What David Hodson does not know about the oil and gas business — and the multi-trillion-dollar financial infrastructure behind it — is probably not worth knowing.
The 64-year-old oil veteran has more than four decades’ experience in the sector, and now runs energy finance consultancy BluePearl Management in Dubai, offering advice to energy companies, project managers and banks, especially those working in what he calls the “tough neighborhoods” of the world — energy frontier markets such as Africa, Pakistan and Afghanistan.
With the global energy industry facing enormous change — prompted by the emergence of the US as a leading oil exporter, the potential widening of the Organization of Petroleum Exporting Countries (OPEC), and the rise of renewable energy — his expertise and experience are in demand.
“We all look forward to the brave new world of renewable energy, and also need to push for cleaner use of the hydrocarbons we know. But in the meantime, oil and gas make the world go round, and after a tough period, I definitely see a recovery now,” he told Arab News.
“The global product demand growth for oil and gas is being seen across India and Africa as these economies become much more energy intensive. On the production side, big projects are being developed in the gas and LNG production sector in East Africa,” he said.
Hodson explained the issues confronting the energy industry in the 21st century, and the challenges facing Middle East energy companies as they adapt to the “brave new world.” One factor, he believes, has transformed the oil world, and raised questions for traditional producers and exporters.
“The era of OPEC global dominance all changed in late 2015 when US crude export restrictions were removed. While it has taken some time for the global impact to be felt from US production, I believe OPEC’s strength has been forever reduced, and it is not in pole position anymore, especially as additional future non-OPEC production is likely to develop in places like Mexico, Africa, and Latin America,” he said.
“OPEC production quotas are likely to encounter problems in holding firm, especially among some members, as the oil price continues to rise. Hungry producers are looking to top up their cash and rescue ailing budgets. But the recent Russian cooperation with OPEC has really been an unprecedented lifeline for the producers when the market was oversupplied,” he said.
As an American, born in New Jersey, Hodson takes satisfaction from the rise of US oil to its present position. The country is now the second-largest producer in the world, having overtaken Saudi Arabia several months ago, and is set to leapfrog Russia to assume the number-one spot later this year.
Hodson came into the business via civil engineering, working with Mobil in the 1970s, before it merged with Exxon to become the biggest independent oil producer in the world. The coming together of the two companies in 1998 — by which time Hodson had left for pastures new — was as much a merger of cultures as of corporations.
“Mobil was always the more creative side of the industry, more global in its outlook compared with Exxon. My job was to build refineries, gas plants, pipelines — big projects, and the job gave me global experience, in Hong Kong, Tokyo, and Saudi Arabia,” he said.
Such billion-dollar projects take years to complete, involving a multitude of parties in planning, construction and finance, with the financing of the industry just as important as the on-the-ground business of drilling, refining and transporting. Hodson entered this world in 1994, swapping his hard hat for a business suit, when French financial institution Banque Paribas (which later merged with domestic rival BNP) came calling.
“The French wanted somebody for project finance, big structural projects, and I headed off to Paris. I was in Paribas HQ and got to know all the senior people there, just as the French were expanding in the oil and gas business in the Middle East.”
His focus at Paribas subsequently shifted across the Atlantic. At the time the energy business in Latin America was beginning to take off as new technologies allowed explorers to get to reserves that had hitherto been inaccessible. Swapping Paris for New York, he gained a different view of the global energy business.
“Venezuela was steaming with opportunities. The Venezuelans were waking up to the downstream potential of their enormous energy resources,” he said.
Hodson worked on Cerro Negro in the Orinoco fields, then one of the biggest-ever projects to convert extra-heavy crude to lighter, more marketable downstream products.
That trend toward the downstream has continued, and much of the attention in the global oil business is now on the value-adding potential beyond exploration and production.
