WHEN: Today, Tuesday, March 6, 2018
WHERE: CNBC's "Power Lunch" – From CERAWeek by IHS Markit in Houston, TX
Following is an unofficial transcript of a CNBC EXCLUSIVE interview with Saudi Aramco President & CEO Amin Nasser and CNBC's Brian Sullivan on CNBC's "Power Lunch" (M-F 1PM-3PM) today, Tuesday, March 6th. Following is a link to the full interview on CNBC.com: https://www.cnbc.com/video/2018/03/06/watch-cnbcs-full-exclusive-interview-with-saudi-aramco-ceo-amin-nasser.html.
All references must be sourced to CNBC.
BRIAN SULLIVAN: Potential tariffs on steel and aluminum. I know that you're not a steel or aluminum company, sir, but do you sorry that the world could soon but enveloped in a trade war, which would negatively impact demand for petrochemicals?
AMIN NASSER: Well-- we are not impacted by-- limited impact of that tariffs and steel and aluminum-- Saudi Aramco in particular. And I'm sure there are-- businesses that will benefit out of these tariffs and business that will be impacted as a result of these tariffs. So that needs to be taken into consideration.
BRIAN SULLIVAN: Do issues of global trade generally, historically impact oil demand globally?
AMIN NASSER: Well, there is definitely an impact. There is-- global trade impacted or-- so-- right now, we don't see an impact that is of significance. But definitely in the future, if-- these issues arise, it will have.
BRIAN SULLIVAN: What many people may not understand about Saudi Aramco is that you own the largest refinery inside the United States. And aside from labor, steel construction is a very expensive cost. Would-- any kind of tariff on steel, pipeline, construction steel, impact any expansion plans on a Motiva plant?
AMIN NASSER: Definitely. You know, any tariffs that will be-- put on-- as I said, aluminum or steel. But considering-- Saudi Aramco and our investment in the U.S., even with the expansion there is a limited impact on-- our business as a result of this. However, there are other businesses that will be impacted much more. And there are beneficiary out of these tariffs. So that, as I said, need to be taken into consideration
BRIAN SULLIVAN: Well, there's the political side but there's the corporate side. Would issues of tariffs change your economic calculus about whether or not Aramco would want to expand or invest more in the United States?
AMIN NASSER: At this stage no. We do have plans for expansions in the U.S. We heard about the tariffs and-- we still are-- planning to proceed with-- the visibility study of this investment for our Port Arthur refinery. We're talking about-- an expansion program that-- hopefully, proceeding very well.
BRIAN SULLIVAN: So does-- Aramco plan to add more jobs in the United States over the next couple of years?
AMIN NASSER: Oh--definitely with expansion programs. As I said, we're looking at the visibility study right now. And if everything materialize as expected in terms of commerciality of what we are planning-- it will add jobs for sure.
BRIAN SULLIVAN: It's a very interesting time, I think you would agree, because you're talking about expanding and you're investing in the United States at a time when the U.S. shale boom is, as the IAE said, booming, 10.2 million barrels a day. Do you view yourself as a competitor to the U.S. shale industry?
AMIN NASSER: I think the shale industry did a great job, you know, in terms of increasing-- supply. There is talk about-- additional capacity that will come from the shale this year of about 1.2 million barrels. But if you look at the forecast of additional demand between IAE and EIA you're talking about 1.4 to 1.7 million barrels of additional capacity, a demand-- potential in 2018. If you add to it-- the national decline that is happening in existing fields, which is about 2.5% to 3%, so we're talking about, between additional demand and national decline, there is a need for 4 to 5 million barrels of additional supply. So the shale-- is adding, but it's not impacting the total supply requirement.
BRIAN SULLIVAN: So there's room for both of--
AMIN NASSER: Definitely--
BRIAN SULLIVAN: --to grow?
AMIN NASSER: --there is-- room to grow and shale will grow-- especially with the market improving. And-- but as I said-- the demand side is healthy. We have seen-- 2017, almost 1.6 million barrels in the last two years-- including 2018. In three years you're talking about 5 million barrels of additional-- demand. And if you add to it, as I said, the national decline that is happening in existing fields, there is more than enough-- capacity in the market to absorb the additions that will be coming from the shale oil.
BRIAN SULLIVAN: The thinking was always, "Well, don't worry, the U.S. is selling to a different customer." But now the U.S. is beginning to export, as you know, maybe some even to Asia, which has primarily been your market. How much customer overlap is there between U.S. producers and Aramco?
