Rumours are swirling that the world’s largest IPO ever, might just slip a few months into 2019. Though Saudi Finance Minister Mohammed al-Jadaan told investors just recently on the 25th of September that the IPO of Saudi state oil giant Aramco will proceed as planned in 2018. Saudi Aramco said in a statement that the IPO remains ‘on track’, underlining that it was committed to ensuring high standards.
However, there are a few big questions that have not been answered. The question of where Aramco will list has still yet to be answered. It will float on the domestic stock exchange in Riyadh, that is certain, but an IPO this size needs a major international exchange. The options for that would be either London or New York. Neither has been selected yet. It appears that Aramco will only formally announce this in late October, when a big investment conference in Riyadh is scheduled.
Once it is confirmed where Aramco will float, then the rest of the preparatory work can continue – having been contingent on this choice. It is a tight timeframe; 12 months is a short span to iron out all details and kinks, which is why the IPO may very well slip into the early months of 2019. But meanwhile, Aramco is taking steps to restructure itself into a contemporary supermajor, instead of the state entity it has always operated as.
In the past few months, Aramco has struck strategic partnerships with several key countries as it moves from simply selling crude, to ensuring its crude has place and space in a competitive world. It is deploying new technology in the Rub al Khalid – the vast Empty Quarter – that could help shore up and increase crude reserves. It has taken full ownership of Motiva in the US, home to the largest refinery in America. Mega-refinery partnerships have been signed in China, India and Malaysia – ensuring captive demand. And just last week, Aramco announced that would be buying and selling non-Saudi crude for the first time even.
That will form the lynchpin of an expanded trading business, which will put crude marketing and refined product trading under the same management. Currently, both are separate. Crude selling is crude selling, done in Singapore and Dahran. And refined products, which already includes non-Saudi fuels, is done out of London. Combining the two under one structure is a shift in policy for Aramco, approximating the arrangement of something like ExxonMobil, PetroChina or Glencore. Trading of Saudi crude will still be a priority, but expanding coverage will help Saudi Trading – set to be based in Singapore – cover its supply chain more efficiently to plug in gaps as they appear, as well as become a strong profit driver in its own right. This would be unthinkable five years ago. But to appeal to international investors, Aramco has to show them that its businesses are on part with the biggest international companies.
At home, Saudi Arabia is also planning to phase out subsidies for gasoline and jet fuel, which would lit them up by almost 80% to international levels. Prices for gasoil and fuel oil – both heavily used in power generation, particularly in summer – will be reformed, at a more gradual pace. Saudi Arabia also plans to introduce value-added tax (VAT), scheduled to be implemented at the start of 2018. Details of the Citizen’s Account, a household allowance scheme intended to reduce the impact of austerity policies on low and middle-income Saudi families would be announced in the coming weeks. While this is mainly focused on balancing the government’s budget, it has a knock-on effect on Aramco. Previously, Aramco only had to answer to the Saudi King when it came to diverting funds from the company to balance out the rest of the economy. As a publicly traded company, this will come under intense scrutiny. By removing subsidies, it removes a drain on the Aramco coffers, which is a necessary change for a publicly-traded company. Too long has the country been dependent on Saudi Aramco as the national bank account. This IPO is a chance to restructure and rejuvenate the entire economy, making it leaner, fitter and more competitive.
All of this makes a delay in the IPO more and more likely. This isn’t just a simple floating of shares. This is an attempt to remake the world’s most valuable company and an entire country to be more dynamic economically and modern. In that context, waiting a few more months to ensure every checkbox is ticked is far, far better in the long run.
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Source: U.S. Energy Information Administration, Preliminary Monthly Electric Generator Inventory
In both 2019 and 2020, project developers in the United States installed more wind power capacity than any other generating technology. According to data recently published by the U.S. Energy Information Administration (EIA) in its Preliminary Monthly Electric Generator Inventory, annual wind turbine capacity additions in the United States set a record in 2020, totaling 14.2 gigawatts (GW) and surpassing the previous record of 13.2 GW added in 2012. After this record year for wind turbine capacity additions, total wind turbine capacity in the United States is now 118 GW.
The impending phaseout of the full value of the U.S. production tax credit (PTC) at the end of 2020 primarily drove investments in wind turbine capacity that year, just as previous tax credit reductions led to significant wind capacity additions in 2012 and 2019. In December 2020, Congress extended the PTC for another year.
Source: U.S. Energy Information Administration, Electric Power Monthly
Texas has the most wind turbine capacity among states: 30.2 GW were installed as of December 2020. In 2020, Texas generated more electricity from wind than the next three highest states (Iowa, Oklahoma, and Kansas) combined. However, Texas generates and consumes more total electricity than any other state, and wind remains slightly less than 20% of the state’s electricity generation mix.
In two other states—Iowa and Kansas—wind is the most prevalent source of in-state electricity generation. In both states, wind surpassed coal as the state’s top electricity generation source in 2019.
