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  • - [Narrator] This map shows the major infrastructure

  • of Saudi Aramco, the worlds most profitable company.

  • The dark spots clustered to the east

  • are deep reservoirs of oil and natural gas,

  • the life blood of Aramco's business and the global economy.

  • For nearly a century, Aramco's oil has powered

  • cars, planes, and industries,

  • and electrified homes around the world.

  • In 2018, the company produced 13.6 million barrels

  • of oil a day, more than any other company.

  • Then in 2019, Aramco's IPO valued the company

  • at 1.7 trillion,

  • in the worlds biggest ever public offering.

  • But the forces that propelled Aramco's growth

  • from a single well to the biggest producer in the world

  • are changing underfoot.

  • And some analysts say the company won't be able

  • to sustain the kind of growth it will need

  • to keep investors happy.

  • To understand these changes, you have to understand

  • how Aramco got so big in the first place.

  • The company was founded in the 1930s

  • on a barren tract of desert, with no natural river

  • or body of water and little vegetation.

  • - It was completely pre-modern.

  • I mean it really looked basically like it had

  • since the 1700s, the 1800s.

  • - [Narrator] The kingdom's leader IBBEN SAUD,

  • was low on cash to fund development,

  • so in 1933 he struck a deal with an American oil company.

  • Standard Oil of California, or SoCal,

  • won the right to search for oil

  • near the eastern coast, in Al Hasa.

  • Five years and several dry wells later,

  • SoCal and it's partner, Texaco, hit oil, a lot of it.

  • Quickly, well number seven was producing

  • commercial quantities,

  • around 4,000 barrels of crude oil a day.

  • Workers began construction on a pipeline to the sea.

  • By spring of 1939, the SoCal tanker, D.G. Scofield

  • docked at Ras Tanura and filled its first shipment

  • of oil to leave Saudi Arabia for the global markets.

  • The country with nothing to sell had found

  • what everyone wanted to buy.

  • Over the following decades, the American Group

  • found more and more mineral wealth beneath the Saudi sand.

  • By 1970, that oil would play a crucial role in a market

  • halfway around the world.

  • A market so big it would lift Aramco's profits

  • and push Saudi Arabia to alter the future

  • of oil markets everywhere.

  • What happened is that in 1970, Texas tapped out.

  • After more than a century of growth,

  • U.S. oil production began to fall.

  • At the time, Americans were driving to work

  • in gas guzzlers like these.

  • The average fuel consumption for this type pf vehicle

  • was 13 and a half miles per gallon.

  • To fuel these cars, the U.S. turned overseas.

  • You can see it on this chart, which shows the countries

  • imports of crude oil.

  • Aramco, still an American company,

  • had plenty of oil to sell.

  • Wald said that between 1972 and 1973,

  • production grew from five point four million to

  • eight point four million barrels a day.

  • According to Aramco, in 1971, shipments of crude oil

  • and petroleum products from Ras Tanura

  • had surpassed one billion barrels a year.

  • Saudi Arabia and other oil producing nations

  • took notice of all this demand.

  • - OPEC, this organization of petroleum exporting companies,

  • which had been created in the 60s but didn't do anything

  • for years, they would essentially negotiate

  • with the big international oil companies,

  • like Exxon and BP and Shell,

  • and they would negotiate a price for oil.

  • And they were basically selling all of their oil

  • to these international companies that had

  • distribution outlets around the world.

  • And 1973 comes along and the countries say,

  • you know what, we know what's happening with demand.

  • We know that we're supplying most of your market.

  • We need a higher price for oil.

  • - [Narrator] When OPEC tried to raise prices,

  • the international companies said No.

  • So, Saudi Arabia's' oil minister Ahmed Zaki Yamani,

  • took a different approach.

  • - So right at that exact same time,

  • was the Arab-Israeli War and a lot of the countries in OPEC

  • wanted to basically help out their fellow Arab countries

  • by raising the price of oil and both embargoing it

  • to the countries that were helping Israel,

  • namely the United States and its allies.

  • And the Saudis were actually the least interested

  • in doing this, but once it became clear that they

  • couldn't negotiate an increase in the price of oil,

  • Yamani looked at this situation and he said,

  • we can use this political situation to our advantage.

  • - [Narrator] Here's Yamani in December of 1973.

  • - When the Israelis accept to withdraw

  • from the occupied territories,

  • and the U.S. government guarantees

  • that decision,

  • then immediately we can lift the embargo.

  • This could happen anytime.

  • - [Narrator] The plan worked.

  • This chart shows the U.S. price for oil

  • before and after the embargo.

  • - [Newscaster] President Nixon said the gas crisis

  • has dissolved into a problem.

  • But it's a problem millions of motorists

  • are still trying to cope with in long lines

  • at their local gas stations.