This is particularly the case for Gulf producers. Saudi Aramco has put heavy emphasis on this area, which it sees as a way of adding value to its overall business, moving beyond a simple “pump and pipe” model. The Abu Dhabi National Oil Company (ADNOC), the UAE state-owned producer, is also concentrating on the downstream operations, and has promised multibillion-dollar investment and partnerships in the area. A top-level conference in the UAE’s capital in the coming week — the Abu Dhabi Downstream Investment Forum — is likely to provide further detail on this strategic shift.
“The awakening of ADNOC Downstream is very big and positive news for the UAE and the region. I believe that ADNOC will achieve their ambitious downstream-oriented goals with the involvement of well-organized joint venture partners. They are certain to become a real global oil, gas and petrochemical powerhouse and will realize much more profit from the overall value chain,” Hodson said.
His Paribas experience taught him enough to launch out on his own, and in the early 2000s he became an independent consultant based in Houston. But, as if to illustrate the vulnerability of the energy industry to unforeseeable external events, Hurricane Katrina in 2005 devastated the biggest energy centers of the world’s biggest economy. “Many of my clients were wiped out,” he said.
The French connection saw him through a difficult time. Societe Generale, another Paris-based financial institution, wanted to build an oil and gas business in the Middle East, and Hodson was made the Dubai-based managing director of the bank’s MENA business.
Another hurricane, this time a financial one, was about to rip through the energy business, with the global financial crisis of 2008. SocGen, as the French bank is informally known, had already experienced its own crisis with the revelation of heavy losses built up by “rogue trader” Jerome Kerviel,
and decided to pull in its horns across the world, including in the Middle East.
Once again, Hodson set out on his own, launching BluePearl in 2009, just as the dust was settling on the crisis. After being affected by the economic recession that followed the financial crisis, oil prices had began to recover quickly.
A short stint from 2011-13 at Standard Chartered, which was looking to bolster its investment banking business in energy, only served to reinforce the conviction that he was better equipped to go it alone.
He had relationships at a senior level with Saudi Aramco since the Paribas days in the early 1990s, and developed those further as the Saudi national oil company headed into the most turbulent and transformational time in its 80-year history: The era sparked by the 2014 collapse in the oil price and the launch of Saudi Arabia’s Vision 2030 economic transformation program, for which the planned initial public offering of Aramco is the keystone.
Hodson chose his words carefully on these issues. On the oil price, he said: “After three or more years of very limited capital expenditure into new global oil production, crude oil prices will rise and even spike until a new balance settles in to accommodate healthy global demand growth. Finding that new market balance will likely create volatility throughout this year into early 2019.
“There are so many variables. Oil production in Venezuela has plummeted due to incompetent government and Angola production has decreased significantly. The big question looming is on the Iran nuclear deal, with a decision expected by President Trump soon. New US sanctions would put even more pressure
into the market.”
On the Aramco IPO, he was equally cautious, but his thinking seems to be in line with the mood at Aramco’s Dhahran headquarters. “The mechanics of making it all work lie in how and when it is launched. I wonder if a ‘stepped approach’ wouldn’t be most practical — maybe first listing on the Saudi market, followed by an international venue launch after getting through a post-IPO settling-in period.
“But you have to ask: what is the rush for the global IPO listing? Unlike bond issues and syndicated loans, you only get to do an IPO once, so you need to get it right.”
Veteran oil man David Hodson on OPEC’s future after ‘tough period’ for energy market
Veteran oil man David Hodson on OPEC’s future after ‘tough period’ for energy market
Saudi PIF on track to reach $2tn in AuM, 2nd-largest globally by 2030
RIYADH: Saudi Arabia’s Public Investment Fund is set to be ranked second among the world’s sovereign wealth bodies by 2030 with $2 trillion in assets under management, according to monitoring organization Global SWF.
A report from the firm forecasts PIF will more than double its current AuM value of $925 billion by the end of the decade, and rise from its 2024 ranking of sixth among global state-owned investor funds.