Source: U.S. Energy Information Administration, Electric Power Monthly
Nationally, 8.4% of utility-scale electricity generation in 2020 came from wind turbines. Many of the turbines added in late 2020 will contribute to increases in wind-powered electricity generation in 2021. EIA expects wind’s share of electricity generation to increase to 10% in 2021, according to forecasts in EIA’s most recent Short-Term Energy Outlook.
It was a good run while it lasted. Almost exactly a decade ago, the military junta in Myanmar was dissolved, following civilian elections. The country’s figurehead, Aung San Suu Kyi, was released from house arrest to lead, following in the footsteps of her father. Although her reputation has since been tarnished with the Rohingya crisis, she remains beloved by most of her countrymen, and her installation as Myanmar’s de facto leader lead to a golden economic age. Sanctions were eased, trade links were restored, and investment flowed in, not least in the energy sector. Yet the military still remained a powerful force, lurking in the background. In early February, they bared their fangs. Following an election in November 2020 in which Aung San Suu Kyi’s National League for Democracy (NLD) won an outright majority in both houses of Parliament. A coup d’etat was instigated, with the Tatmadaw – the Burmese military – decrying fraud in the election. Key politicians were arrested, and rule returned to the military.
For many Burmese, this was a return to a dark past that many thought was firmly behind them. Widespread protests erupted, quickly turning violent. The Tatmadaw still has an iron grip, but it has created some bizarre situations – ordinary Burmese citizens calling on Facebook and foreign governments to impose sanctions on their country, while the Myanmar ambassador to the United Nations was fired for making an anti-army speech at the UN General Assembly.
The path forward for Myanmar from this point is unclear. The Tatmadaw has declared a state of emergency lasting up to a year, promising new elections by the end of 2021. There is little doubt that the NLD will win yet another supermajority in the election, IF they are fair and free. But that is a big if. Meanwhile, the coup threatens to return Myanmar to the pariah state that it was pre-2010. And threatens to abort all the grand economic progress made since.
In the decade since military rule was abolished, development in Myanmar has been rapid. In the capital city Yangon, glittering new malls have been developed. The Ministry of Energy in 2009 was housed in a crumbling former high school; today, it occupies a sprawling complex in the new administrative capital of Naypyidaw. While not exactly up to the level of the Department of Energy in Washington DC, it is certainly no longer than ministry that was once reputed to take up to three years to process exploration licences for offshore oil and gas blocks.
And it is that very future that is now at stake. Energy has been a great focus for investment in Myanmar, drawn by the rich offshore deposits in the Andaman Sea and the country’s location as a possible pipeline route between the Middle East and inland China. Estimates suggest that – based on pre-coup trends – Myanmar was likely to attract over US$1.1 billion in upstream investment in 2023, more than four times projected for 2021 and almost 20 times higher than 2011. The funds would not only be directed at maintaining production at the current Yadana, Yetagun, Zawtika and Shwe gas fields – where offshore production is mainly exported to Thailand, but also upcoming megaprojects such as Woodside and Total’s A-6 deepwater natural gas and PTTEP’s Aung Sinka Block M3 developments.
The coup now presents foreign investors in Myanmar’s upstream energy sector with a conundrum and reputational risk. Stay, and risk being seen as abetting an undemocratic government? Or leave, and risk being flushing away years of hard work? The home governments of foreign investors such as Total, Chevron, PTTEP, Woodside, Petronas, ONGC, Nippon Oil, Kogas, POSCO, Sumitomo, Mitsui and others have already condemned the coup. For now these companies are hoping that foreign pressure will resolve the situation in a short enough timeframe to allow business to resume. Australia’s Woodside Petroleum has already called the coup a ‘transitionary issue’ claiming that it will not affect its exploration plans, while other operators such as Total and Petronas have focused on the safety of their employees as they ‘monitor the evolving situation’.
But the longer the coup lasts without a resolution satisfactory to the international community and the longer the protests last (and the more deaths that result from that), the more untenable the position of the foreign upstream players will be. Asian investors, especially the Chinese, mainly through CNPC/PetroChina, and the Thais, through PTTEP - will be relatively insulated, but American and European majors face bigger risks. This could jeopardise key projects such as the Myanmar-to-China crude oil and natural gas pipeline project (a 771km connection to Yunnan), two LNG-to-power projects (Thaketa and Thilawa, meant to deal with the country’s chronic blackouts) and the massive Block A-6 gas development in the Shwe Yee Htun field by Woodside which just kicked off a fourth drilling campaign in December.
It is a big unknown. The Tatmadaw has proven to be impervious to foreign criticism in the past, ignoring even the most stringent sanctions thrown their way. In fact, it was a huge surprise that the army even relinquished power back in 2010. But the situation has changed. The Myanmar population is now more connected and more aware, while the army has profited off the opening of the economy. The economic consequences of returning to its darker days might be enough to trigger a resolution. But that’s not a guarantee. What is certain is that the coup will have a lasting effect on energy investment and plans in Myanmar. How long and how deep is a question that only the Tatmadaw can answer.
