While Saudi Arabia tries to wean its economy off crude, the nation’s flagship company is devising new ways to make money from the fuel.
Saudi Aramco, the world’s biggest oil exporter, is investing in developing more efficient gasoline-powered engines and testing new methods of turning a barrel of crude directly into petrochemicals. The goal: To prolong the global demand for petroleum for decades to come by making engines and chemicals more cost-effective, even as electric vehicles and alternative sources of energy nibble away at crude’s market share.
“Radical new engine technologies,” such as compressing gasoline in a car’s cylinders instead of igniting it with spark plugs, will prove that “the internal combustion engine has a long way to go in terms of economic viability, and this will bring down its cost dramatically,” Ahmed al-Khowaiter, Aramco’s vice president for technology oversight and coordination, said in an interview.
Aramco, with an estimated 260 billion barrels of oil reserves, is the centerpiece of Saudi Arabia’s mission to re-invent itself as a diversified economic powerhouse. The government plans to sell about 5 percent of its shares this year in what could be a record public offering. While plans for the share sale progress, Aramco is seeking to ensure its future as the kingdom leads global oil producers capping their output to drain a supply glut.
Cars, Trucks, Planes
The company, known formally as Saudi Arabian Oil Co., sees no serious threat to sales of refined transportation fuels, al-Khowaiter said at its headquarters in the eastern city of Dhahran. Countries such as China will keep driving cars with internal combustion engines, demand for heavy-duty vehicles will continue to grow, and use of refined fuels by the aviation and shipping industries will increase, he said.
Ninety-nine percent of the world’s vehicles rely on internal combustion engines, “and it will be like this for a long time, for decades to come,” al-Khowaiter said.
Even so, global carmakers are investing billions of dollars to develop dozens of new electric car and truck models that will be available within the next decade. Royal Dutch Shell Plc Chief Executive Officer Ben van Beurden said in March that oil demand may peak in the late 2020s, and Total SA, another of the world’s biggest oil producers, has said electric vehicles may constitute almost a third of new-car sales by the end of the next decade.
Transportation forms the backbone of the world’s demand for oil, with an expanding share that currently accounts for 54 percent of total consumption, according to Bank of America Merrill Lynch. Electric vehicles will probably start to erode demand for cars powered by oil products in the early 2020s and cause global oil use to peak by 2030, the bank said in a report by analyst Peter Helles issued on Jan. 19.
To blunt the electric threat, Aramco is trying to boost the efficiency of gasoline engines by redesigning them to operate like diesel units, which compress fuel to make it explode, Al-Khowaiter said. The company thinks it can improve efficiency from about 30 percent to more than 40 percent, and its technology centers in Detroit and Paris are working on the idea, he said.
In a related project, Aramco has teamed up with San Diego-based Achates Power Inc. to develop a truck engine using opposed pistons that should get double the mileage of a conventional engine, Al-Khowaiter said. “We have already begun testing with different fuels now, and in the coming month or two will have first results. This is a completely new engine, bottom-up.”
Collaborations with the automotive industry make sense for Aramco, said Mazen al-Sudairi, head of research at Al Rajhi Capital Co. in Riyadh. “I see this as more strategic and important than going into petrochemicals because the amount of oil used in the transportation sector is at least 10 times that used in petrochemicals,” he said.
The petrochemicals industry will boost crude consumption by 5 million barrels a day by 2040, Aramco CEO Amin Nasser told reporters in Dhahran on Jan. 18. Nasser made his remarks after the signing of a contract with Chevron Lummus Global LLC and CB&I Inc. to test a new method to increase the amount of chemicals produced from a barrel of oil.
Aramco and Saudi Basic Industries Corp. agreed last month to build a new plant to convert crude directly into chemicals instead of processing it through intermediate steps, at a cost of $20 billion. The planned facility will be able to convert 45 percent of a barrel of oil into chemicals, while the technology Aramco is testing with CB&I and Chevron Lummus can turn 70 percent to 80 percent of a barrel into chemicals, Nasser said. This improved conversion rate could increase the sales value of a barrel of oil and augment crude demand.
Al-Khowaiter said Aramco is also developing a new way to spur petrochemicals use by replacing some of its metal pipelines with those made from oil-based materials.