SINGAPORE/KUALA LUMPUR: Demand for gasoline in Asia may peak much earlier than expected as millions of people in China and India buy electric vehicles over the next decade, threatening wrenching change for the oil industry, oil and auto company executives warned.
They said refiners should prepare for a future in which gasoline, their biggest source of revenue, will be much less of a cash cow.
Change is being prompted by policy moves in India and China, where governments are trying to rein in rampant pollution, cut oil imports and compete for a slice of the fast-growing green car market.
In its “roadmap,” released in April, China said it wants alternative fuel vehicles to account for at least one-fifth of the 35 million annual vehicle sales projected by 2025.
India is considering even more radical action, with an influential government think-tank drafting plans in support of electrifying all vehicles in the country by 2032, according to government and industry sources interviewed by Reuters late last week.
“We will see a clear shift to electric cars. It is driven by legislation so electric cars are coming, it is not a niche anymore,” Wilco Stark, vice president for strategy and product planning at German car maker Daimler, told Reuters.
Stark and other executives were interviewed during the Asia Oil & Gas Conference in Kuala Lumpur this week.
Daimler sees electric vehicles contributing 15-20 percent of its overall sales by 2025 and at least an additional 10 percent of sales coming from hybrids, he said.
Electric cars currently make up less than 2 percent of the global car fleet and any faster-than-expected growth in that percentage will materially impact oil demand and the refining business.
“Technology is moving fast. In 10-15 years... our gasoline market might not be the same as it is today,” said Dawood Nassif, board director at the state-owned oil company Bahrain Petroleum Company (BAPCO).
With gasoline responsible for up to 45 percent of refinery output and one of the highest profit-margin fuels, a slowdown or fall in demand will have far-reaching implications.
Credit agency Moody’s says that the fast pace of technological development makes accurate predictions difficult, but warned that direct financial effects from falling oil demand, including gasoline, “could be material by the 2020s.”
The changes are so big that the influential International Energy Agency (IEA) plans to revisit its analysis of electric vehicle trends and oil demand.
“The choices made by China and India are obviously most relevant for the possible future peak in passenger car oil demand,” an IEA spokesman told Reuters.
In its current policies scenario, last updated in November 2016, the IEA still expects oil demand from vehicle use to rise until 2040.
It is not just China and India that are changing fast.
Asia’s major carmakers, Japan and South Korea, already sell significant volumes of hybrid vehicles — which operate off gasoline and electricity — while fuel efficiency gains will continue to cut gasoline consumption for standard vehicles.
There will, though, be some major hurdles before a country like India goes mostly electric. High battery costs would push up car prices and a lack of charging stations and other infrastructure in India means carmakers may hesitate to make the necessary investment in the technology.
Asia has long been the main driver of future oil demand thanks to supercharged growth in sales of autos.
China sells more than 2 million new cars a month and is challenging the US as the world’s biggest oil consumer. India now is the world’s third-biggest oil importer, ahead of Japan.
More than a third of the world’s refineries are in Asia, up from just 18 percent in 1990. For refiners, the growth of vehicles that run on electricity and other alternative fuels is a wake-up call. They can tweak the products they make from crude oil to an extent, but still mostly rely on gasoline consumption for revenue.
“Rising pressure on margins and cash flows will potentially lead to stranded assets,” Moody’s warned, using a term for assets that no longer provide an economic return because of changes in the market or regulatory environment. The oil industry is taking note. Royal Dutch Shell said this week that it “is looking into ... the potential to introduce electric vehicle charging points at our retail sites in several countries.”
Oil executives say it is still premature to expect overall oil demand to fall soon. “Our industry will not disappear,” said Abdulaziz Al-Judaimi, senior vice president for downstream at Saudi Aramco, the world’s biggest oil company.
They are envisaging a shift toward producing more petrochemicals like plastics or household chemicals, areas where consumption is soaring.
Saudi Aramco is jointly developing the huge Malaysian RAPID refinery and petrochemical complex with state-owned Petronas and the two said this week they are exploring an expansion of its petrochemical capacity.
