Easwaran Kanason

Co - founder of NrgEdge
Last Updated: September 25, 2019
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Business Trends

The furore over the drone attack on the heart of Saudi oil infrastructure which shook the oil world, glossed over another important development in the heart of the Saudi oil world. Khalid al-Falih, the public face of the Saudi Arabia’s oil riches who had presided over countless OPEC and global negotiations, has fallen. Replaced swiftly by loyalists to Crown Prince Mohammad bin Salman, the shake-up heralds a new era for Saudi Arabia’s leadership in the oil world.

To understand the gravity of the situation, you have to consider the responsibilities of Khalid al-Falih. Serving as CEO of Saudi Aramco from 2009 - 2015 and as the all-powerful Minister of Energy, Industry and Mineral Resources from 2016 (while simultaneously being the chairman of Aramco), al-Falih was possibly the most powerful person in the oil world during this period. And one of the most respected as well. Responsible to corralling quarrelsome OPEC members and crafting the OPEC+ club to lift crude prices from their 2014 nadir, al-Falih had a reputation that inspired confidence. In fact, in the fallout of the Jamal Khashoggi assassination, al-Falih was tasked with restoring assurance in the Kingdom for a restless audience immediately after at the Davos in the Desert conference in Riyadh.

That was just a year ago. And now al-Falih is gone. The affair rolled out in stages. At first, it was announced that the single Ministry of Energy, Industry and Mineral Resources would be split into two – one for energy and one for industry and mineral resources. At that point, it was assumed that al-Falih would remain the head of the new, smaller Ministry of Energy in charge of energy policy. A couple of days later, al-Falih was replaced as chairman of Saudi Aramco by Yasir al-Rumayyan, the head of the country’s powerful sovereign wealth fund. Again, it was assumed that this split had to happen due to the impending Aramco IPO that would require separation between energy policy and energy operations.

Then the axe fell.

Four days later, al-Falih was dismissed as the Minister of Energy, replaced with a member of the Crown Prince’s inner circle, Prince Abdulaziz bin Salman. The purge was complete. With members of the Crown Prince’s inner circle now occupying the key positions, the stage was set for the Vision 2030 national plan, to transform the Saudi Arabian economy away from oil dependence. To accelerate al-Falih, with his more measured approach, was seen a roadblock. Past performance was ignored, and the change came swiftly, as it does in Saudi Arabia.

But the lead-up to that change was more nuanced. Al-Falih played a key role in crafting the Vision 2030 strategy. Under him, Saudi Aramco embarked on a massive downstream expansion that included securing stakes in key refineries in strategic markets and took over petrochemicals giant SABIC. But there he also made some decisions that apparently did not go down well the Crown Prince. Chief among this was his reticence to push forward with Aramco’s planned IPO hastily, which placed him directly in opposition to the impatient Crown Prince’s demands for dynamism. And with oil prices still subdued despite al-Falih’s best efforts to whip OPEC+ into shape, al-Falih’s position had been weakened. 

In a world where the Crown Prince of Saudi Arabia demands results yesterday while al-Falih was preparing for a careful tomorrow, one had to go. So, with all positions in place to accelerate Saudi Arabia’s development plans, it should be pedal to the metal now. But without more considered approach, will the Crown Prince be able to sustain control of this speeding vehicle as al-Falih did in the past?

 Khalid al-Falih’s career in a snapshot:

  • Joined Saudi Aramco in 1979
  • Elected to Saudi Aramco Board of Directors in 2004
  • Appointed CEO of Saudi Aramco in 2009
  • Appointed Minister of Energy, Industry and Mineral Resources in 2017
  • Dismissed from all positions in September 2019

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Crown Prince of Saudi Arabia Prince Salman Khalid al-Falih Sabic Aramco Saudi Arabia Prince Abdulaziz bin Salman
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Traditionally, the European players have led this drive. Which is unsurprising, since the EU has been the most driven in this acceleration. But even the US giants are following suit. In the past year, Chevron has poured an incredible amount of cash and effort in pioneering renewables. Its motives might be less than altruistic, shareholders across America have been particularly vocal about driving this transformation but the net results will be positive for all.

Chevron’s recent efforts have focused on biomethane, through a partnership with global waste solutions company Brightmark. The joint venture Brightmark RNG Holdings operations focused on convert cow manure to renewable natural gas, which are then converted into fuel for long-haul trucks, the very kind that criss-cross the vast highways of the US delivering goods from coast to coast. Launched in October 2020, the joint venture was extended and expanded in August, now encompassing 38 biomethane plants in seven US states, with first production set to begin later in 2021. The targeting of livestock waste is particularly crucial: methane emissions from farms is the second-largest contributor to climate change emissions globally. The technology to capture methane from manure (as well as landfills and other waste sites) has existed for years, but has only recently been commercialised to convert methane emissions from decomposition to useful products.

This is an arena that another supermajor – BP – has also made a recent significant investment in. BP signed a 15-year agreement with CleanBay Renewables to purchase the latter’s renewable natural gas (RNG) to be mixed and sold into select US state markets. Beginning with California, which has one of the strictest fuel standards in the US and provides incentives under the Low Carbon Fuel Standard to reduce carbon intensity – CleanBay’s RNG is derived not from cows, but from poultry. Chicken manure, feathers and bedding are all converted into RNG using anaerobic digesters, providing a carbon intensity that is said to be 95% less than the lifecycle greenhouse gas emissions of pure fossil fuels and non-conversion of poultry waste matter. BP also has an agreement with Gevo Inc in Iowa to purchase RNG produced from cow manure, also for sale in California.

But road fuels aren’t the only avenue for large-scale embracing of renewables. It could take to the air, literally. After all, the global commercial airline fleet currently stands at over 25,000 aircraft and is expected to grow to over 35,000 by 2030. All those planes will burn a lot of fuel. With the airline industry embracing the idea of AAF (or Alternative Aviation Fuels), developments into renewable jet fuels have been striking, from traditional bio-sources such as palm or soybean oil to advanced organic matter conversion from agricultural waste and manure. Chevron, again, has signed a landmark deal to advance the commercialisation. Together with Delta Airlines and Google, Chevron will be producing a batch of sustainable aviation fuel at its El Segundo refinery in California. Delta will then use the fuel, with Google providing a cloud-based framework to analyse the data. That data will then allow for a transparent analysis into carbon emissions from the use of sustainable aviation fuel, as benchmark for others to follow. The analysis should be able to confirm whether or not the International Air Transport Association (IATA)’s estimates that renewable jet fuel can reduce lifecycle carbon intensity by up to 80%. And to strengthen the measure, Delta has pledged to replace 10% of its jet fuel with sustainable aviation fuel by 2030.

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Market Outlook:

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