A $500 billion smart city. A $200 billion solar farm.Billions of dollars of investment in fuels and petrochemicals.All these aspects of Saudi Arabia’s Vision 2030: the world’s ultimate ambitious economic diversification.Now that ambition is in tatters.
Can Saudi Arabia pick up the pieces and really diversify its economy away from oil, or are its plans dead in the water, leaving the kingdom’s survival tied to oil revenues?
Earlier this week, Aramco of Saudi Arabia announced that it would make a billion-dollar investment in Sempra Energy’s Port Arthur LNG terminal and that it would delay investment in a $20 billion refining and petrochemical allocation at its Yanbu center.money.
Earlier this year, government resources in Riyadh told the Wall Street Journal that Saudi Arabia was not fulfilling its $200 billion solar farm allocation it had designed in partnership with Japan’s SoftBank.with several small sun assignments.
Neom is the flagship assignment of Vision 2030, Prince Mohammed’s original concept of Saudi Arabia’s dependence on oil revenues.Ironically, this crusade of diversification relied exactly on those oil revenues to materialize.And now that that income has been particularly d because of the effects of the coronavirus pandemic on oil demand, Prince Mohammed’s vision is under threat.
There was a doubt that Saudi Arabia would be able to carry out all these projects; were too expensive, even for their huge sovereign wealth fund.Of course, it was never assumed that the Kingdom would finance all these primary projects on its own, however it relied heavily on Aramco, its revenue and, of course, its public quotation.
The company went public last year, but with some of the percentages originally intended to be listed, but at first it behaved well, fitting into the world’s highest value company.In the percentage value of Aramco.Almost all oil stocks collapsed this spring, so this is not unique to Aramco.But what is special is that a total program of economic diversification is based on it, in whole and in part.Aramco also has giant dividends to pay, but liquidity is now limited.
More and more projects are also being delayed, projects that have nothing to do with Saudi Arabia’s economic diversification, projects similar to Aramco’s external expansion.
The company is reviewing a $6.6 billion petrochemical production plan for its Motiva refinery in the United States, the Wall Street Journal reported this week, bringing resources familiar with the company’s situation.The company is also freezing its plans for one year to build its oil production capacity at thirteen million b/d.This decision, of course, is not unexpected given the state of the global source and the call and, above all, the prospects for the latter.However, it is indicative of the fall of Aramco – and Riyadh, in relation to their diversification ambitions.
This is an attractive development: a few years ago, some observers feared that emerging oil would discourage the Kingdom from diversifying further into Vision 2030 due to complacency, as history has shown time and time again.Times.
“When countries launch reform programs when oil costs are low, enthusiasm wanes when raw material costs rise. It is a potential threat here. We will want to continue to focus on the field to carry out many of those costly projects. oil prices higher, “Fitch Ratings said. said the head of sovereign ratings in 2017.
But the real risk to its primary diversification projects has proven to be precisely the opposite: a lack of budget due to low oil prices.
And then it was time for grief in five years.
By the time of this year’s quarter, Saudi Arabia recorded a deficit of $29 billion; its GDP is declining, as is the case in the oil-rich and oil-dependent Gulf; Austerity measures are back, spending cuts are underway and Aramco will have paid a $75 billion dividend as promised when it indexed 5% of its shares in December last year.The company will have to keep those annual bills for the next five years.It does not have the luxury of cutting those dividends like overseas large oil companies, because its majority shareholder is the Saudi government and Aramco is its main source of income.
With all those stressors, is Vision 2030 on the horizon?
It is, but it may remain there as a mirage.A cheap environment is adequate for diversification efforts, however, those efforts in Saudi Arabia are incredibly costly due to the scale of the program.Perhaps Riad will make some of these multimillion-dollar projects more flexible and update with smaller projects, as it would have done with its solar plans.
By Irina Slav for Oilprice.com
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