Exxon Mobil this week said it would buy a petrochemical plant in Singapore.
Refiners also still see strong oil demand from heavy industry.
“Refiners may shift their focus from gasoline to middle distillates,” said KY Lin of Taiwan’s Formosa Petrochemical, a major Asian refiner. “Gasoil is used widely, including in farming/industrial equipment... and also as a marine fuel.”
New Delhi, Beijing’s plans for electric cars threaten to cut gasoline demand
New Delhi, Beijing’s plans for electric cars threaten to cut gasoline demand
PIF-backed AviLease delivers three A320neo aircraft to SDH Wings
RIYADH: AviLease, an aircraft leasing firm owned by the Public Investment Fund, has delivered three Airbus A320neo aircraft to SDH Wings.
SDH Wings is a joint venture between the Saudi firm and the Chinese sovereign fund, where the Kingdom holds a 10 percent stake.
According to a press release, the three new aircraft will be leased long-term to a Saudi-based airline. With this latest addition, SDH Wings now owns a total of 25 aircraft.
Launched in 2022 by PIF, AviLease was created to harness the potential of promising sectors within Saudi Arabia, aiming to drive economic diversification and contribute to the growth of the non-oil GDP.
“This delivery represents a significant milestone in our relationship with SDH Wings. We are proud to support their expansion with these state-of-the-art aircraft,” said AviLease CEO Edward O’Byrne.
This delivery also signals a new phase in the collaboration between AviLease and SDH Wings, following a broader memorandum of understanding to acquire 20 additional, predominantly next-generation aircraft.
Under this agreement, AviLease will further assist SDH Wings in expanding its fleet while strengthening its partnership with Sichuan Development International Holdings, the majority shareholder of SDH Wings.
“By leveraging AviLease’s expertise in leasing and financing modern, fuel-efficient aircraft, SDH Wings is well-positioned to capitalize on emerging opportunities in the aviation financing market,” said the press release.
In October 2024, AviLease acquired nine aircraft from global lessor Avolon, building on the successful purchase of 13 aircraft from Avolon in 2023.
Alphabet to buy cybersecurity startup Wiz for $32bn
NEW YORK: Google owner Alphabet will buy cybersecurity firm Wiz for $32 billion — in a deal set to boost the tech giant’s in-house cloud computing amid burgeoning artificial intelligence growth.
If closed, the-cash transaction, announced on Tuesday, will become Google’s most expensive acquisition in the company’s 25-year history. The purchase gives Google new momentum in its efforts to compete in the cloud-computing business by offering more security for its services.
“Wiz and Google Cloud are both fueled by the belief that cloud security needs to be easier, more accessible, more intelligent, and democratized, so more organizations can adopt and use cloud and AI securely,” Wiz CEO Assaf Rappaport said in a blog post.
The company says Wiz will join Google Cloud — and that this deal represents a company investment “to accelerate two large and growing trends in the AI era: improved cloud security and the ability to use multiple clouds.”
Google CEO Sundar Pichai said in a statement, Google Cloud and Wiz “will turbocharge improved cloud security and the ability to use multiple clouds.”
Assaf Rappaport, co-founder and CEO, added that the deal will “bolster our mission to improve security and prevent breaches by providing additional resources and deep AI expertise.”
Wiz, based in New York, was founded in 2020, makes security tools designed to shield the information stored in remote data centers from intruders.
Google has had its eyes on Wiz for some time. The purchase price announced Tuesday surpasses a reported $23 billion buyout proposal that Wiz rejected last July.
The proposed buyout will get a close look from antitrust regulators. While many expect the Trump administration to be more friendly to business deals, it has also shown skepticism of big tech.
Also, the new Federal Trade Commission Chair Andrew Ferguson has vowed to maintain a tough review process for mergers and acquisitions.
Closing Bell: Saudi main index closes in red at 11,792
RIYADH: Saudi Arabia’s Tadawul All Share Index slipped on Tuesday, as it shed 90.64 points or 0.76 percent to close at 11,792.40.
