efficient technologies will enable companies to do more with less in times of scarcity whilst allowing them to reap significant rewards in times of plenty. Technology isn鈥檛 the only factor, however: collaboration and co-operation between companies will become increasingly important. Projects that might previously have been seen as economically unviable or too risky can be tackled by companies working together, pooling resources and expertise, and sharing risk.
Oil and gas exploration has been hit particularly hard by the downturn, so it鈥檚 perhaps of little surprise to see this sector taking steps to deal with the challenges it now faces. For example, the focus of the 78th EAGE Conference and Exhibition (30 May 鈥� 02 June) is 鈥楨fficient use of technology 鈥� unlocking potential鈥�. The Oilfield Technology team will be there (Stand 1520), so get in touch and let us know what your company is doing to fight the downturn.
References
- 鈥楽cepticism over privatisation in cradle-to-grave Saudi state鈥� -
- 鈥楴ew Saudi minister is believer in reform and low oil price鈥� -