According to projections from the institute, PIF’s AuM in 2030 will represent 10.5 percent of the global sovereign wealth funds’ total assets, which are set to reach $19 trillion, as it rises from sixth place
Diego Lopez, founder and managing director at Global SWF, said: “Capital attracts capital — so international financial institutions are attracted in partnering with a player with such a huge balance sheet and role in the economic development.”
According to the report, to achieve its ambitious goal of reaching $2 trillion by 2030, the PIF will depend on a combination of strategies. These include oil revenue allocations, which refer to the portion of the Kingdom’s oil earnings transferred to the PIF, debt issuance, and returns generated from its investments.
“Saudi Arabia needs to make its capital base sustainable, diversified and resilient to lower levels of oil prices,” Lopez told Arab News.
“That means raising debt, as PIF has been doing, and eventually raising equity through subsidiaries that can act as asset managers — we see this working very well in Abu Dhabi with Mubadala Capital, Lunate, etc,” he added.
According to the report, the PIF’s 10-year annualized return from 2013 to 2022 stood at 6.9 percent, outperforming the sovereign wealth fund average of 5.7 percent annually.
In 2024, the global economy showed resilience despite geopolitical risks and market uncertainties, with global GDP growth projected at 3.2 percent, slightly improving to 3.3 percent in 2025, according to the OECD.
The International Monetary Fund forecasts a subdued five-year outlook of 3.1 percent, reflecting weaker growth in China, Latin America, and the EU. Developed markets are facing slower growth due to tightening monetary policies, while developing economies maintain greater stability.
Central banks, led by the US Federal Reserve, began easing rates in 2024, responding to reduced inflationary pressures. According to the report, as the global economy adapts, sovereign wealth funds are increasingly focused on capital preservation and stimulating foreign direct investment, with those in the Middle East and North Africa region entering a new phase of growth.
Saudi Arabia offers robust economic expansion fueled by diversification initiatives and ambitious mega-projects like NEOM, the Red Sea Project, and Qiddiya.
PIF’s investments are strategically positioned to capitalize on these high-growth areas, making it a gateway for investors seeking exposure to dynamic emerging market opportunities.
GCC sees greater international attention
According to the report, global sovereign wealth funds have, for the first time, surpassed $13 trillion in assets under management, with capital heavily concentrated in two key regions — the Gulf Cooperation Council, holding 38 percent of the total, and Southeast Asia at 10 percent.
Interest in these powerful global investors remains strong, the report said, drawing heightened international attention to the GCC, a region with fewer than 60 million residents.
Previously named the “Region of the Year” by Global SWF, the GCC has seen a wave of global asset managers and bankers establishing local offices to capitalize on burgeoning opportunities. According to the report, the GCC-Southeast Asia axis is expected to continue driving growth across the sovereign wealth landscape.
PIF represented 7.11 percent of MENA’s sovereign wealth funds’ AuM, with assets totaling $925 billion.
Leading the rankings is Abu Dhabi Investment Authority at $1.11 trillion, followed by Kuwait Investment Authority with $969 billion.
Global sovereign wealth fund investments totaled $136.1 billion across 358 transactions in 2024. The “Oil Five” — ADIA, ADQ, PIF, QIA, and Mubadala — maintained their dominance, together accounting for 60 percent of the total investment value, amounting to $82 billion. As a result, they secured positions among the top 19 dealmakers of the year.
This marks a significant rise from $74 billion in both 2023 and 2022, $41 billion in 2021, $39 billion in 2020, and $28 billion in 2019, reflecting the accelerating investment momentum of these sovereign wealth giants.
While some Gulf sovereign wealth funds leaned toward emerging markets, including their domestic economies, developed markets remained the dominant choice for most global sovereign investors.
Saudi Arabia’s PIF, Abu Dhabi’s ADQ, and Qatar’s QIA exhibited a preference for emerging markets, reflecting their strategic focus on regional and high-growth economies.
PIF investments
According to the report, a significant factor driving the PIF’s growth is its projected boost in domestic spending to $70 billion annually by 2025.
The fund’s investment strategy is focused on high-growth sectors, including infrastructure, digitalization, AI, and renewable energy.