The total trading turnover of the benchmark index was SR5.94 billion ($1.58 billion), with 52 stocks advancing and 192 declining.
The Kingdom’s parallel market, Nomu, also shed 315.76 points to close at 30,718.93.
The MSCI Tadawul Index declined by 0.73 percent to 1,492.90.
The best-performing stock on the main market was Aldawaa Medical Services Co. The firm’s share surged by 9.55 percent to SR78.
The share price of Saudia Dairy and Foodstuff Co. also increased by 3.70 percent to SR313.60.
Walaa Cooperative Insurance Co. also saw its stock price edging up by 3.62 percent to SR19.48.
Conversely, the share price of Fawaz Abdulaziz Alhokair Co., also known as Cenomi Retail declined by 7.21 percent to SR11.84.
On the announcements front, Derayah Financial Co., which debuted on Saudi Arabia’s main market on March 10, said that its net profit for 2024 reached SR443.9 million, representing a rise of 34.64 percent compared to 2023.
The company attributed the rise in profit to significant growth across the company’s various business segments which include brokerage, asset and wealth management, as well as special commission income.
The share price of Derayah Financial Co. declined by 3.25 percent to SR38.70.
Canadian Medical Center Co. announced that its net profit for 2024 stood at SR10.26 million, down by 34.63 percent from 2023.
In a Tadawul statement, the firm said that the decline in net profit was due to higher operating and investment costs.
Canadian Medical Center Co.’s board of directors also approved the payment of a cash dividend at 5 percent or SR0.05 per share for 2024.
The company’s share price dropped by 0.58 percent to SR6.86.
Elm Co. announced that its shareholders approved the firm’s acquisition of the shares held by the Public Investment Fund in Thiqah Business Services Co. for SR3.4 billion.
The approval follows a share purchase agreement signed by Elm Co. and PIF in January to acquire the sovereign wealth fund’s entire stake in Thiqah, amounting to 45,000 shares.
Elm Co. Saw its share price decline by 1.42 percent to SR971.
Saudi Arabia’s Capital Market Authority approved the request of Marketing Home Group Co. to float 4.8 million shares in the Kingdom’s main market for an initial public offering.
The offer shares amount to 30 percent of Marketing Home Group Co.’s share capital.
The CMA also approved the application of Qudra Communications & Information Technology Co. to float 5 million shares, or 18.8 percent of the firm’s capital, on Nomu.
Hawyia Auctions Co. also received approval from CMA to float 2.4 million shares, or 12 percent of the company’s capital, on Nomu.
CMA added that the prospectus for these potential IPOs will be published well in advance of the offering’s start date. The authority’s approval is valid for six months from its resolution date.
How Saudi banks’ solid risk management counters liquidity pressures
- Banks maintained profitability despite rising funding costs, fueled by intensified deposit competition and increased reliance on external borrowing
- Alvarez & Marsal highlighted strong credit quality as a key factor supporting profitability in 2024
RIYADH: Saudi Arabia’s banking sector demonstrated resilience in 2024, supported by strong asset quality, improved cost efficiency, and disciplined credit management, according to Alvarez & Marsal.
Arab News analysis of the A&M KSA Banking Pulse 2024 report found that banks maintained profitability despite rising funding costs, fueled by intensified deposit competition and increased reliance on external borrowing.
This assessment relies on key financial ratios outlined in the report, including cost-to-income and loan-to-deposit, as well as net interest margin — indicators of how banks are navigating cost structures, liquidity pressures, and profitability.
The A&M report came alongside a separate analysis from Fitch Ratings, which suggests that lower interest rates have had a mixed impact on earnings by banks in the Kingdom.
“Saudi banks’ performance metrics, particularly net interest margins, will see only limited improvement from the interest rate cuts that began in 2024, due to the prolonged tightening of liquidity conditions and strong competition for funding,” the agency said.
While rate cuts support loan growth, which boosts income from higher credit volumes, intense competition for liquidity is squeezing margins. Banks are reducing lending rates to stay competitive while maintaining attractive deposit rates to secure funding.
