HOUSTON: Two decades ago, BP set out to transcend oil, adopting a sunburst logo to convey its plans to pour $8 billion over a decade into renewable technologies, even promising to power its gas stations with the sun.
That transformation — marketed as “Beyond Petroleum” — led to manufacturing solar panels in Australia and Spain and erecting wind farms in the US and the Netherlands.
Today, BP might be more aptly branded “Back to Petroleum” after exiting or scaling back its renewable energy investments. Lower-cost Chinese components upended its solar panel business, which the firm shed in 2011. A year later, BP tried to sell its US wind power business but could not get a buyer.
“We made very big bets in the past,” BP CEO Bob Dudley told Reuters in an interview. “A lot of those didn’t work. We’re not sure yet what will be commercially acceptable.”
The costly lesson of the biggest foray yet by an oil major into renewable energy was not lost on rival firms.
Even as governments and environmentalists forecast a peak in oil demand within a generation — and China and India say they may eventually ban gasoline and diesel vehicles — leaders of the world’s biggest oil firms are not buying the argument that their traditional business faces any imminent threat.
A Reuters analysis of clean energy investments and forecasts by oil majors, along with exclusive interviews with top oil executives, reveal mostly token investments in alternative energy. Today, renewable power projects get about 3 percent of $100 billion in combined annual spending by the five biggest oil firms, according to energy consultancy Wood Mackenzie.
BP, Chevron, Exxon Mobil, Royal Dutch Shell and Total are instead milking their drilling and processing assets to finance investor payouts now and bolster balance sheets for the future. They believe they can enter new energy sectors later by acquiring companies or technologies if and when others prove them profitable.
“There is no sign of peak demand right now,” said Chevron CEO John Watson, an economist by training, who is retiring in early 2018. “For the next 10 or 20 years, we expect to see oil demand growth.”
The International Energy Agency forecasts a 10 percent rise in oil demand through 2040, reflecting the consensus among oil firms. The earliest estimate for peak oil demand from any oil company is late next decade, by Shell CEO Ben van Beurden.
History shows energy transitions — from wood to coal to oil — take a long time. Coal’s contribution to world energy consumption peaked recently at 28 percent and remains above the share from natural gas, though just below oil’s one-third.
Profit, if any, from the majors’ decades-long interest in renewable energy ventures is unclear. None of the largest oil companies disclose earnings from their solar, wind or biofuels ventures.
Investors such as Alasdair McKinnon, portfolio manager at Scottish Investment Trust, believe oil will sustain shareholders far into the future.
“There isn’t a viable alternative to fossil fuels on the horizon,” he said. “We’re not buying into the long-term demand destruction for oil.”
The confidence in oil’s future relies largely on rising consumption from emerging economies. Exxon forecasts that transportation will require 25 percent more fuel by 2040, propelled by growth in Asia. Chevron’s analysis of the India and Nigeria markets, meanwhile, concludes that infrastructure needed for electric cars is unlikely to be built.
Cars account for about a fifth of oil consumption, BP estimates. So if electric vehicles do eventually capture mass markets, oil firms would still expect growing demand from the air, rail and trucking industries.
Natural gas — now a smaller business than oil for most majors — can grow to nearly a quarter of all energy used by displacing coal in power generation and through expanded uses in chemicals, these companies forecast. Natural gas can also fuel the power needed for electric cars.
Although Shell forecasts peak oil demand coming earlier than its rivals, it is preparing for that prospect mostly with massive natural gas investments. The firm last year spent $54 billion acquiring BG Group, which derives half its production from gas. Chevron, Exxon and Shell recently have spent billions of dollars on new liquefied natural gas projects across the globe.
Exxon declined to comment for this article.
Critics of oil majors’ cautious renewable strategy — including some big investors — say the firms are being short-sighted in their trust that change will come slow, or that one fossil fuel will gradually replace another. Just as cheap natural gas is supplanting coal, even cheaper wind or solar eventually will displace gas, they argue.
South Australia is soon to become a proving ground for a project that could pave the way for renewable power to supplant fossil fuels for peak electricity — a combined wind farm and grid-scale battery storage facility, by electric-car maker Tesla and operator Windlab.
