As global oil markets tumble, tensions in the Persian Gulf threaten to further disrupt supplies, keeping traders and governments on edge, with Saudi Aramco’s chief executive warning that the impact on global oil markets will be “catastrophic”.
In his first public remarks since the conflict disrupted energy supplies to the Middle East, the head of the region’s biggest oil producer said Aramco could divert more oil through an alternative route that bypasses the Strait of Hormuz.
However, the company is still unable to deliver its usual volumes due to capacity constraints.
Nasser said: “The longer the disruption continues and the more drastic the consequences for the global economy, they will have catastrophic consequences for the world oil market. While we have faced disruptions in the past, this is by far the biggest crisis the oil and gas industry in the region has faced.”
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Aramco is trying to divert oil from its usual route through Hormuz towards Yanbu on the Red Sea coast. It can pump up to 7 million barrels a day through the pipeline to the west and will increase to that level in the coming days, Nasser said. Of this, about 2 million barrels per day will go to domestic refineries on the Red Sea coast. The company still exports refined products such as diesel from its western refineries, he said.
Aramco normally exports about 7 million barrels of oil per day. Most current exports through the East-West pipeline are its most abundant Arab light grades and some extra light, Nasser said.
“So certain areas where we have medium and heavy, we’re not currently using because we have enough capacity to meet our requirements,” he said. According to him, the company uses its global network, including warehouses outside the kingdom, to meet the needs of the market.
Meanwhile, Aramco shut down Saudi Arabia’s largest oil refinery after a drone strike. Nasser said the company is working to start operations.
According to a statement by the Saudi government, some other oil fields were also targeted.
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On Tuesday, Aramco announced its first-ever $3 billion buyback plan. It plans to buy back up to 350 million common shares over the next 18 months, starting in March, and can hold them for a maximum of 10 years.
The buyback is minuscule for a company that has a market cap of around $1.7 trillion and would further reduce its already small free trade. Aramco is buying back shares as shares have risen nearly 12% this year, even as they lag other global supermajors such as Shell Plc and Exxon Mobil Corp.
Aramco is raising its basic dividend to $21.9 billion for the quarter ended Dec. 31, a 3.5 percent increase from the previous three months. The higher payout will benefit the Saudi government and sovereign wealth fund, which together own more than 97% of Aramco. The government is heavily dependent on the company’s huge payout for its trillion-dollar plan to diversify the economy.
The company’s free cash flow — funds left over from operations after accounting for investments and expenses — rose to $27.5 billion in the quarter, covering the total dividend for the second straight quarter after falling short in the previous long run. Adjusted net income fell 1.9% to $25.1 billion in the quarter, matching an estimate of analysts compiled by Bloomberg.