Strong asset quality
Alvarez & Marsal highlighted strong credit quality as a key factor supporting profitability in 2024.
The non-performing loan ratio improved by 18 basis points to 1.1 percent, reflecting better risk management and healthier loan portfolios. Meanwhile, loan loss coverage remained solid at 161 percent, ensuring a strong buffer against defaults. The cost of risk also improved to 0.3 percent, indicating lower impairments and higher-quality lending.
These improvements directly boosted bank earnings. Lower impairment charges allowed banks to retain more profits rather than setting aside funds for bad loans.
With a larger share of performing loans and reduced provisioning costs, banks strengthened their bottom lines despite margin pressures.
As Saudi Arabia accelerates economic diversification, the banking sector remains a key pillar of Vision 2030, driving financing for mega-projects, corporate expansion, and capital market growth. Banks are at the forefront of private sector investment, reinforcing their role as vital enablers of the Kingdom’s transformation.
Beyond traditional lending, Saudi banks play a pivotal role in capital markets, contributing significantly to liquidity and investment activity. Banking stocks are among the most actively traded on the Saudi Stock Exchange, often driving market turnover.
Saudi banks are also expanding their footprint in the debt market, with sukuk issuances and other financial instruments increasingly funding large-scale projects.
Efficiency gains drive profitability
Saudi banks demonstrated strong cost management in 2024, according to A&M, optimizing operational expenses while maintaining revenue growth.
This resulted in a 63 basis point improvement in the cost-to-income ratio, which fell to 31.3 percent, reflecting greater efficiency in generating income relative to costs.
The improvement reflects banks’ strategic focus on digital transformation, automation, and expense management — ensuring sustainable, long-term growth despite rising funding costs and liquidity pressures.
Cost optimization efforts contributed to a 9.3 percent year-on-year growth in operating income, outpacing the 7.1 percent rise in operating expenses. This operational discipline boosted profitability, leading to a 13.5 percent rise in aggregate net income, reaching SR79.6 billion in 2024.
Key contributors to this annual growth included a SR7.9 billion increase in net interest income, SR2.6 billion in net fee and commission income, and SR1.6 billion in other operating income, according to the report.
However, net interest income growth slowed to 7.6 percent year-on-year in 2024, down from 11 percent in 2023, primarily due to higher funding costs.
Despite narrowing net interest margins, banks leveraged rising fee-based income and cost efficiencies, maintaining a stable earnings outlook. The sector’s ability to navigate tightening liquidity while staying profitable underscores its strategic adaptability.
Rising funding costs
The rise in funding costs for Saudi banks is driven by both local liquidity constraints and global financial trends. As deposit growth lags behind credit expansion, banks are increasingly turning to alternative funding sources to sustain lending activity.
A key factor behind this deposit gap is the dominance of government-related entity deposits, which account for about one-third of total sector deposits, according to Fitch Ratings.
During the high-interest rate cycle, GREs moved funds into banks offering higher returns, rather than holding them at the Saudi Central Bank, also known as SAMA.
The introduction of SAMA’s deposit auction platform accelerated this shift, with GRE deposits at the central bank dropping from SR670 billion in 2023 to SR460 billion in early 2025.
However, as rates began to decline, GRE inflows slowed. In the fourth quarter of 2024, Saudi banks saw a rare SR27 billion — or 1 percent — decline in deposits, the first drop since 2019, according to Fitch Ratings. The agency attributed this to seasonal budget and tax-related outflows from GREs.
Despite this, deposits rebounded by SR40 billion in January, fully offsetting the fourth-quarter drop.
While deposits recovered, their growth lagged behind lending expansion, which surged 14.4 percent year on year in 2024 — significantly outpacing the 7.9 percent rise in deposits, according to the A&M report.
This pushed the loan-to-deposit ratio to 104.7 percent, surpassing the 100 percent mark for the first time in recent years.
Corporate lending remains the primary driver, fueled by Vision 2030 mega-projects, infrastructure development, and private sector investments.
