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Aramco explores PPP pathway

29 May 2024

The June 2024 Agenda package also includes:

> Riyadh reins in spending
> PPP offers budget and efficiency routes
> Opening up property sales in Saudi Arabia

 

 

At the start of this year, the Saudi Energy Ministry directed Aramco to abandon its campaign of raising maximum oil production from 12 million barrels a day (b/d) presently to 13 million b/d by 2027. The course correction, however, is expected to have little bearing on Aramco’s oil and gas project spending. 

The Saudi energy giant has already spent approximately $10.5bn on projects so far this year, following project capital expenditure (capex) of more than $23bn last year. The company’s total capex in 2024 is estimated to be in the range of $48bn to $58bn.

The command from the Saudi Energy Ministry on 30 January suggests that Aramco could be encouraged to transform itself from a spending behemoth to a magnet for project investments going forward.

In other words, the state enterprise could, increasingly, be seen exploring joint projects with foreign investors, as it ventures into new energy sectors, such as carbon capture, utilisation and storage (CCUS) and low-carbon hydrogen/ammonia.

Testing the waters

As the main engine of Saudi Arabia’s economy, Aramco has also contributed towards building social infrastructure in the kingdom. The company has been building housing facilities, hospitals and schools for decades, and has successfully implemented the public-private partnership (PPP) model for such projects.

But Aramco took its PPP agenda to the next level with the launch of the first such scheme in its main oil and gas business in 2021. The project involves modifying and upgrading sulphur recovery units (SRUs) at seven gas processing plants located in the kingdom's Eastern Province.

Under the desulphurisation programme, Aramco expects third-party investors to build large downstream tail gas treatment units to collect and process tail gas discharged from SRUs at the identified gas plants. The facilities are to be developed on a build-own-operate (BOO) or build-own-operate-transfer (BOOT) basis.

Two consortiums, led by Saudi Arabia-based Lamar Holding and Vision Invest, respectively, submitted proposals last year. Aramco is expected to pick one of the two teams this year as the developer of the desulphurisation PPP scheme.

These projects also potentially point towards a revised mandate

Separately, Aramco has also brought on board international partners – the likes of SLB, Linde, Air Products and Baker Hughes – for an ambitious, large-scale CCUS project that it initiated early last year.

The Accelerated Carbon Capture & Sequestration (ACCS) scheme will have nine phases and aims to capture 44 million tonnes a year of CO2 from Aramco’s gas processing plants. The first phase is gaining traction, with Aramco shortlisting contractors to bid for the main tender, although progress has been slow.

The desulphurisation PPP scheme and ACCS programme are examples of Aramco’s willingness to work with external players in projects related to its fundamental operations. 

These projects also potentially point towards a revised mandate for Aramco to tighten its projects purse in order to make more funds available for its main shareholder – the Public Investment Fund – to spend on Saudi Vision 2030 plans and the kingdom’s gigaprojects. 

MEED's April 2024 special report on Saudi Arabia includes:

> GVT & ECONOMY: Saudi Arabia seeks diversification amid regional tensions
> BANKING: Saudi lenders gear up for corporate growth
> UPSTREAM: Aramco spending drawdown to jolt oil projects
> DOWNSTREAM: Master Gas System spending stimulates Saudi downstream sector
> POWER: Riyadh to sustain power spending
> WATER: Growth inevitable for the Saudi water sector
> CONSTRUCTION: Saudi gigaprojects propel construction sector
> TRANSPORT: Saudi Arabia’s transport sector offers prospects

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Indrajit Sen

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