“ARAMCO has always been far more than just an oil producer.” So said Amin Nasser, chief executive of Saudi Arabia’s petro-colossus, earlier this year. Mr Nasser has lofty ambitions for the world’s biggest oil company, which he views as “an important enabler” of his country’s diversification away from the commodity. That aspiration is shared by Sultan Al Jaber, chief executive of ADNOC, the national oil company of the United Arab Emirates (UAE), whose country also dreams of shedding its petro-state status.
To that end, the region’s twin petroleum heavyweights have lately been on a dealmaking binge. The combined value of their acquisitions rose from $11bn in 2022 to $29bn last year, according to Dealogic, a data provider (see chart 1). Many of the deals have been for assets abroad that are outside the duo’s industry. To some, this may seem like a sensible way to accelerate efforts to reduce the region’s dependence on oil. And many of the deals have a commercial logic. Yet they also risk leaving the giants looking like sprawling conglomerates, struggling to achieve a jumble of unrelated objectives.
Plenty of the recent big-ticket investments do not stray too far from the core business of the giants. Both have ambitions to expand into natural gas, as other oil companies have already done. Last month ADNOC finalised its commitment to develop a $5bn domestic mega-project known as the Rich Gas Development. Aramco has issued $10bn in contracts to develop Jafurah, a shale-gas field in Saudi Arabia. Acquisitions abroad will complement these efforts. In June XRG, a division of ADNOC established last year to make overseas investments, made a $19bn bid for Santos, an Australian gas producer. It has also acquired liquefied-natural-gas (LNG) assets in America, Mozambique and Turkmenistan. Aramco has invested in three LNG facilities in America.
Some $40bn of the $88bn in acquisitions made by the pair since the start of 2022 has been in the broader oil-and-gas industry (see chart 2). Nearly as much has been invested in chemicals, another understandable adjacency, given the importance of hydrocarbons as a feedstock. In March XRG secured a deal to combine the polyolefin businesses of ADNOC and OMV, an Austrian oil-and-gas company, and acquire Nova Chemicals, a Canadian firm. That followed another deal in October to buy Covestro, a German specialty-chemicals firm, for $16bn. Aramco, which in 2020 acquired 70% of SABIC, Saudi Arabia’s national chemicals company, is spending $20bn on a domestic project to convert crude oil into chemicals. It has also bought stakes of varying sizes in a number of foreign chemicals companies.
The third area of investment has been in decarbonisation. Here the giants, which have long dabbled in green technologies, are aiding their countries’ climate goals while hedging against declining demand for hydrocarbons. In December Aramco formalised plans with Linde, an industrial-gas firm, and SLB, an oil-services firm, to develop a carbon capture and sequestration (CCS) site in Saudi Arabia. To help the kingdom reach its goal of getting half of its electricity from renewables by 2030, Aramco is co-investing in 15 gigawatts of solar and wind projects. In the UAE these projects are typically undertaken by Masdar, a clean-energy firm launched and chaired by Mr Al Jaber. ADNOC owns about a quarter of Masdar, but has also been busy with its own green investments. In 2023 it bought a tenth of Storegga Geotechnologies, a British CCS firm. It has also taken a 35% stake in a low-carbon hydrogen-and-ammonia plant in Texas that is being developed by ExxonMobil, an American oil giant.
Then there are the investments in artificial intelligence (AI). Even here there may be a commercial logic of sorts. AIQ, a joint venture between ADNOC and Presight, an Emirati AI firm, has helped the oil company develop an AI tool trained on its data that it is using to optimise everything from logistics to seismic analysis. The vast sums that Aramco is pouring into supercomputing and its own AI models and tools are allowing it to operate more efficiently, too.
Yet not all these investments have a compelling business rationale. In February Aramco agreed to hand Groq, an American chip startup, $1.5bn to expand a data centre that is being used to develop an Arabic AI model. That makes sense only in the context of the wider ambitions of the Gulf’s rulers to turn their countries into AI powerhouses. There is nothing wrong with that goal, nor with efforts to make the Gulf’s economies greener and more diversified. Yet one company alone cannot be expected to achieve such disparate objectives—especially when it must also keep its government’s coffers full. ■
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The Gulf’s oil giants risk becoming sprawling conglomerates