With rising corporate financing needs, banks have diversified their funding sources, leaning more on sukuk issuances, external borrowings, and interbank lending to bridge liquidity gaps. While essential, these instruments come with higher costs than traditional deposits, pushing funding expenses higher.
Impact of monetary policy
The monetary policy shift has contributed to liquidity pressures. The US Federal Reserve’s 100 basis point rate cut in 2024 prompted SAMA to lower its repo rate to 5 percent, aligning with the riyal’s dollar peg.
Despite this easing, funding costs remain high due to a lag effect — banks are still carrying higher-cost deposits and debt issued during the peak rate period.
With loan growth projected to outpace deposits in 2025, Fitch forecasts banks will increase non-deposit funding, with debt issuance expected to exceed $20 billion. However, competition for liquidity and the dilution of current and savings accounts may offset the benefits of lower rates on net interest margins. Banks will need to carefully manage their funding mix to sustain profitability.
Fitch also warned that tightening liquidity and increased reliance on external funding could pressure some banks’ funding and liquidity scores. However, a one-notch downgrade is unlikely to affect their overall Viability Ratings.
As Saudi banks navigate these challenges, they are expected to focus on optimizing funding strategies, expanding capital market access, and leveraging long-term debt instruments to fuel lending growth while controlling funding costs.
$1.06bn deal signed to launch new logistics zone in Riyadh’s Falcon City
- Deal aims to strengthen the Kingdom’s position as a global logistics hub
- Zone will serve as a comprehensive hub catering to the increasing demand for custom-designed warehouses
RIYADH: A new SR4 billion ($1.06 billion) logistics zone will be created within Falcon City in northern Riyadh, after a deal between Saudi firms SAL and Sela Co.
The development will provide integrated infrastructure combining Class A warehouses, multimodal connectivity, and smart logistics technologies to enhance supply chain efficiency and facilitate the faster movement of goods locally and regionally.
The deal, which aims to strengthen the Kingdom’s position as a global logistics hub, is backed by the Private Sector Partnership Program, also known as Shareek.
The agreement comes as the Kingdom plans to invest more than SR1 trillion in the logistics sector by 2030, with the number of facilities already up by 267 percent since 2021.
Commenting on the Falcon City deal, Omar bin Talal Hariri, CEO of SAL, said: “The SAL Logistics Zone is not just a development project — it is a model for the future of integrated logistics services.
“We are leveraging technology and sustainability to create an advanced operational environment that attracts investment and supports the Kingdom’s economic growth.”
The partnership for the 1.5 million sq. meter logistics zone was signed in Riyadh in the presence of Minister of Transport and Logistics Services Saleh Al-Jasser, Minister of Investment Khalid Al-Falih, and CEO of the Shareek Program Center Abdulaziz bin Abdulrahman Al-Arifi, along with senior officials, investors, and business leaders.
The zone will serve as a comprehensive hub catering to the increasing demand for custom-designed warehouses.
“Falcon City is more than just a development project; it is an integrated economic destination aimed at providing a modern business environment that supports multiple industries,” Rakan Al-Harthy, managing director of Sela, said.
He further emphasized that the partnership with SAL Logistics Services will facilitate the establishment of state-of-the-art facilities that cater to local and international companies and enhance business and investment flow.
This logistics zone significantly enhances the company’s capabilities due to its strategic location near King Khalid International Airport, major highways, and railway networks.
Falcon City spans 14.4 million sq. meters and will feature the Riyadh Exhibition and Convention Center, as well as a modern logistics zone designed to attract major global companies, an aviation runway, and an aircraft maintenance hub.
The development also includes economic, commercial, and residential zones, as well as hospitality and entertainment areas and an outlet mall.
This strategic partnership directly supports Saudi Vision 2030 by enhancing logistics connectivity, stimulating local and international investments, and developing modern infrastructure to attract businesses and investors.
It also reinforces the Kingdom’s role in regional and international trade, driving sustainable economic growth and positioning the country as a leading logistics powerhouse.