Among the top 15 largest global investments by sovereign wealth funds in 2024 was PIF’s $3 billion acquisition of a 51 percent stake in Saudi Arabia’s TAWAL and $2.16 billion of a 40 percent stake in Selfridges in the UK.
Other significant investments for the PIF include a 15 percent stake in Heathrow Airport for $1.8 billion.
According to the institute, the largest deals are consistently pursued by a select group of funds known for their substantial firepower and risk appetite. This group includes the top 10 spenders, with the GCC’s “Big 5” leading the way.
Mubadala emerged as the leading sovereign investor in 2024, deploying $29.2 billion across 52 deals, a 67 percent increase from the previous year. It was followed by GIC at $26.6 billion, CPP with $21.1 billion, PIF at $19.9 billion, and ADIA at $17.1 billion.
PIF has also ventured into artificial intelligence and space, co-investing in Databricks and launching Neo Space Group to advance Saudi Arabia’s satellite industry.
These initiatives reflect the fund’s commitment to positioning Saudi Arabia as a leader in global digital and technological innovation.
PIF saw a 24 percent decline in its US equity portfolio, the report said. At the beginning of 2024, the fund sold shares in 18 companies worth nearly $13 billion, including pandemic-era investments like gaming giant Activision Blizzard, cruise leader Carnival, and entertainment company Live Nation, which yielded strong returns.
According to Lopez: “The sale of the listed equities was about monetizing a huge upside from their purchase during covid, rather than about decreasing the overseas portfolio.”
The expert noted the importance to recognize that while PIF’s domestic portfolio may be growing relative to its international holdings, the overall assets under management continue to expand, with significant investments being made outside the Kingdom.
PIF has also made significant investments in the electric vehicle sector, despite facing challenges with earlier ventures.
In 2019, PIF divested from Tesla but doubled down on Lucid Motors, placing a major bet on the EV manufacturer.
This strategic move has required substantial funding, including $2.8 billion in 2024 alone. Despite the financial commitment, PIF remains focused on its long-term vision for Saudi Arabia, supporting Lucid’s growth with a manufacturing facility in King Abdullah Economic City.
In January, Lucid Motors became the first global automotive company to join the Kingdom’s “Made in Saudi” program, reinforcing the country’s push to strengthen its industrial capabilities.
The program also supports Vision 2030’s goals of attracting investments, boosting non-oil exports, and creating sustainable jobs, while positioning Saudi Arabia as a hub for innovation and manufacturing in the EV sector.
PIF’s debt financing
On Jan. 6, PIF announced the completion of its inaugural $7 billion murabaha credit facility, supported by a syndicate of 20 international and regional financial institutions.
This Shariah-compliant financing structure is part of the fund’s medium-term capital raising strategy, aimed at diversifying its funding sources to support transformative investments both globally and within Saudi Arabia.
According to another report published by Global SWF in January, PIF’s use of debt financing mirrors a growing trend among sovereign wealth funds and public pension funds, which have raised around $700 billion over the past two decades.
Despite strong credit ratings from Moody’s and Fitch, PIF faces pressure from surging domestic investment in giga-projects like NEOM and Qiddiya, with annual funding needs expected to rise from $40 billion in 2023 to $70 billion by 2025.
Sustaining investor confidence will depend on its ability to manage financial obligations and execute Vision 2030 goals.
While markets currently support PIF’s sovereign-backed debt, delays or disruptions could strain resources and affect its ambitious agenda, making its financing strategy critical for both national economic transformation and global sovereign investment trends.
However, PIF’s diversified funding strategy, coupled with its ability to attract global partnerships, positions it as a transformative force capable of reshaping Saudi Arabia’s economic future and reinforcing its role as a leading driver of global investment innovation.
Oil Updates — crude jumps on concerns about more sanctions on Russia and Iran
LONDON: Oil prices surged on Friday and were on track for a third straight week of gains as traders focused on potential supply disruptions from more sanctions on Russia and Iran.
