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When Saudi Aramco's shares are finally made public, the frenzy of what promises to be the largest initial public offering will undoubtedly be nurtured. More importantly, this decision would also mean recognition by Saudi Arabia that the sunset on fossil fuels is upon us, writes Jonathan Gornall.
Jonathan Gornall is a British journalist, formerly with The Times, who has lived and worked in the Middle East and is now based in the United Kingdom.
There was a flagrant lack of crucial financial details; it was not the most conventional call in the world for investor relations. But this month, when the world's largest oil producer offered a seductive glimpse under the veil of secrecy that normally hides its activities, it may have also shed light on the latest act of the fuel era fossils.
It has been three years since Saudi Aramco announced for the first time its intention to become public. Since then, the plan has been several times, but now seems to be new. If, as Saudi Energy Minister Khalid Al Falih has suggested, Aramco's shares are entering the market over the next 18 months, it will be the largest public offering ever. realized.
This company, wholly owned by the Saudi government, is gigantic. In 2018, it posted net earnings of $ 111.1 billion, nearly double the size of Apple, the world's most profitable publicly traded company, and the profitability of every other major oil company. On August 12, the company revealed that its revenue for the first half of 2019 fell by 12% to $ 47 billion, due to lower crude prices, but Aramco easily remains the company. the most profitable in the world.
So why is Saudi Arabia trying to offer foreigners a share of the action?
The most plausible explanation is that, 86 years after Saudi Arabia signed the concession agreement with a US oil company that led to the creation of Arabia American Oil Company, and 39 years after the government has raised its stake to 100% in Aramco, she realizes that the sunset for fossil fuels is on the horizon.
On the one hand, it's great news for a planet that is suffering irreversible damage due to the impact of fossil fuel consumption. Saudi Arabia is the world's largest producer of crude oil, and analysts say it plans to use the billions or even billions of dollars that an IPO would pay in part to fund ambitious plans to separate country's dependence on oil and develop a major economy. renewable energy sector.
But a planned IPO indicates that all Saudi oil will probably not stay in the ground. The amount of oil on which Saudi Arabia sits has always been uncertain. But in January, in the interest of transparency before offering shares, Aramco published the details of the first independent audit of the country's oil reserves. He confirmed that with 263.1 billion barrels untapped at the end of 2017, Saudi Arabia has the largest crude reserves in the world. Similarly, three months later, the company's first international bond issue, raising $ 12 billion, aimed to test appetite and set the stage for an IPO.
Goal achieved. Global investors are eager to get started and when stocks finally go on sale, there will definitely be frenzied food frenzy.
Of course, none of these potential investors are unaware of the growing environmental pressure on oil and the simultaneous growth of interest and investment in renewable energy sources, which together constrain the long-term prospects for energy. Aramco. But they also know that there is still a short-term fortune in oil and gas and they will be ruthless in their determination to make the most of every drop before the curtain finally falls into the fuel age. fossils.
Regardless of all this, it is a turning point in the global shift from fossil fuels to alternative energies. This means that Saudi Arabia recognizes that oil is dying and that it is better to reap a huge dividend through the sale of this asset instead of seeing the income decline gradually until the stock does not. has no value. It is also likely to stimulate similar strategic thinking among Saudi oil-producing neighbors, who may well be accelerating their own efforts to simultaneously maximize profits and reduce reliance on oil in favor of all the means to develop important sectors of renewable energies.
So it is no coincidence that Saudi Arabia has just launched a tender for a series of huge solar projects as it begins to strengthen its commitment to energy goals. in the country's Vision 2030 plan. Although prices are falling, solar infrastructures remain expensive and large investments are needed – investments that could easily be financed by an IPO.
It would be an exaggeration to think that Saudi Arabia is turning its back on oil; The profits from this bonus will continue to flow into the coffers of the nation for many years. But the fact that it reduces its exposure to commodity dependency in such a public way and willingly shares the latest short-term benefits with outside investors indicates that the kingdom recognizes that the end of an era is profile.
Equally significant, this historical evolution suggests another optimistic scenario. For the sunny region as a whole, the global transition to renewable energies, and in particular to solar energy, is not only inevitable, but must be embraced with open arms.
The protectionist tariff barriers that have hindered the widespread adoption of renewable energy around the world will inevitably fall under the weight of their own ultimately indefensible illogic, while the cost of solar energy and other renewable energy is steadily decreasing as technologies evolve. An article in this month's Nature magazine, for example, found that 344 Chinese cities are already producing non-subsidized solar electricity at a price equal to or lower than the price of energy. produced in a conventional way.
The reaction of the oil-rich states of the Gulf must therefore be imaginative. All efforts must now be focused on developing the advanced technologies needed so that solar energy can not only be efficiently exploited at home, but also be stored, distributed and exported as efficiently as oil.
It will be a gigantic and daunting undertaking, one that will require huge investments and ground-breaking technological breakthroughs, but it will be more than profitable. As they have already benefited from oil, the Gulf states are enjoying the sun, a natural, renewable asset to the infinite, which, with a judicious investment in ingenuity, can be trivialized in perpetuity – and save Earth.
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