Saudi Aramco may consider spinning off its growing downstream division, which includes oil refining assets, a business where the oil giant is investing heavily to meet rising fuel demand in Asia, strategists said.
The recent sell-off in benchmark oil prices is also bound to raise questions about Aramco’s ability to meet the target valuation of $ 2 trillion.
“Perhaps a creative solution can be found whereby Aramco’s operating business and their commodity reserves are separated and listed or treated separately,” said Bryan Goh, chief investment officer at Bordier & Cie, a private bank in Singapore.
Despite the setbacks to the IPO’s timeline, the state oil giant is moving ahead with multibillion-dollar projects in China, India and Malaysia and aims to finalize new partnerships this year, Abdulaziz al-Judaimi, Aramco’s senior vice president for downstream, told Reuters in June.
Aramco plans to raise its refining capacity to between 8 million and 10 million barrels per day, from some 5 million bpd currently, and double its petrochemicals production by 2030, Judaimi said.
Some analysts argue that splitting the business risks depriving Aramco of the competitive advantage an integrated business has to offer.
“Selling the downstream assets separately does not necessarily make business sense since the integration is part of the value creation proposition offered by Aramco as an energy conglomerate,” said Ayham Kamel, head of Middle East and North Africa at Eurasia Group.
A public listing of Aramco’s downstream business would need “a huge shift in mindset,” said Suzanne Minter, director of energy solutions at S&P Global Platts.
“What makes the Saudi [Aramco] IPO attractive in my mind is the fact that the best refineries in the world are integrated with ‘free’ oil … so they get to capture all pieces of the value chain as margins move up and down that chain,” Minter said. “If you remove that integration, and demand for refined slows, then I think you lose advantage.”
— Reuters contributed to this report.