AMIN NASSER: Well, if you think about it, yes, the U.S. is exporting to other markets. But we are also exporting to the U.S. So—my point --there is additional supply that is coming from the U.S. Some of it is going to certain markets in Asia and Europe. However-- we are still-- the U.S. is a big market and we-- supply a significant amount of our crude to the U.S. as well.
BRIAN SULLIVAN: Do you worry about that? That the U.S. shale boom-- we spoke to the head of the IEA and he suggested that the U.S. could soon be at 12 million barrels per day of production within five years. Do you worry that that will crowd out demand for your product?
AMIN NASSER: Not-- we are not the least-- as I said-- we think-- in terms of demand, it is healthy. We're looking at 98 or 99 million barrels of-- demand. Per year, we are looking at 1.5 to 1.7 million barrels of-- additional demand. With-- the national decline, I think there is a capacity in the market in terms of supply to-- include the shale and the growth that-- we are seeing currently in the shale.
BRIAN SULLIVAN: How much of that goes to the decline of Venezuela?
AMIN NASSER: Well, Venezuela is declining-- as I said, it is--
BRIAN SULLIVAN: Massive decline.
AMIN NASSER: --massive decline. The growth, as I said, in-- in the U.S. shale is compensating for some of that. But, you know, there is other growth that's happening in other markets as well.
BRIAN SULLIVAN: How has the decline-- I mean, by some accounts, Venezuelan production has declined by 50%. I mean, it depends on the numbers that you believe in and there's no sign that that's gonna change anytime soon. They don't have the capital to invest. How has Venezuela's-- decline and problems changed your outlook for pricing and global demand and global output?
AMIN NASSER: I think-- as I said, this always-- dictated by-- additional demand that we see in the market. And these forecasts that you see from the IAE and EIA I take that into consideration. National decline, what's happening in Venezuela, the geopolitical events that' happening. And based on that, they decide this is how much growth. As I said, what we are seeing is that the demand-- per year is, as I just said, always upward. We start the year with lower demand growth in that particular year. Toward the middle of the year-- we always see higher demand, which, take into consideration the decline-- that is happening in Venezuela and in other countries.
BRIAN SULLIVAN: The world is generally reflating--
AMIN NASSER: Yeah.
BRIAN SULLIVAN: --Saudi Arabia's come out of a recent recession. China's growing, still, at a very fast clip. The United States-- is doing very well. Is there anything in your projection, sir, that you see that would imply a slowdown in demand growth in the next couple of years?
AMIN NASSER: Well, what you are seeing is-- healthy-- economy growth globally-- healthy-- demand that we are seeing and forecasting going forward. The economy is doing very well, not only-- in OECD country-- and the rest of the world. And with that, there will be a healthy demand, that is our projection.
BRIAN SULLIVAN: Are you-- we look at the relationship between Saudi Aramco and the U.S. as competitors for oil. But there's also the services side. Are you actively hiring U.S. services companies to come to Saudi Arabia to help grow your production?
AMIN NASSER: Oh, services companies from the U.S., they have been there for the last 50 years. Halliburton is--
BRIAN SULLIVAN: Huge.
AMIN NASSER: -- Schlumberger and Baker Hughes and Weatherford are major players as service companies. They are the main four players in the services sectors-- supporting Saudi Aramco for the last 50 years, as I said. So--
BRIAN SULLIVAN: I should've phrased it, sir, more as are you growing your business with them? We are CNBC, they are major companies with stocks. Are they getting more business--
AMIN NASSER: Oh, yeah.
BRIAN SULLIVAN: --from Saudi Aramco?
AMIN NASSER: Their business is growing. With our growth-- GE is also-- with-- the latest-- merger with Baker Hughes-- is also playing a major-- in terms of-- services in the Kingdom. Their business is expanding big time. As we are adding more rigs and more services, as we are expanding our upstream business, especially in the gas sectors, we are-- we look at 2015 to the next-- ten years-- we're almost doubling our gas production. That required a lot of services from all the companies. The number of rigs is increasing significantly, not only for-- conventional oil and gas, also for-- exploration and for unconventional gas in the Kingdom. With that growth, a lot of potential and a lot of opportunity for the service providers, which is the major companies I talked about, that are major players in the sector.
BRIAN SULLIVAN: How much does the U.S. expertise in horizontal drilling, fracking, translate to your fields?
