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