Market changes prompt Gulf State oil firms to explore new business models

London:The Gulf's national oil companies (NOCs) are becoming increasingly corporate-savvy, diversifying business models and expanding global footprints, motivated by two over-arching aims: To generate more cash from each barrel of oil they produce, and to achieve demand-security in a market rocked by change from one end of the planet to the other.
After years of comfort brought about by high oil prices, times have changed. Faced with a series of game-changers - lower prices, climate change, the green energy revolution, the rise of US shale, the advent of electric vehicles - NOCs, as much as their international oil company (IOC) counterparts, must move with the times, or risk extinction.
The region's largest NOCs, including Saudi Aramco and ADNOC, have not been blind to such threats, and are overhauling their business models to move closer to the IOC model exemplified by the likes of Royal Dutch Shell, BP, Total and Chevron.
Several Gulf NOCs have set up energy trading operations or are about to do so. This mimics something IOCs have done for years with trading desks buying and selling oil - when the price is right - chasing new customers in different locations, creating fresh demand and deepening portfolios. Some will handle both the NOC's barrels and those from third parties, meaning less reliance on direct sales via contracts at fixed prices and for fixed terms.
"Trading gives (NOCs) greater scope to generate additional revenue in a more volatile world than yesteryear," said Adrian Del Maestro, oil and gas strategy director at PwC in an interview. Last month, for example, UAE's ADNOC announced it was setting up a "non-speculative" trading unit to "maximize value from our domestic and, over time, international downstream operations," according to Dr. Sultan Al-Jaber, ADNOC Group chief executive and UAE minister of state.
Such a move makes sense, of course, with oil prices "lower for longer" and taking into account the push toward a lower carbon future. In short, NOCs are looking to optimize revenue. But the strategy is not about Gulf NOC traders trying to create value through specific arbitrage opportunities, or going after positions. PwC energy partner Robert Turner told. "The strategic driver is uncertainty around long-term demand, and the need to underpin your market share. If you have a lot of oil, you want to know you can place it effectively into the global oil market at an optimum price. You want demand security."
An early move into trading was taken in 2006 by Oman, which set up a 50/50 venture with global trader Vitol called Oman Trading International. Oman bought out Vitol in 2015, and the business is today wholly owned by Oman Oil.
Oman's decision to go it alone ill ustrates the new-found confidence within many Gulf NOCs, said Turner. Agencies
Source: Agencies



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