AMIN NASSER: Well-- we are-- when you look at horizontal drilling, we talking about-- multilaterals now. So-- everything we do is all about horizontal or multilaterals, geosteering using satellites-- to geosteer the worlds from. That's why, Brian-- I extended an invitation for you to come to Dhahran. You will find out, from one center of Dhahran, we geosteer every drilling bits in the Kingdom from one location using the latest technology, fire satellites, to our headquarter in Dhahran. So we do all the geosteering necessary. So, of course, the data when it arrives to Dhahran, it goes through our simulation-- models. Data is integrated with offset tools and then we decide on the multilaterals. So it is-- went beyond horizontal worlds to multilaterals.
BRIAN SULLIVAN: You may have followed the news that-- Russia has been in the news in the United States just a little bit over the last-- year and a half or so. Just-- throwing that out there. There have been some reports that Russia is building maybe $100 billion fund to invest in Aramco down the road. Do potential U.S. investors-- need to be concerned about a growing relationship with Russia?
AMIN NASSER: I am not-- I don't want to comment about investment-- of-- other companies or other countries. And-- Aramco's still not listed. But-- we have-- good relation with Russia. We are exploring opportunities, if-- there are opportunities for-- different sectors-- with Russia in terms of services and other things. And we are looking at any opportunity that might exist.
BRIAN SULLIVAN: What is Russia's role in the oil world right now?
AMIN NASSER: Well, there are a major-- supply of crude to the rest of the world. They are also major supplier of gas. They-- supply the rest of the world with-- a lot of these products. So they are a major players.
BRIAN SULLIVAN: You said you were not public yet. Theoretically, if you were to go public at some point, the question I've been-- I've asked and people have asked me is, "Why?"
AMIN NASSER: Well, I think it's all about vision 2030, which is very ambitious for the Kingdom. It talks about sustainability, diversification-- of the income not relying heavily on oil and gas, growth in the private sectors-- and-- bringing more small and medium enterprises, creating more industries and jobs, so when other social-- changes that is happening. So when you talk about privatization-- you need to start with-- all sectors, including-- oil and gas. So Aramco is one of-- the company that will be-- listed or privatized-- as part of also vision 2030 too. Also, hopefully to grow with even much more.
BRIAN SULLIVAN: You have-- you told our colleague at CNBC-- Andrew Ross Sorkin that-- the shareholders will make a decision about the timing relatively soon. The shareholder, primarily, is the Kingdom, the government--
AMIN NASSER: Yeah.
BRIAN SULLIVAN: --of Saudi Arabia. When can we expect a decision, a timing?
AMIN NASSER: Well, that's-- up to the shareholder. The when and where is a shareholder decision-- for listing Saudi Aramco.
BRIAN SULLIVAN: Do you feel that you will be able to work out or have already worked out-- a tax rate that will be friendly to shareholders, friendly to the Kingdom, and friendly to Aramco?
AMIN NASSER: It's already worked out. The company used to be 85% tax. The company currently is being only 50% tax. So this is already done. We used to be, as I said, 85% taxes, 20% royalties. We are being now only 50% tax, as agreed with the government, and 20% royalties. Our products-- in the local market is sold at international price also.
BRIAN SULLIVAN: Is there any chance the IPO does not happen?
AMIN NASSER: As I said-- with regard to-- so far-- we are working to-- list Saudi Aramco-- Aramco became a joint stock company-- effective January 2018, so all the signals that this thing is going ahead. And-- ultimately, it's a shareholder decision. But all the signals in terms of changes-- by the government to-- prepare Aramco for the listing is done.
BRIAN SULLIVAN: When-- when the listing does happen-- we're moving off the IPO. But oil prices. If-- if you have a message now on CNBC to speak to future shareholders, how much does Aramco's business-- cash flow, profit, get impacted by marginal swings in the price of oil? If Brent is trading at 65 versus 60, how would that at all, if at all, impact Aramco's balance sheet?
AMIN NASSER: Of course, every-- every change for any company, not necessarily Saudi Aramco, any increase of a dollar in price will have-- a significant impact on the company cash flow. However, we are-- Saudi Aramco is a very-- resilient company. In 2015, just to give one example-- we were paying 85% taxes, 50-- 20% royalty. We sold almost three billion barrel of oil equivalent in the local market at local prices. And we didn't have any debt on our balance sheet and we paid dividend. Of course, not a lot of dividend, but we paid dividend in that particular year. That was a year in 2015 where the prices, if you remember, in the first quarter were below $30.
BRIAN SULLIVAN: Not good.
AMIN NASSER: And we executed-- our-- biggest capital program in that particular year. So it is very resilient-- very strong when it comes to cash flow. We have the lowest cost producer with the most reliable supplier and the most efficient, also-- company.