Fossil fuel companies need to quickly reorient themselves to the low returns of the solar and wind industries, said Jules Kortenhorst, a former Shell executive who runs the Rocky Mountain Institute, a nonprofit energy research organization.
“You cannot flip a switch on a Monday morning from being one to another,” he said. “Paychecks in the oil and gas industry are based on fundamentally believing that the world cannot see economic growth without fossil fuels.”
To achieve the same share of the renewables market that the largest publicly traded oil companies now hold in oil and gas would require an investment of about $350 billion over the next 18 years, estimates consultancy Wood Mackenzie. Such spending would cut into the generous dividends that oil firms’ shareholders have come to expect.
“We think it will be a real challenge for these companies to change their business model,” said Nathan Fabian, director of policy at Principles for Responsible Investment (PRI), a UN backed group.
PRI has guidelines calling for investment analysis that weighs environmental, social and governance issues. Its principles have been adopted by investors with $70 trillion in assets under management.
Oil companies have made relatively modest investments a wide range of renewable technologies. Chevron has a smattering of mostly small wind and solar ventures; Shell invests in sugar-cane ethanol in South America, wind farms in the US and electric-car charging stations in Europe; and BP still owns the US wind farms it once tried to sell.
John Browne — who as BP’s CEO two decades ago helped launch the early investments in renewables — said he still believes the renewable power will grow.
“It will take time,” he said in an interview with Reuters last month. “And they have time.”
Shell pledged to invest up to $1 billion a year by 2020 in what it calls “new energies.”
Total said this year it would spend $500 million annually on developing alternatives. But soon after that announcement, it unveiled its $7.5 billion acquisition of Maersk Oil, part of a plan to pump more crude from Norway’s North Sea.
Total CEO Patrick Pouyanne explained the focus on economics at an October oil conference in London.
“When you ask our customers what their priority is, either in developed economies or in emerging countries, price comes first,” he said. A hasty shift to renewables, he said, “could bring great economic and social damage to our 6 billion customers.”
Exxon Mobil is backing research into biofuels, joining with gene modification firm Synthetic Genomics to coax algae to produce more lipids, an oil substitute. It hasn’t detailed its investment but said the effort remains far from commercialization. By comparison, Exxon this year spent $5.6 billion on US shale oil assets.
Some of the oil industry’s largest customers are planning a shift to renewable alternatives, especially in transportation, which accounts for about a quarter of annual energy consumption.
Ford earlier this fall disclosed it would aim, by 2030, to derive a third of its sales from battery-powered cars and another third from gas-electric hybrids.
A startup backed by Boeing and JetBlue Airways recently announced plans for a small hybrid jet by 2022, using batteries from Tesla and battery supplier Panasonic.
Yet oil firms continue to forecast aggressive growth in liquid fuels. Exxon predicts 90 percent of the transportation industry will rely on petroleum through 2040.
BP projects the world’s auto fleet doubling to 1.8 billion vehicles by 2035, with only 75 million of those powered by electricity.
“We’ll see if (electric cars) can be delivered in a way that doesn’t require large subsidies” from governments, Chevron’s Watson told Reuters. “That’s what we’re seeing now.”
— Reuters
Peak oil? Majors aren’t buying into the threat from renewables
Peak oil? Majors aren’t buying into the threat from renewables
Saudi Arabia, Iraq, and Russia reaffirm OPEC+ production cuts commitment
RIYADH: Saudi Arabia, Iraq and Russia on Tuesday emphasized the importance of fully committing to the OPEC+ oil supply agreement, including voluntary production cuts agreed by eight member states and measures to compensate for any increases in production, the Saudi Press Agency reported.
According to SPA, a trilateral meeting was held this morning in Baghdad, Iraq’s capital, which was attended by Saudi Energy Minister Prince Abdulaziz bin Salman, Russian Deputy Prime Minister Alexander Novak and Ali Maarij Al-Bahadli, Iraq’s director of distribution affairs at the Ministry of Oil.