  • - [Narrator] While America was reeling from the price shock,

  • Saudi Arabia was making plans to increase

  • its control of Aramco.

  • That year, the Kingdom set a deal to buy 25% of the company.

  • - And that was really when the tables turned

  • and it was very clear that it was no longer these

  • big international oil companies.

  • It was no longer the Americans.

  • It was the Saudis that controlled their oil

  • and controlled their commodity.

  • And shortly after that, in 1974, they negotiated to buy

  • another percentage of the company.

  • In 1976, they had more negotiations that led to them

  • eventually completing the purchase

  • for all of Aramco in 1980.

  • - [Narrator] Aramco was now fully owned by the Saudi state.

  • From this point forward, Saudi Arabia along with OPEC

  • would exert enormous control

  • over the price of oil everywhere.

  • In the early 80s, the company set forth on a

  • period of rapid expansion that would take Aramco

  • beyond the Kingdom's oil fields and borders

  • to new markets around the world.

  • - Ali Al-Naimi became the first Saudi CEO of the company,

  • so it was his vision that diversified

  • and really integrated the company

  • and turned it into something that could make money

  • in all parts of the value chain,

  • not just the pumping the oil out of the ground.

  • So they first went to Korea and they negotiated

  • with the South Koreans and they started

  • a joint oil refinery called S-OIL in South Korea.

  • They also negotiated in Japan and they also have a big

  • oil storage facility in Japan.

  • Then finally they got the China, and they have several

  • joint ventures in China for refineries and petrochemicals.

  • - [Narrator] The timing was right to capitalize

  • on a surge in demand for oil.

  • Here's a look at China's GDP over those decades.

  • - They set up in Asia at exactly the moment

  • when Asia took off as a consumer

  • and they were really well positioned.

  • And in fact, Saudi Arabia is currently

  • the largest oil supplier to China right now.

  • - [Narrator] By the 2000s, it was a global conglomerate

  • positioned to profit from a historic rally in oil prices.

  • Supply disruptions in the Middle East and demand

  • in emerging markets, like India,

  • drove the price to new heights.

  • - Price spikes are becoming a way of life

  • in the United States.

  • - Geopolitical certainty in a number of countries

  • in the Middle East and Africa will continue

  • to keep markets on edge.

  • - [Male Newscaster] Gas prices are hitting new highs.

  • - We gotta live with it.

  • They're gonna keep going up.

  • - [Narrator] In 2008, the price of oil

  • hit a record high of $147.

  • In the decade since that peak,

  • many of the factors that lead to Aramco's rise,

  • have shifted.

  • For one, the U.S. came back online

  • as a major oil producer.

  • By 2008, U.S. producers had found new ways

  • to extract oil from places they had thought were tapped out,

  • as well as some new areas.

  • Production surged.

  • This is Nansen G. Saleri, a former Aramco executive.

  • - What the

  • U.S. producers have done though is extraordinary.

  • And with the benefit of new engineering capabilities,

  • especially the fracking capabilities,

  • they're able to produce significant amounts of oil

  • and today you look at the U.S. production,

  • it's approaching 13 million barrels per day.

  • - [Narrator] Meanwhile, cars and homes had become

  • more efficient, curbing growth in demand.

  • The average fuel economy for new cars in the United States

  • is now closer to 25 miles per gallon.

  • That's almost twice what it was in 1970.

  • And at the same time, buyers have slowly

  • started shifting toward cleaner energy sources.

  • - In the new world, it's all about clean BTUs,

  • clean energies, so Aramco now has to compete

  • in the clean BTU era.

  • Nobody in the industry, including the most successful

  • IOCs, including the unconventionals,

  • they cannot say, oh we are totally blind

  • to what's going on as far as global warming,

  • as far as CO2 emissions, or greenhouse emissions.

  • That's somebody else's problem.

  • That is not an answer anymore.

  • - [Narrator] Investors are pumping cash into assets deemed

  • more environmentally friendly, such as so-called ESG Funds,

  • which focus on environmental, social and governance factors.

  • Investors say all of these factors

  • have threatened oil stocks.

  • Here's the performance of oil stocks

  • compared to the broader market.

  • This was the stage being set in 2016

  • when Aramco said it was considering an IPO

  • as part of an effort to diversify

  • the company's economy beyond oil.

  • After setbacks, Aramco launched its IPO in 2019,

  • selling 1.5% of itself on the Tadawul in Riyadh,

  • mostly to Saudi Investors.

  • It's unclear if the company will sell more

  • on international markets

  • and reach the five percent like it had planned.

  • (upbeat music)

- [Narrator] This map shows the major infrastructure

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How Aramco Became the Biggest Company in the World | WSJ

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    joey joey posted on 2021/02/18
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