BRIAN SULLIVAN: Somebody in the oil business said-- they-- they asked me to ask you this. They said, "Brian--" I'll do my Texas accent. "Can-- can you ask 'em if they'd be profitable at $5 a barrel?"
AMIN NASSER: Well-- it will-- will be challenging if you put it that way.
BRIAN SULLIVAN: Are you profitable at $5 a barrel?
AMIN NASSER: As I said, it would be challenging.
BRIAN SULLIVAN: Be-- be challenging. Be challenging. We-- we'll-- we'll leave it at that, we'll leave it at that. Do you think you could be the first trillion dollar company?
AMIN NASSER: Well, you know, I-- I think-- the market will decide what is-- how much Saudi Aramco worth. When we-- go with our prospectors and share with our-- the potential investors our equity story and-- share our data, I think the-- investor community will decide how much is Aramco worth.
BRIAN SULLIVAN: When we look at Vision 2030 and-- and-- and energy in general, the world's-- and we're gonna get to electric cars in the minute, but the world's energy needs are going to only grow. Population's growing, energy demand is growing. For example, the CEO of Shell. He has a challenge. Some of his shareholders that I've spoken with express concern that investment in renewable energy might take away from the focus on their core business. So other CEOs are grappling with that as well, sir. How do you convince the world that Aramco can be more than a petroleum or a petrochemical company, and do it successfully and do it profitably?
BRIAN SULLIVAN: We are-- an integrated oil and gas and petrochemical company. We think-- our product will be there for-- long-- over the long term, it will be needed. When we look at our-- future and-- we are and will continue to-- optimize our operation and make sure that our costs continue to be the lowest in the market, we need to work on making sure also our carbon footprint is-- managed very well. And we need to also-- with more technology in our operation, to make sure that will continuously drop our cost going forward.
BRIAN SULLIVAN: It's been difficult. I mean, obviously the-- the climate change discussion-- oil and gas companies have felt a lot of pressure. Your greenhouse gas intensity is the lowest by far of any of the country production area-- Ven-- you're six times lower than Venezuela. You're five times lower than Iran. How much does having that lower carbon footprint for a petrochemical company go-- do you think go into investors' sentiment around your company? How much does that matter to shareholders prim-- potentially?
AMIN NASSER: I think, you know, your carbon footprint is very important and very critical for all investors. We benefited, not only from the quality of our reservoirs for energy intensity. We benefited from applying technology. You talked about horizontal wells. Multilaterals basically will give you higher production-- but-- a lower energy intensity because you are using the pressure in the reservoir to push the crude to the surface. You are capitalizing on the pressure down hold by having more multilateral rather than --
BRIAN SULLIVAN: Rather than polluting technology.
AMIN NASSER: --or-- no, rather than the vertical or horizontal wells. You'll have more access to the reservoir, more pressure to push the crude to the surface. Of course, the quality of the reservoir will definitely also help. So technology in terms of the way we-- drill our wells, the multilaterals using-- different technologies like the equalizer to control the amount of water, reducing the hydrostatic heads, will require this pumping. And when-- you require this pumping to bring that crude to the surface, you are-- that's where the energy intensities lower. We don't need a lot of energy to bring that barrel to the surface.
BRIAN SULLIVAN: There's an environmental benefit to that. Is there a business benefit to being—
AMIN NASSER: Of course –
BRIAN SULLIVAN: --a lower-- emitting-- having a lower emission footprint in the petrochemical world?
AMIN NASSER: Of course. When-- when we-- the things that we are benchmarking on is cost. And we know we are the lowest cost producers. The safety of our operation and environment. And in environment, we are looking at the-- our carbon footprint, energy intensity compared to-- other-- global companies. And I can tell you that in all these categories, technology, environment, safety, and cost, we have a leadership position. These things are important and matters a lot to the investors, especially in-- when we talk about climate change and what is the energy intensity of our products.
BRIAN SULLIVAN: Electric cars-- the CEO of General Motors will be at this conference in a few days and she is bringing with her a fleet of electric cars--
AMIN NASSER: Good.
BRIAN SULLIVAN: --to try out. What's your view on the EV?