The participants reaffirmed the significance of continued cooperation among OPEC+ countries and their full commitment to the voluntary agreements and production cuts, including those agreed upon by the eight countries, as well as compensating for any production increases.
Al-Bahadli reiterated Iraq’s determination to fully adhere to the agreement, voluntary cuts, and compensation for any production increase, in line with the updated schedule submitted by Iraq to the OPEC Secretariat.
Oil prices rose on Tuesday, steadying after falling more than $2 a barrel in the previous session on reports of a potential ceasefire between Israel and Lebanon’s Hezbollah.
Brent crude futures were up 53 cents, or 0.7 percent, at $73.54 a barrel as of 1231 GMT. US West Texas Intermediate crude futures were at $69.46 a barrel, up 52 cents, or 0.75 percent.
Prices fell sharply on Monday after multiple reports that Israel and Lebanon had agreed to the terms of a ceasefire in the Israel-Hezbollah conflict. A senior Israeli official said Israel looks set to approve a US plan for a ceasefire on Tuesday.
Saudi Arabia approves FY2025 budget, forecasts $27bn deficit amid expansionary spending
RIYADH: Saudi Arabia on Tuesday approved the state budget for fiscal year 2025 with revenues projected at SR1.18 trillion ($315.73 billion) and expenditure at SR1.28 trillion, leading to a deficit of SR101 billion.
The Finance Ministry forecasted Saudi Arabia’s Real GDP growth at 4.6 percent in 2025, up from the 0.8 percent estimate for 2024. This growth will be driven by a rise in non-oil sector activities, according to the statement.
The figures align with projections from the ministry’s pre-budget statement in September, showing a 4 percent decline in revenues, a 4 percent decline in expenditures, and a 12 percent lower deficit compared to the latest FY 2024 estimates.
The FY2025 forecast are based on a baseline scenario, which represents a middle ground between higher and lower revenue projections, taking into account potential changes in economic activity and global petroleum market conditions.
The ministry projects the deficit to remain at similar levels in the medium term, with SR130 billion in 2026 and SR140 billion in 2027, driven by the government’s strategic expansionary spending policies aimed at fostering economic diversification and sustainable growth. Revenues are expected to rise over the next two years, reaching around SR1.3 trillion by 2027.
The Kingdom’s total debt is projected to reach SR1.3 trillion in 2025, equivalent to 29.9 percent of GDP, reflecting a sustainable level to meet financing needs.
Revised projections for Saudi Arabia’s 2024 budget indicate a deficit of SR115 billion, with total debt expected to reach SR1.2 trillion, or 29.3 percent of GDP.
The fiscal year 2025 budget prioritizes maintaining essential services for citizens and residents, while accelerating spending on key projects and sectors.
It focuses on preserving fiscal stability and achieving long-term sustainability by managing government reserves and maintaining sustainable public debt levels, ensuring the Kingdom’s resilience against unforeseen economic shocks.
In a statement following the weekly Cabinet session, Crown Prince Mohammed bin Salman emphasized the government’s ongoing efforts to strengthen the Kingdom’s economic base. “We will continue to work on expanding the economic base and enhancing the Kingdom’s financial position,” he stated.
He also highlighted the pivotal role of Saudi Arabia’s sovereign wealth funds—the Public Investment Fund and the National Development Fund—in driving economic stability and achieving Vision 2030 objectives. “These funds are essential to diversifying the economy and supporting long-term investments,” he said.
Saudi Arabia’s economy is advancing through strategic reforms and robust investment initiatives under Vision 2030, emphasizing diversification and fiscal sustainability.
Key objectives include increasing the private sector’s contribution to GDP, growing the share of foreign investment, and boosting non-oil exports.
The strategy also prioritizes reducing unemployment and accelerating investment growth by enhancing the business environment, providing innovative financing solutions, and attracting regional headquarters of multinational companies to establish a strong presence in the Kingdom.
Key enablers, including the PIF, are driving private sector growth, launching transformative projects, and fostering new industries.
These efforts, outlined in the 2025 budget statement, aim to boost social and economic outcomes while ensuring resilience against global challenges and long-term prosperity.
