Comment
May 2016
David Bizley, Editor
May
2016
Oilfield Technology
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3
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C
hanges 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 ‘Vision 2030’, 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%.
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 – 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 – as a point of comparison, the
Kingdom’s 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’s 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’s right
to defend its market share. Sadly for those hoping his departure would herald a change of
attitude, al-Naimi’s successor, Khalid al-Falih, is equally in favour of lower oil prices, having
previously “told an audience of oil executives, bankers and policymakers at the World
Economic Forum in Davos that the world’s top oil exporter might benefit from oil below
US$30/bbl.”
2
Saudi Arabia’s 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’s likely that oil markets will become more volatile as they are
increasingly exposed fluctuations in supply and demand.
It’s 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’t 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’s perhaps
of little surprise to see this sector taking steps to deal with the challenges it now faces. For
example, the focus of the 78
th
EAGE Conference and Exhibition (30 May – 02 June) is ‘Efficient use
of technology – unlocking potential’. 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
1. ‘Scepticism over privatisation in cradle-to-grave Saudi state’ -
2. ‘New Saudi minister is believer in reform and low oil price’ -