AMIN NASSER: I think-- definitely energy-- transformation is happening-- mainly trigged by technology advancement—policy or regulations, and climate change pressure. And we seeing more electric vehicles. But I think they are starting from a small base, a low base. And if you look at the number of vehicles, electric vehicles in 2017 that entered the market-- 2% of the total sale is electric vehicles. But if you look at 2% out of the total fleet you are talking about .2%. If you look at the total consumption of crude that-- that these electric vehicles that entered the market replace 60,000 barrels. 60,000 barrels out of 100 million barrels that we are putting or supplying every day. So the impact is still very, very small. So I think they will grow, but they are starting from a small base. Transformation-- is gonna take generations, it's not gonna happen tomorrow. They will continue to grow. But as I said-- an energy transition takes-- decades. Coal is a good example. Coal, as part of-- the total energy mix, was 55% in 19-- in 1910, almost 100 years ago. Coal today is only 26% of the energy mix. But in absolute terms, coal has increased. And coal, even in the next 25 years, will increase by .2%, small percentage according to the IA. But still, this is a coal that's supposed to be, in 1910, as part of the energy mix, peaked and start declining as part of the energy mix. And still, in absolute terms, it's increasing.
BRIAN SULLIVAN: So the death of the internal combustion engine has been greatly exaggerated?
AMIN NASSER: Exactly.
BRIAN SULLIVAN: You believe that?
AMIN NASSER: Of course.
BRIAN SULLIVAN: And we talk about growth in everything. Petrochemicals are-- are used in many things. Plastics-- as the world gets bigger, has the death of the oil company been greatly exaggerated?
AMIN NASSER: I think-- you know-- the oil-- as I said, with regard to-- the transitions and whatever and by 2040 and beyond-- energy-- I mean, oil and gas will be-- part of the energy mix and will continue to grow. But in terms of the petrochemical, it is an area where we are-- looking to-- expand into it. It adds to the value of our barrel. We are-- we just-- announced an investment with SABIC, our partner in the Kingdom, to-- for 400,000 barrels of-- crude to chemical at 45% converging capacity. We do have other investment, potential investment, in China and in other places-- that we are looking at now, with also similar converging capacity of about 45% of the barrel, of the crude barrel--
BRIAN SULLIVAN: Yeah.
AMIN NASSER: --converted to chemicals--
BRIAN SULLIVAN: So if I hear you right, sir-- so looking at oil just as a transportation fuel is short-sighted?
AMIN NASSER: Exactly. I mean, there are-- transportation-- 20% of the total production goes to the light vehicles industry.
BRIAN SULLIVAN: Yeah.
AMIN NASSER: So you can say 20 million barrels today goes to the-- light vehicles, which is impacted by-- as I said, .2% when it comes to electric vehicles. There are other-- areas where the chemical market is growing by about 2% to 3%. per year. So the growth is-- healthy. We are looking at-- expanding-- using the crude as a feed stock into the petrochemical industry. We are-- doing an administration project for our technology that will convert 70% of the barrel to chemical if-- and reducing the capital--
BRIAN SULLIVAN: Uh-huh.
AMIN NASSER: --cost. If that works, that will have major breakthrough—in terms of-- increasing-- the shifting of crude barrels to chemicals.
BRIAN SULLIVAN: Last-- last question, a little more fun. On the 80th anniversary week of the Arab American Oil Corporation, there have been reports that Google is going to build a tech hub or a tech center with Saudi Aramco as a partner. Is Google or Amazon gonna partner with Aramco and build a big tech hub in the Kingdom?
AMIN NASSER: I think both-- Google and Amazon and other-- companies are major players when it comes to—cloud computing— and-- Aramco's definitely-- looking at all of these-- companies and looking at-- investment and growth in these markets—in the cloud computing. I can't reveal more in terms of our discussion. But it is something that we are keen on and we are looking for the opportunity to-- enter that market.
BRIAN SULLIVAN: So, "tech comes to the Kingdom" is a possible headline?
AMIN NASSER: Well, I think data analytics-- will be more than happy to show you our Fourth Industrial Revolution centered in the Kingdom and-- and Saudi Aramco and how much it has added value to our operation in terms of-- cutting our costs and increasing our liability. But data analytics and using data, it's something that we have been doing a lot of work on and we will continue to work with our partners also to expand our operation and increase our efficiency and-- also-- cut our cost.
BRIAN SULLIVAN: Mr. Amin Nasser, thank you very much for your time--
AMIN NASSER: Thank you. Thank you, Brian.
BRIAN SULLIVAN: --for CNBC, I really appreciate it, sir.
AMIN NASSER: Thank you, thank you. I appreciate it.
BRIAN SULLIVAN: I enjoyed it, thank you, sir.
AMIN NASSER: Thank you.
BRIAN SULLIVAN: Thank you.
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