Breakdown of projected government revenues and expenditures
The ministry projects tax income at SR379 billion in 2025, making up around 32 percent of total revenues. This represents a 4 percent increase compared to the 2024 estimates. The majority of these levies, accounting for 77 percent, come from taxes on goods and services.
According to the ministry, this growth is driven by sustained improvements in economic activity, the ongoing development of tax administration, and enhanced collection processes, all of which have contributed to a boost in total tax revenues.
In terms of sector-specific expenditures, the military sector received the largest allocation at SR272 billion, marking a 5 percent increase compared to the 2024 estimates.
The health and social development sector followed with a 20.25 percent share amounting to SR260 billion.
General items with 14.95 percent share of 2025 budgeted expenditures will be allocated SR192 billion.
Financing the deficit
The Ministry of Finance, in collaboration with the National Debt Management Center develops an annual borrowing plan aligned with the Kingdom’s medium-term debt strategy, ensuring long-term debt sustainability.
This strategy not only diversifies financing sources, encompassing both domestic and external markets, but also enhances the Kingdom’s standing in global debt markets.
Additionally, the government is expanding its financing channels by tapping into bond and sukuk issuance, loans, and alternative funding models like project and infrastructure financing, as well as collaborating with export credit agencies.
According to the Ministry of Finance, the Kingdom maintains a robust fiscal position, underpinned by substantial financial reserves and manageable public debt levels.
This fiscal strength provides the government with the ability to manage potential economic shocks and meet its financing needs across short, medium, and long-term horizons, while securing favorable borrowing terms from both domestic and international markets.
The crown prince also reaffirmed the government’s commitment to fiscal reforms that have already improved Saudi Arabia’s credit ratings. While the projected deficit for 2025 signals short-term fiscal challenges, the government is focused on ensuring long-term economic sustainability.
He noted that this year’s budget will continue to prioritize economic diversification, with significant emphasis on empowering the private sector and fostering growth in small and medium-sized enterprises.
The crown prince stressed that, despite global economic uncertainties, Saudi Arabia is well-positioned to navigate external challenges and play an increasingly central role in regional and global economic stability.
“Our economy is well-prepared to overcome challenges,” he said.
He also emphasized the importance of long-term financial planning to maintain momentum on Vision 2030 initiatives, underscoring the government's focus on spending efficiency and transparent execution of the budget to meet its strategic goals.
Moody’s upgraded Saudi Arabia’s credit rating to “Aa3” from “A1” on Friday, highlighting the country’s progress in diversifying its economy beyond oil.
The Kingdom is investing heavily in Vision 2030 initiatives, focusing on sectors like tourism, sports, and manufacturing, while also attracting foreign investment.
Despite lower oil prices and reduced production, Saudi Arabia continues to adjust its spending, delaying or scaling back some Vision 2030 projects while prioritizing others.
Moody’s revised the country’s outlook to stable, reflecting uncertainties in global economic conditions and the oil market. In September, S&P also upgraded Saudi Arabia’s outlook to positive due to strong non-oil growth.
Closing Bell: Saudi main index closes in red at 11,736
RIYADH: Saudi Arabia’s Tadawul All Share Index slipped on Tuesday, with the index shedding 51.65 points to close at 11,736.07.
The total trading turnover of the benchmark index was SR5.15 billion ($1.37 billion) with 54 of the listed stocks advancing, while 179 declined.
The Kingdom’s parallel market Nomu also slipped by 0.85 percent to 30,602.83, while the MSCI Tadawul Index inched down by 0.22 percent to 1,474.39.
The best-performing stock on the main market was Riyadh Cables Group Co., with its share price surging by 7.56 percent to SR128.
Media giant MBC Group’s share price soared by 6.83 percent to SR50.80, while the stock price of Elm Co. increased by 4.03 percent to SR1,105.
Conversely, the share price of Jadwa REIT Saudi Fund slipped by 5.12 percent to SR10.38.
On Nomu, the top gainer was Miral Dental Clinics Co. The firm’s share price increased by 14.63 percent to SR113.60.
