Saudi Aramco could Lose $500bn as Paris Climate Change accord impacts IPO

While Crown Prince Mohammed bin Salman is pushing Saudi Aramco to add value to $2 trillion to prepare for its IPO next year, a Washington-based research group has revealed that policies to reduce global warming have may lower the company’s value by 40 per cent.

The Oil Change International Research Organization reported that policies designed to comply with the Paris Climate Agreement – which aims to keep global warming below 2° C – could reduce the value of Aramco stock.

“The New York and London stock exchanges are competing to list Aramco shares, but I do not think they give enough attention to the potential for an increase in oil price risk and climate risk to investors,” said Greg Muttit, a senior advisor of the Oil Change Corporation, according to the Financial Times newspaper, which indicated that Aramco refused to comment on these forecasts.

Are investors thinking seriously about climate change? Saudi Aramco IPO will be a key test – our new analysis https://t.co/pAmxCar76z

— Greg Muttitt (@FuelOnTheFire) August 14, 2017

The Saudi Crown Prince, is currently leading a plan to restructure the Saudi economy by 2030 and the Aramco IPO is a key issue within that plan. Analysts have estimated the Saudi oil giant’s value between $880 billion and $1.1 trillion.

Yet even if Aramco misses its target of $1 trillion, the company is may still be able able to achieve $50 billion of equity sales, which would making it the largest IPO in the world.

Read: Value of Saudi Aramco significantly lowered by analysts

The Saudi authorities have taken several procedural steps to raise the value of the company, including separating Aramco financial affairs from the state and reducing the tax rate imposed on the company from 85% to 50%. However, the Oil Change International Research Organization’s report argues that Aramco’s value depends on oil prices, which in turn are affected by climate change policies .

Oil prices are expected to rise to $79 a barrel by 2020 and continue to rise to $137 a barrel in 2050, according to the International Energy Agency (IEA) report entitled “New Policies Scenario”. Under these circumstances, Muttit says Aramco’s value could reach $1.5 trillion.

#OilCrude

However if another scenario were to play out oil prices are would rise to $73 per barrel by 2020 and leveling off to $61 by 2050. Muttit said Aramco could be worth $ 940 billion in that case.

Proponents of Aramco’s IPO say, the low cost of production in the country means Saudi oil remains attractive to investors in the world, even if crude oil prices fail to rise significantly from the current level of about $50 a barrel.