Saudi Aramco signage. Photo: Christopher Pike/Bloomberg
Saudi state-owned energy behemoth Aramco appears to be in fine fettle despite a 25% fall in annual profits to $121 billion in 2023. On Sunday (March 10, 2024), it confidently announced a 30% hike in dividends rewarding its investors by a payout of almost $100 billion.
But its what the company didn't officially announce that really caught the market's attention. A matter of days before the publication of Aramco's latest financials, a Reuters report citing unnamed sources suggested it was on the hunt for U.S. LNG liquefied natural gas assets.
The newswire claimed Aramco was in advanced talks to invest in phase II of Sempra Infrastructure's Port Arthur LNG project in Texas, U.S. The development not only follows the rise of the U.S. as the world's leading LNG exporter, but also President Joe Biden's pause on new project approvals ahead of the November Presidential election stateside.
Interesting but unsurprising move
Both Aramco and Sempra declined comment. However, the move, if confirmed should not come as a surprise. Of late, the Saudi energy giant has been making an aggressive push for a slice of the LNG market. Its CEO Amin Nasser, while not naming a specific project, told reporters in an analyst call on Sunday that Aramco was "in discussion with a number of entities in the U.S. and other regions."
In September 2023, Aramco announced its intentions via stake in LNG firm MidOcean Energy. At the time, Aramco's President of Upstream, Nasir K. Al-Naimi noted: "LNG shows potential as a suitable fuel for the energy transition, particularly in Asian economies that are heavily reliant on coal. Coal to LNG substitution could deliver meaningful reduction in CO2 emissions."
Furthermore, Aramco believes the LNG market is positioned for structural, long-term growth, particularly in Asia and Europe.
And Al-Naimi was pretty clear about the direction of travel for the company. "We will continue to explore a range of domestic and international opportunities in key LNG geographical nodes to optimize potential trading synergies and meet the world's rising need for secure, accessible, and more-sustainable energy."
Not alone in a lucrative American foray
There are three pretty clear reasons for Aramco heading down LNG route. The first is about getting into a very lucrative U.S. LNG export market which is expected to double before the end of the decade, despite all the domestic political baggage it carries.
The second is about adding gravitas to Aramco's nascent LNG business, which had it historically explored decades ago could well have been much bigger today. The third reason is to compete with regional rival Qatar - a country second only to the U.S. when it comes to LNG exports.
In its foray stateside, Aramco is by no means alone. Neighboring U.A.E.'s Abu Dhabi National Oil Company (ADNOC) is seemingly keen on similar or higher levels of exposure to U.S. LNG as well. It is reportedly in talks with U.S. LNG firm NextDecade, according to Reuters.
Both Aramco and ADNOC will likely either opt for minority equity stakes in LNG projects or long-term sale and purchase agreements. However, of the two options, equity stakes for both will likely be contingent just as much upon the prevailing domestic political climate as the spirit of private enterprise.
As Aramco and ADNOC play catch-up, former LNG export market leader Qatar isn't sitting on its hands either. It is planning an 85% uptick in output from its northern fields by 2030 as market competition ratchets up.
