- [Narrator] This map shows the major infrastructure
of Saudi Aramco, the worlds most profitable company.
The dark spots clustered to the east
are deep reservoirs of oil and natural gas,
the life blood of Aramco's business and the global economy.
For nearly a century, Aramco's oil has powered
cars, planes, and industries,
and electrified homes around the world.
In 2018, the company produced 13.6 million barrels
of oil a day, more than any other company.
Then in 2019, Aramco's IPO valued the company
at 1.7 trillion,
in the worlds biggest ever public offering.
But the forces that propelled Aramco's growth
from a single well to the biggest producer in the world
are changing underfoot.
And some analysts say the company won't be able
to sustain the kind of growth it will need
to keep investors happy.
To understand these changes, you have to understand
how Aramco got so big in the first place.
The company was founded in the 1930s
on a barren tract of desert, with no natural river
or body of water and little vegetation.
- It was completely pre-modern.
I mean it really looked basically like it had
since the 1700s, the 1800s.
- [Narrator] The kingdom's leader IBBEN SAUD,
was low on cash to fund development,
so in 1933 he struck a deal with an American oil company.
Standard Oil of California, or SoCal,
won the right to search for oil
near the eastern coast, in Al Hasa.
Five years and several dry wells later,
SoCal and it's partner, Texaco, hit oil, a lot of it.
Quickly, well number seven was producing
commercial quantities,
around 4,000 barrels of crude oil a day.
Workers began construction on a pipeline to the sea.
By spring of 1939, the SoCal tanker, D.G. Scofield
docked at Ras Tanura and filled its first shipment
of oil to leave Saudi Arabia for the global markets.
The country with nothing to sell had found
what everyone wanted to buy.
Over the following decades, the American Group
found more and more mineral wealth beneath the Saudi sand.
By 1970, that oil would play a crucial role in a market
halfway around the world.
A market so big it would lift Aramco's profits
and push Saudi Arabia to alter the future
of oil markets everywhere.
What happened is that in 1970, Texas tapped out.
After more than a century of growth,
U.S. oil production began to fall.
At the time, Americans were driving to work
in gas guzzlers like these.
The average fuel consumption for this type pf vehicle
was 13 and a half miles per gallon.
To fuel these cars, the U.S. turned overseas.
You can see it on this chart, which shows the countries
imports of crude oil.
Aramco, still an American company,
had plenty of oil to sell.
Wald said that between 1972 and 1973,
production grew from five point four million to
eight point four million barrels a day.
According to Aramco, in 1971, shipments of crude oil
and petroleum products from Ras Tanura
had surpassed one billion barrels a year.
Saudi Arabia and other oil producing nations
took notice of all this demand.
- OPEC, this organization of petroleum exporting companies,
which had been created in the 60s but didn't do anything
for years, they would essentially negotiate
with the big international oil companies,
like Exxon and BP and Shell,
and they would negotiate a price for oil.
And they were basically selling all of their oil
to these international companies that had
distribution outlets around the world.
And 1973 comes along and the countries say,
you know what, we know what's happening with demand.
We know that we're supplying most of your market.
We need a higher price for oil.
- [Narrator] When OPEC tried to raise prices,
the international companies said No.
So, Saudi Arabia's' oil minister Ahmed Zaki Yamani,
took a different approach.
- So right at that exact same time,
was the Arab-Israeli War and a lot of the countries in OPEC
wanted to basically help out their fellow Arab countries
by raising the price of oil and both embargoing it
to the countries that were helping Israel,
namely the United States and its allies.
And the Saudis were actually the least interested
in doing this, but once it became clear that they
couldn't negotiate an increase in the price of oil,
Yamani looked at this situation and he said,
we can use this political situation to our advantage.
- [Narrator] Here's Yamani in December of 1973.
- When the Israelis accept to withdraw
from the occupied territories,
and the U.S. government guarantees
that decision,
then immediately we can lift the embargo.
This could happen anytime.
- [Narrator] The plan worked.
This chart shows the U.S. price for oil
before and after the embargo.
- [Newscaster] President Nixon said the gas crisis
has dissolved into a problem.