In announcements, the Saudi Investment Bank stated that it has completed the debut offering of its $750 million dollar-denominated Tier 1 Sustainable Sukuk, issued under its $1.5 billion Additional Tier 1 Sukuk Program.
The bank confirmed that the offering will be settled on Nov. 27, and the sukuk will be listed on the London Stock Exchange’s International Securities Market.
SAIB’s share price rose by 0.57 percent on Tuesday, closing at SR14.04.
Saudi Reinsurance Co. announced that it has received approval from the Kingdom’s Capital Market Authority to increase its capital by offering 26.73 million shares, while suspending preemptive rights, at a value of SR427.68 million.
The reinsurance firm’s share price increased slightly by 0.11 percent to SR45.50.
Tamkeen Human Resources Co. stated that it will begin trading on Saudi Arabia’s main market on Nov. 27.
The daily and static fluctuation limits for the company’s stocks will be set at 30 percent and 10 percent, respectively, during the first three days of trading.
From the fourth day, the daily price fluctuation limits will revert to ±10 percent, and the static price fluctuation limits will no longer apply.
Saudi Arabia clinches 3rd-term presidency of Arab States Aviation Security Committee
JEDDAH: Saudi Arabia has been awarded the presidency of the Aviation Security Committee for a third consecutive term following a unanimous vote by member states.
The announcement was made during the recent 40th committee meeting held at the Arab Civil Aviation Organization’s headquarters in the Moroccan capital, Rabat.
The result underscores the Kingdom’s pivotal role and constructive efforts in dealing with regional and global developments in the aviation industry, according to the Saudi Press Agency.
It also underlines the Kingdom’s international standing in forums related to civil aviation and its engagement in specialized international organizations in the field.
Commenting on the reappointment, the General Authority of Civil Aviation’s executive vice president Mohammed Al-Fozan – who also serves as chairman of the Cooperative Aviation Security Program in the Middle East – underlined the significance of enhancing collaborative Arab efforts in aviation transportation security.
He also spoke of the importance of maintaining continuous communication to uphold the highest safety standards.
The vice president explained that Saudi Arabia, a member of ACAO since its creation in 1996, has been working to support the international organization’s efforts through active participation, coordination, and involvement in its corporate structures, the executive council, and its technical committees.
He assured that the Kingdom will continue its efforts to develop and support the Arab League-affiliated organization, enhance its international leadership role, and collaborate with stakeholders to strengthen the industry.
The Kingdom’s civil aviation sector saw a 17 percent annual increase in the first half of 2024 as it reached 62 million passengers, driven by rising domestic and international travel demand.
According to GACA, the period also saw 446,000 flights, a 12 percent rise compared to 2023.
Additionally, air cargo traffic at the country’s airports surged by 41 percent, reaching 606,000 tonnes during the same period.
These developments support Saudi Arabia’s aviation goals, which include tripling annual passenger numbers to 330 million, expanding connectivity to over 250 destinations from its 29 airports, and increasing air freight capacity to 4.5 million tons annually by 2030.
According to GACA, Saudi Arabia remains committed to supporting global civil aviation through various programs and initiatives.
This includes deploying experts to work with specialized bodies, hosting the permanent headquarters of the International Civil Aviation Organization’s CASP-MID, and housing the permanent hub of the Regional Safety Oversight Organization for the Middle East and North Africa.
SPA also highlighted the Kingdom’s $1 million contribution to ICAO under the “No Country Left Behind” initiative.
Saudi Arabia signs over $9.3bn in deals to boost supply chain resilience
RIYADH: Saudi Arabia has signed nine major agreements valued at SR35 billion ($9.31 billion) during the Global Supply Chain Resilience Initiative forum in Riyadh. The deals aim to enhance global trade connectivity and diversify the Kingdom’s economy.
The agreements span key sectors, including copper smelting, aluminum production, and rare earth processing. These projects align with GSCRI’s goal of attracting SR150 billion in export-focused investments by 2030. Saudi Arabia’s significant progress in logistics is reflected in its 17-place jump to 38th position in the World Bank’s 2023 Logistics Performance Index.
