Saudi Arabia’s state-owned oil giant, Saudi Aramco, reported a 38% drop in net income for the first half of 2023, as the coronavirus pandemic weighed on global oil demand and prices.
Aramco remains resilient despite challenges
The company said it earned $35.5 billion in the first six months of the year, compared with $57.1 billion in the same period in 2022. Revenue fell 16% to $116.5 billion, while capital expenditure declined 18% to $16.5 billion.
Despite the sharp fall in profits, Aramco said it remained resilient and committed to its dividend policy, which aims to distribute $75 billion to shareholders annually. The company paid out $37.5 billion in dividends in the first half of 2023, of which $28.1 billion went to the Saudi government, its majority shareholder.
Aramco’s president and chief executive officer, Amin Nasser, said the company had demonstrated its “operational agility, financial discipline and resilience” in the face of “unprecedented market conditions”. He added that Aramco had made “significant progress” in its strategic initiatives, such as expanding its downstream business and reducing its greenhouse gas emissions.
Oil demand recovery remains uncertain
Aramco’s results reflect the challenges facing the global oil industry, which has been hit hard by the Covid-19 crisis and its impact on energy consumption. The International Energy Agency (IEA) estimates that global oil demand fell by 8.6 million barrels per day (bpd) in 2022, the largest annual decline on record.
The IEA expects oil demand to recover by 5.4 million bpd in 2023, but warns that the outlook remains uncertain due to the emergence of new variants of the virus and the uneven pace of vaccination campaigns around the world.
Aramco said it expected oil demand to continue to improve in the second half of 2023, supported by the easing of lockdown measures and the increase in mobility and economic activity. However, it also acknowledged that “the ongoing impact of the Covid-19 pandemic on global energy markets remains a significant challenge”.
Aramco faces increasing competition and pressure
Aramco is not only facing a volatile oil market, but also increasing competition and pressure from other players in the energy sector. The company is competing with other major oil producers, such as Russia and the US, for market share and influence in key regions such as Asia.
Aramco is also facing growing scrutiny and criticism from environmental activists and investors, who are demanding more action and transparency from the company on its climate change strategy and emissions reduction targets.
Aramco has pledged to reduce its carbon intensity – a measure of emissions per unit of energy produced – by 25% by 2030 from 2019 levels. It has also announced plans to invest in renewable energy projects, such as solar and wind power, and to capture and store carbon dioxide from its operations.
However, some analysts and observers argue that Aramco’s efforts are not enough to align with the goals of the Paris Agreement, which aims to limit global warming to well below 2°C above pre-industrial levels. They also point out that Aramco’s emissions are likely to increase as it expands its production capacity and downstream activities.
