Global warming targets could reduce oil major’s worth to $940bn, says campaign group
The valuation of Saudi Aramco, which is planning its initial public offering for next year, could be greatly cut by policies to address the threat of global warming, an environmental campaign group has warned. Oil Change International has calculated that policies to meet the Paris climate agreement’s commitment to limit global warming to “well below” 2C could reduce the value of Saudi Arabia’s state energy group by about 40 per cent.
“New York and London have been competing hard to get the Aramco listing, but I don’t think they have been paying enough attention to how much it would increase oil price risk and climate risk for investors,” said Greg Muttitt of Oil Change.
Aramco declined to comment.
Saudi Arabia’s crown prince Mohammed bin Salman, who is spearheading the planned economic overhaul of the kingdom, is pushing for a $2tn valuation for Aramco, but that target has come under scrutiny, with the Financial Times’ own analysis estimating a figure of between $880bn and $1.1tn. Even if it reaches a valuation of about $1tn, Aramco could still raise $50bn, making it the world’s largest IPO.
Saudi Arabia’s authorities have been working with the company and its advisers to untangle its finances from those of the state, highlighting areas that will impact valuation if not resolved. This year a royal decree was issued to lower the company’s corporate tax rate, from 85 per cent to 50 per cent, while a series of other instructions which were not made public aimed to scrub up Aramco’s finances.
However, the Oil Change modelling suggests the company’s valuation is dominated by the oil price, which in turn is shaped by climate policies worldwide. In the International Energy Agency’s “new policies scenario”, reflecting existing measures and announced future plans, oil is expected to rise to $79 a barrel in 2020 and keep rising to $137 in 2050. In those circumstances, Mr Muttitt says Aramco could be worth about $1.5tn. In the “66 per cent scenario”, reflecting policies intended to give a two-thirds chance of keeping global warming to 2C, oil is projected to rise to $73 in 2020, and be on a gently falling trend to $61 in 2050.
That outlook would give Aramco a valuation of about $940bn, Mr Muttitt said. Those in the kingdom advocating for the IPO say the country’s low cost of production means Saudi oil remains among the most attractive in the world, even if crude prices fail to meaningfully rise from today’s levels of about $50 a barrel. They also say the environmental impact of producing oil from Saudi reserves — some of the world’s easiest to exploit — is less than hard to reach crude in other countries.