Brent crude futures gained $2.50, or 3.3 percent, to $79.42 a barrel by 3:48 p.m. Saudi time, reaching their highest in more than three months. US West Texas Intermediate crude futures advanced $2.39, or 3.2 percent, to $76.31.
“There are several drivers today. Longer term, the market is focused on the prospect for additional sanctions,” said Ole Hansen, head of commodity strategy at Saxo Bank. “Short term, the weather is very cold across the US, driving up demand for fuels.”
Ahead of US President-elect Donald Trump’s inauguration on Jan. 20, expectations are mounting over potential supply disruptions from tighter sanctions against Iran and Russia while oil stockpiles remain low.
This could materialize even earlier, with US President Joe Biden expected to announce new sanctions targeting Russia’s economy before Trump takes office. A key target of sanctions so far has been Russia’s oil industry.
The US weather bureau expects central and eastern parts of the country to experience below-average temperatures. Many regions in Europe have also been hit by extreme cold and are likely to continue to experience a colder than usual start to the year, which JPMorgan analysts expect to boost demand.
“We anticipate a significant year-over-year increase in global oil demand of 1.6 million barrels a day in the first quarter of 2025, primarily boosted by ... demand for heating oil, kerosene and LPG,” they said in a note on Friday.
Meanwhile, the premium on the front-month Brent contract over the six-month contract reached its widest since August this week, potentially indicating supply tightness at a time of rising demand.
Inflation worries are also delivering a boost to crude oil prices, said Saxo Bank’s Hansen. Investors are growing concerned about Trump’s planned tariffs, which could drive inflation higher. A popular trade to hedge against rising consumer prices is through buying oil futures.
Oil prices have rallied despite the US dollar strengthening for six straight weeks, making crude oil more expensive outside the US.
SABIC, Almarai, SEC able to absorb fuel price hike: S&P Global
RIYADH: Major Saudi companies, including chemical company SABIC, dairy firm Almarai, and Saudi Electric Co., are well-positioned to handle the impact of higher fuel and feedstock prices introduced on Jan. 1, according to a new report.
Released by capital market economy firm S&P Global, the analysis reveals that those corporates will be able to absorb the marginal increase in production costs by further improving operational efficiencies as well as potentially via pass-through mechanisms.
This came after Saudi Aramco increased diesel prices in the Kingdom to SR1.66 ($0.44) per liter, effective Jan. 1, marking a 44.3 percent rise compared to the start of 2024. The company has kept gasoline prices unchanged, with Gasoline 91 priced at SR2.18 per liter and Gasoline 93 at SR2.33 per liter.
Despite the hike, diesel prices in Saudi Arabia remain lower than those in many neighboring Arab countries. In the UAE and Qatar, a liter of diesel is priced at $0.73 and $0.56, respectively, while in Bahrain and Kuwait, it costs $0.42 and $0.39 per liter.
“For SABIC and Almarai, the increase in feedstock prices will not affect profitability significantly. In the case of utility company, SEC, additional support will likely come from the government if needed,” the report said.
The capital market economy firm projects that SABIC will continue to outperform global peers on profitability.
“We don’t expect the rise in feedstock and fuel prices to materially affect profitability, since the company estimates it will increase its cost of sales by only 0.2 percent,” the report said.
It further highlighted that SABIC is considered a government-related entity with a high possibility of receiving support when needed.
The report also underlines that Almarai anticipates an additional SR200 million in costs for 2025, driven by higher fuel prices and the indirect effects of increased expenses across other areas of its supply chain.
“We believe Almarai will continue focusing on business efficiency, cost optimization, and other initiatives to mitigate these impacts,” the release stressed.
With regards to SEC, S&P said that an unrestricted and uncapped balancing account provides a mechanism for government support, including related to the higher fuel costs.
“We believe any increased fuel cost will be covered by this balancing account,” the report said.