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The year 2020 was exceptional in many ways, to say the least. All of which, lockdowns and meltdowns, managed to overshadow a changing of the guard in the LNG world. After leapfrogging Indonesia as the world’s largest LNG producer in 2006, Qatar was surpassed by Australia in 2020 when the final figures for 2019 came in. That this happened was no surprise; it was always a foregone conclusion given Australia’s massive LNG projects developed over the last decade. Were it not for the severe delays in completion, Australia would have taken the crown much earlier; in fact, by capacity, Australia already sailed past Qatar in 2018.
But Australia should not rest on its laurels. The last of the LNG mega-projects in Western Australia, Shell’s giant floating Prelude and Inpex’s sprawling Ichthys onshore complex, have been completed. Additional phases will provide incremental new capacity, but no new mega-projects are on the horizon, for now. Meanwhile, after several years of carefully managing its vast capacity, Qatar is now embarking on its own LNG infrastructure investment spree that should see it reclaim its LNG exporter crown in 2030.
Key to this is the vast North Field, the single largest non-associated gas field in the world. Straddling the maritime border between tiny Qatar and its giant neighbour Iran to the north, Qatar Petroleum has taken the final investment decision to develop the North Field East Project (NFE) this month. With a total price tag of US$28.75 billion, development will kick off in 2021 and is expected to start production in late 2025. Completion of the NFE will raise Qatar’s LNG production capacity from a current 77 million tons per annum to 110 mmtpa. This is easily higher than Australia’s current installed capacity of 88 mmtpa, but the difficulty in anticipating future utilisation rates means that Qatar might not retake pole position immediately. But it certainly will by 2030, when the second phase of the project – the North Field South (NFS) – is slated to start production. This would raise Qatar’s installed capacity to 126 mmtpa, cementing its lead further still, with Qatar Petroleum also stating that it is ‘evaluating further LNG capacity expansions’ beyond that ceiling. If it does, then it should be more big leaps, since this tiny country tends to do things in giant steps, rather than small jumps.
Will there be enough buyers for LNG at the time, though? With all the conversation about sustainability and carbon neutrality, does natural gas still have a role to play? Predicting the future is always difficult, but the short answer, based on current trends, it is a simple yes.
Supermajors such as Shell, BP and Total have set carbon neutral targets for their operations by 2050. Under the Paris Agreement, many countries are also aiming to reduce their carbon emissions significantly as well; even the USA, under the new Biden administration, has rejoined the accord. But carbon neutral does not mean zero carbon. It means that the net carbon emissions of a company or of a country is zero. Emissions from one part of the pie can be offset by other parts of the pie, with the challenge being to excise the most polluting portions to make the overall goal of balancing emissions around the target easier. That, in energy terms, means moving away from dirtier power sources such as coal and oil, towards renewables such as solar and wind, as well as offsets such as carbon capture technology or carbon trading/pricing. Natural gas and LNG sit right in the middle of that spectrum: cleaner than conventional coal and oil, but still ubiquitous enough to be commercially viable.
So even in a carbon neutral world, there is a role for LNG to play. And crucially, demand is expected to continue rising. If ‘peak oil’ is now expected to be somewhere in the 2020s, then ‘peak gas’ is much further, post-2040s. In 2010, only 23 countries had access to LNG import facilities, led by Japan. In 2019, 43 countries now import LNG and that number will continue to rise as increased supply liquidity, cheaper pricing and infrastructural improvements take place. China will overtake Japan as the world’s largest LNG importer soon, while India just installed another 5 mmtpa import terminal in Hazira. More densely populated countries are hopping on the LNG bandwagon soon, the Philippines (108 million people), Vietnam (96 million people), to ensure a growing demand base for the fuel. Qatar’s central position in the world, sitting just between Europe and Asia, is a perfect base to service this growing demand.
There is competition, of course. Russia is increasingly moving to LNG as well, alongside its dominant position in piped natural gas. And there is the USA. By 2025, the USA should have 107 mmtpa of LNG capacity from currently sanctioned projects. That will be enough to make the USA the second-largest LNG exporter in the world, overtaking Australia. With a higher potential ceiling, the USA could also overtake Qatar eventually, since its capacity is driven by private enterprise rather than the controlled, centralised approach by Qatar Petroleum. The appearance of US LNG on the market has been a gamechanger; with lower costs, American LNG is highly competitive, having gone as far as Poland and China in a few short years. But while the average US LNG breakeven cost is estimated at around US$6.50-7.50/mmBtu, Qatar’s is even lower at US$4/mmBtu. Advantage: Qatar.
But there is still room for everyone in this growing LNG market. By 2030, global LNG demand is expected to grow to 580 million tons per annum, from a current 360 mmtpa. More LNG from Qatar is not just an opportunity, it is a necessity. Traditional LNG producers such as Malaysia and Indonesia are seeing waning volumes due to field maturity, but there is plenty of new capacity planned: in the USA, in Canada, in Egypt, in Israel, in Mozambique, and, of course, in Qatar. In that sense, it really doesn’t matter which country holds the crown of the world’s largest exporter, because LNG demand is a rising tide, and a rising tide lifts all 😊