November 12, 2019

Evaluating Saudi Aramco's Long-Term Expectations

The much lauded Saudi Aramco IPO is finally here but in a significantly reduced format. Although the stock market debut of one of the world’s biggest companies is certainly grabbing headlines, it will have little direct impact on crude oil prices. However, the prospectus does outline Saudi Aramco’s vision for the future of the oil industry. We felt it worthwhile to evaluate the key risks and assumptions that Saudi Aramco is planning for in the decades ahead.

When it comes to market assumptions, the biggest difference in our long term views is the timing of peak oil demand; although we are in agreement with the prospectus that GDP growth will be a major driver of demand growth. Stratas Advisors expects global GDP to grow at a Compound Annual Growth Rate (CAGR) of 2.6% from 2018 to 2030, only slightly less than the rate forecast in the prospectus. Future growth will primarily come from the non-OECD Asia Pacific region, where we at Stratas Advisors expect to see GDP grow at a CAGR of 5.1% from 2018 to 2030. This is slightly higher than the rate outlined by Saudi Aramco. The prospectus focused heavily on growth expectations in the Asia Pacific region, which makes sense given that it is the company’s primary market. However, we also expect healthy levels of growth from non-OECD Latin America and, eventually, Africa.

 GDP Expectations
   Stratas Advisors 2018-2030 CAGR

 North America

 Latin America  2.0%
 Europe  1.5%
 CIS  2.0%
 OECD Asia  1.2%
 Non-OECD Asia  5.1%
 Middle East  1.9%
 Africa  3.3%
 OECD  1.6%
 Non-OECD  4.1%
 World  2.6%
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