In Saudi Aramco IPO Talk, Some See Age of Oil Coming to End

• With threat of climate limits, Saudis may want to `cash out'
• `If I'm running an oil company, I'm running for the hills'

For all the talk of Saudi Arabia’s oil company becoming the first trillion-dollar business if it goes public, some see the chatter as a sign of oil’s weakness.  The Saudis, they say, are starting to hedge their bet on fossil fuels.

While the Saudi Arabian Oil Co. sits on a preposterously large reserve of 260 billion barrels of oil, the kingdom’s discussion of a share sale amid a global collapse in crude prices suggests another motive to those who preach about the financial risks of climate change:  The Saudis may want to capitalize on an asset that’s only going to lose value if the world gets serious about global warming.

“Why would you IPO your only valuable asset when oil is at its lowest point since 2003?” said Andrew Logan of Ceres, the Boston-based coalition of investors and environmentalists.  “The most obvious way to read it is they are starting to see the writing on the wall -- that the age of oil is coming to an end and they are looking to cash out while they can.”

In the short-term, Saudi Arabia has as an advantage over other oil producers because it has some of the world’s lowest costs.  Other, more expensive sources of crude -- deepwater fields and Canadian oil sands, for example -- are likely to fall by the wayside first.  But the reserves under the kingdom’s desert will be viable for decades even if world leaders have agreed to move away from fossils fuels in a bid to limit global warming.

The risk to Saudi Arabia’s oil wealth isn’t only seen by organizations like Ceres, a nonprofit that prods companies to adopt “sustainable leadership.”  It’s a view shared by Fadel Gheit, a veteran oil analyst at Oppenheimer & Co. in New York and former group leader for research and engineering at Mobil Oil Corp.

Competition from U.S. shale producers may be a more pressing concern, but the Saudis are “absolutely” thinking about climate-inspired constraints as they consider the company’s future, Gheit said.

“Saudi Arabia is lining up some funding sources in anticipation of a very prolonged environment of low oil prices,” the analyst said by telephone.  “If I’m running an oil company, I’m running for the hills.”
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To have even a 50:50 shot of keeping global temperature increases to 2 degrees Celsius, the goal set in Paris, more than two-thirds of current fossil fuel reserves will have to remain in the ground, according to a 2014 report by the Intergovernmental Panel on Climate Change, the world’s leading body of climate scientists.  At current emission levels, the world’s “budget” for burning fossil fuels would be exhausted in less than 20 years.

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