Global petroleum demand should reach pre-pandemic levels by early 2022, putting Saudi Arabia’s state-owned oil company in a sweet spot as it boosts production, executives said Monday. 

Aramco Earnings

Saudi Arabian Oil Co., aka Aramco, saw a 288% jump in profits from a year ago as oil prices jumped. Petroleum consumption is rising as vaccination rates improve and travel expands, CEO Amin H. Nasser said during a quarterly conference call. 

Aramco’s solid results primarily were driven by higher oil prices and a recovery in worldwide demand, “supported by the global easing of Covid-19 restrictions, vaccination campaigns, stimulus measures and accelerating activity in key markets,” Nasser noted. 

“We are heading into the second half of 2021 more resilient and more flexible, as the global recovery gains momentum. While there is still some uncertainty around the challenges posed by Covid-19 variants, we have shown that we can adapt swiftly and effectively to changing market conditions.”

Pre-Pandemic Oil Demand In 2022

Newly installed CFO Ziad al-Murshe joined Nasser on the call. The 30-year Aramco veteran led the company through its 2019 public offering. The oil markets “are starting to recover,” he said. 

Global oil demand should recover to pre-pandemic levels by 2022. 

“We are confident in the outlook,” al-Murshe said. “Looking back at the first two quarters of the year, we clearly see the recovery in oil demand and more importantly, with discipline in supply.”

With global demand now escalating, Aramco plans to increase its “maximum sustainable capacity” of oil production to 13 million b/d from 12 million b/d, he said. “We’re also growing our gas business to meet the growing capital, domestic demand at commercial rates of return and to provide feedstock for our blue hydrogen.”

Aramco is the sole supplier of gas to Saudi Arabia, which is the seventh largest gas market in the world. In 2019, the Kingdom had proven gas reserves estimated at 237.4 Tcf. 

During 2Q2021, the Hawiyah Unayzah Reservoir Gas Storage program approached its final engineering design phase, with procurement and construction activities continuing. The program is designed to provide up to 2.0 Bcf/d for re-introduction into the country’s Master Gas System by 2024.

Aramco had planned by 2030 to be among the world’s top gas producers and liquefied natural gas (LNG) exporters. However, the energy transition has upended some assumptions, leading the oil giant toward a goal to become one of the world’s leading blue hydrogen manufacturers and exporters. Exporting LNG is no longer a priority.

Blue hydrogen is manufactured from natural gas, with emissions reduced through carbon capture and sequestration (CCS). That makes CCS a big priority for Aramco too, al-Murshe told analysts. 

Global Trading Expansion

In the downstream, the chemicals assets of Saudi Basic Industries Corp., aka Sabic, are being integrated with an eye toward “transforming and expanding” the global trading arm.

“We’re also focusing on further de-risking our upstream position through expanding dedicated outlets for our crude oil that have high conversion rates into chemicals,” said the CFO.

While Aramco has brought on minority partners for some of its projects, it’s not giving an inch as to how the assets are managed.

“As we grow, we will continue to optimize our portfolio and unlock and redeploy capital, while retaining control of operations,” al-Mushfe said.

In a landmark transaction in May, Aramco raised $12.4 billion to sell a minority stake in its oil pipeline operations to a consortium led by U.S.-based EIG Global Energy Partners. Aramco continues as majority shareholder with 51%. 

“Our historic $12.4 billion pipeline deal was an endorsement of our long-term business strategy by international investors, representing significant progress in our portfolio optimization program,” Nasser said. 

In June, Aramco raised $6 billion in a securities sale, aka sukuk. The sukuk attracted 20 times the initial targeted issuance size, which in turn “reinforced our robust balance sheet, further diversifying our funding sources and expanding our investor base. 

“We continue to move forward on a number of strategic programs, which focus on sustainability and low-carbon fuels, maximizing the value of our assets, and advancing our downstream integration and expansion journey,” Nasser said. “For all these reasons and more, I remain extremely positive about the second half of 2021 and beyond.”

Total hydrocarbon production averaged 11.7 million boe/d in 2Q2021. In the first half of 2021, output averaged 11.6 million boe, down from 12.7 million boe in the first half of 2020. Oil production in the first six months averaged 8.6 million b/d, down from 9.5 million b/d in the first half of 2020.

Net income soared year/year to $25.5 billion (12 cents/share) from $6.6 billion (13 cents) in 2Q2020. Revenue jumped to $312 billion from $123 billion. Free cash flow rose by 270% to $22.6 billion.

Capital expenditures (capex) came in at $7.5 billion, up 20% year/year. Initial capex guidance for 2021 remains at $35 billion.