Key agreements
Notable agreements include ventures in copper smelting, refining, and rod production with Vedanta; titanium projects with Advanced Metals Industries Cluster and Tasnee; and rare earth processing facilities with Hastings. Other key deals involve semi-finished aluminum plants with Red Sea Aluminum and an aluminum foil rolling plant with Tahweel.
Further investments include zinc smelting opportunities with Moxico, a platinum group metals smelter and base metals refinery with Ajlan & Bros and Platinum Group, and lithium carbonate extraction along with a copper refinery project with Zijin Group.
One of the highlights of the forum is the signing of a deal to establish a state-of-the-art manufacturing facility with GlassPoint, marking the first step toward building the world’s largest industrial solar thermal project.
Strategic vision
Saudi Investment Minister Khalid Al-Falih emphasized that while globalization is ongoing, it is evolving into a new phase characterized by regionalization and the clustering of supply chains. “In the future, supply chains will be centered around where raw materials, energy, human resources, and capital coexist in an enabling business environment,” he said.
Al-Falih also highlighted the important roles of companies backed by the Public Investment Fund (PIF), such as Manara and Alat, in advancing sectors like mining and digital manufacturing.
Industrial and mining growth
Minister of Industry and Mineral Resources Bandar Alkhorayef reaffirmed Saudi Arabia’s ambition to become a leading industrial player on the global stage. “The country is focused on expanding its industrial base, entering new sectors, and playing a key role in global challenges, particularly in mining,” he stated.
As part of this vision, the Ministry of Industry and Mineral Resources has announced the qualification of both local and international firms to compete for exploration licenses in key mineralized areas, including Jabal Sayyad and Al-Hajar, which cover a combined 4,788 square kilometers. Eligible companies include Zijin Mining Group, Hancock Prospecting, and First Quantum Minerals.
Enhancing supply chain resilience
Minister of State Hamad Al-Sheikh underscored Saudi Arabia’s commitment to strengthening its logistical infrastructure and enhancing global supply chain resilience. He outlined several national strategies aimed at attracting both local and international investment, including the National Industrialization Strategy, the National Investment Strategy, the National Transportation and Logistics Strategy, and the National Agricultural Strategy.
However, Al-Sheikh also cautioned about the challenges posed by shifting market dynamics, geopolitical influences, and environmental considerations. “We must remain aware of the challenges arising from rapid changes in the global supply chain landscape,” he warned.
Aviation industry and logistical stance
President and board chairman of Boeing Saudi Arabia Asaad Al-Jomoai also took part in the event. His speech mainly focused on the Kingdom’s advancements in the aviation industry as well as its logistical positioning.
With regards to air mobility and environmental concerns, Al-Jomoai highlighted that Boeing has pledged that by the end of the decade, all its commercial jetliners will be compatible with sustainable aviation fuel.
“We think that the PSAF, which is producing sustainable aviation fuel using renewable energy, since the Kingdom has second-to-none infrastructure when it comes to the cost of renewable, I think that is a super attractive value proposition for companies like the Boeing Co. to look into sourcing PSAF down the road from the Kingdom of Saudi Arabia,” he said.
When it comes to Saudi Arabia’s logistical positioning, the chairman added: “We are at the crossroads of three continents, also at the crossroads of leading trade routes and energy flows and we also have very strategic and competitive energy landscape, both hydrocarbon and renewable energy in addition to world-class physical and digital infrastructure.”
Al-Jomoai further highlighted that the nation is leading the way in digitizing its government processes.
“The fiscal and monetary stability that the Kingdom offers investors is very rare around the world. I’d like to also highlight that the currency exchange has been fixed for the US dollar for a very long time, which gives certainty for many, many investors that we meet and that we engage with,” he said.
Launched in October 2022, the GSCRI initiative aims to position Saudi Arabia as a global supply chain hub by capitalizing on its strategic advantages and mitigating the impact of global disruptions. This initiative is an integral part of the ongoing 28th World Investment Conference in Riyadh, which continues until Nov. 27.