But it's a problem millions of motorists
are still trying to cope with in long lines
at their local gas stations.
- [Narrator] While America was reeling from the price shock,
Saudi Arabia was making plans to increase
its control of Aramco.
That year, the Kingdom set a deal to buy 25% of the company.
- And that was really when the tables turned
and it was very clear that it was no longer these
big international oil companies.
It was no longer the Americans.
It was the Saudis that controlled their oil
and controlled their commodity.
And shortly after that, in 1974, they negotiated to buy
another percentage of the company.
In 1976, they had more negotiations that led to them
eventually completing the purchase
for all of Aramco in 1980.
- [Narrator] Aramco was now fully owned by the Saudi state.
From this point forward, Saudi Arabia along with OPEC
would exert enormous control
over the price of oil everywhere.
In the early 80s, the company set forth on a
period of rapid expansion that would take Aramco
beyond the Kingdom's oil fields and borders
to new markets around the world.
- Ali Al-Naimi became the first Saudi CEO of the company,
so it was his vision that diversified
and really integrated the company
and turned it into something that could make money
in all parts of the value chain,
not just the pumping the oil out of the ground.
So they first went to Korea and they negotiated
with the South Koreans and they started
a joint oil refinery called S-OIL in South Korea.
They also negotiated in Japan and they also have a big
oil storage facility in Japan.
Then finally they got the China, and they have several
joint ventures in China for refineries and petrochemicals.
- [Narrator] The timing was right to capitalize
on a surge in demand for oil.
Here's a look at China's GDP over those decades.
- They set up in Asia at exactly the moment
when Asia took off as a consumer
and they were really well positioned.
And in fact, Saudi Arabia is currently
the largest oil supplier to China right now.
- [Narrator] By the 2000s, it was a global conglomerate
positioned to profit from a historic rally in oil prices.
Supply disruptions in the Middle East and demand
in emerging markets, like India,
drove the price to new heights.
- Price spikes are becoming a way of life
in the United States.
- Geopolitical certainty in a number of countries
in the Middle East and Africa will continue
to keep markets on edge.
- [Male Newscaster] Gas prices are hitting new highs.
- We gotta live with it.
They're gonna keep going up.
- [Narrator] In 2008, the price of oil
hit a record high of $147.
In the decade since that peak,
many of the factors that lead to Aramco's rise,
have shifted.
For one, the U.S. came back online
as a major oil producer.
By 2008, U.S. producers had found new ways
to extract oil from places they had thought were tapped out,
as well as some new areas.
Production surged.
This is Nansen G. Saleri, a former Aramco executive.
- What the
U.S. producers have done though is extraordinary.
And with the benefit of new engineering capabilities,
especially the fracking capabilities,
they're able to produce significant amounts of oil
and today you look at the U.S. production,
it's approaching 13 million barrels per day.
- [Narrator] Meanwhile, cars and homes had become
more efficient, curbing growth in demand.
The average fuel economy for new cars in the United States
is now closer to 25 miles per gallon.
That's almost twice what it was in 1970.
And at the same time, buyers have slowly
started shifting toward cleaner energy sources.
- In the new world, it's all about clean BTUs,
clean energies, so Aramco now has to compete
in the clean BTU era.
Nobody in the industry, including the most successful
IOCs, including the unconventionals,
they cannot say, oh we are totally blind
to what's going on as far as global warming,
as far as CO2 emissions, or greenhouse emissions.
That's somebody else's problem.
That is not an answer anymore.
- [Narrator] Investors are pumping cash into assets deemed
more environmentally friendly, such as so-called ESG Funds,
which focus on environmental, social and governance factors.
Investors say all of these factors
have threatened oil stocks.
Here's the performance of oil stocks
compared to the broader market.
This was the stage being set in 2016
when Aramco said it was considering an IPO
as part of an effort to diversify
the company's economy beyond oil.
After setbacks, Aramco launched its IPO in 2019,
selling 1.5% of itself on the Tadawul in Riyadh,
mostly to Saudi Investors.
It's unclear if the company will sell more
on international markets
and reach the five percent like it had planned.
(upbeat music)