The study further highlights that the marginal increase “could significantly affect wider Saudi corporations’ profit margins and competitiveness.”
The S&P data also suggests that additional costs will be reflected in companies’ financials from the first quarter of 2025.
“Saudi Arabia is continuing its significant and rapid transformation under the country’s Vision 2030 program. We expect an acceleration of investments to diversify the Saudi economy away from its reliance on the upstream hydrocarbon sector,” the report said.
“The sheer scale of projects — estimated at more than $1 trillion in total — suggests large funding requirements. Higher feedstock and fuel prices would help reduce subsidy costs for the government, with those savings potentially redeployed to Vision 2030 projects,” it added.
Lenovo to produce ‘Saudi Made’ PCs by 2026 following $2bn Alat deal closure
RIYADH: Chinese tech giant Lenovo is set to manufacture millions of computer devices in Saudi Arabia by 2026, following the completion of a $2 billion investment deal with Alat, a subsidiary of the Public Investment Fund.
First announced in May, the partnership has now received shareholder and regulatory approvals, paving the way for Lenovo to establish a regional headquarters and a manufacturing facility in the Kingdom.
The deal marks a significant step in aligning Lenovo’s growth ambitions with Saudi Arabia’s Vision 2030 goals of economic diversification, innovation, and job creation, the company said in a press release.
The factory will manufacture millions of PCs and servers every year using local research and development teams for fully end-to-end “Saudi Made” products and is expected to begin production by 2026, it added.
“Through this powerful strategic collaboration and investment, Lenovo will have significant resources and financial flexibility to further accelerate our transformation and grow our business by capitalizing on the incredible growth momentum in KSA and the wider MEA region,” Yang said.
He added: “We are excited to have Alat as our long-term strategic partner and are confident that our world-class supply chain, technology, and manufacturing capabilities will benefit KSA as it drives its Vision 2030 goals of economic diversification, industrial development, innovation, and job creation.”
Amit Midha, CEO of Alat, underscored the significance of the partnership for both Lenovo and the Kingdom.
“We are incredibly proud to become a strategic investor in Lenovo and partner with them on their continued journey as a leading global technology company,” said Midha.
“With the establishment of a regional headquarters in Riyadh and a world-class manufacturing hub, powered by clean energy, in the Kingdom of Saudi Arabia, we expect the Lenovo team to further their potential across the MEA region,” he added.
The partnership is expected to generate thousands of jobs, strengthen the region’s technological infrastructure, and attract further investment into the Middle East and Africa, according to the press release.
In May, Lenovo raised $1.15 billion through the issuance of warrants to support its future growth plans. The initiative, which was fully subscribed by investors, signals confidence in Lenovo’s strategic approach and its plans for global expansion.
The investment deal was advised by Citi and Cleary Gottlieb Steen & Hamilton for Lenovo, while Morgan Stanley and Latham & Watkins represented Alat.
Lebanon’s bonds climb as parliament elects first president since 2022
LONDON: Lebanon’s government bonds extended a three-month long rally on Thursday as its parliament voted in a new head of state for the crisis-ravaged country for the first time since 2022.
Lebanese lawmakers elected army chief Joseph Aoun as president. It came after the failure of 12 previous attempts to pick a president and the move boosts hopes that Lebanon might finally be able to start addressing its dire economic woes.
Lebanon’s battered bonds have almost trebled in value since September when the regional conflict with Israel weakened Lebanese armed group Hezbollah, long viewed as an obstacle to overcoming the country’s political paralysis.
Most of Lebanon’s international bonds, which have been in default since 2020, rallied after Aoun’s victory was announced to stand between 0.8 and 0.9 cents higher on the day and at nearly 16 cents on the dollar.
They have also risen almost every day since late December, although they remain some of the lowest priced government bonds in the world, reflecting the scale of Lebanon’s difficulties.
With its economy still reeling from a devastating financial collapse in 2019, Lebanon is in dire need of international support to rebuild from the war, which the World Bank estimates to have cost the country $8.5 billion.
