Welcome to Saudi Aramco's Half Year 2022 Results call. We'll be holding a question and answer session following the presentation. If you'd like to ask a question, please press star followed by one on your telephone keypad at any time. I shall now hand over to Mr. Fergus MacLeod to begin.
Hello and welcome to this audio webcast discussing Saudi Aramco's half year 2022 results. I'm Fergus MacLeod, Saudi Aramco's Vice President of Investor Relations. It gives me great pleasure to be joined today by Amin Nasser, our Chief Executive Officer and Ziad Al-Murshed, our Chief Financial Officer and Senior Vice President of Strategy and Development. Our webcast today will comprise a presentation followed by a question and answer session and we anticipate the entire call lasting around an hour. I'd just like to remind you that this webcast and conference call are being recorded. Before we start, I'd like to draw your attention to this cautionary statement. During today's presentation, we may make forward-looking statements that refer to estimates, plans and expectations. Actual results and outcomes could differ materially due to factors we note on this slide.
Please also refer to our regulatory filings and website for more details. With that, I'll now hand over the call to Amin.
Thank you, Fergus. Welcome, everyone and thank you for joining us today. We have delivered a record performance in the first half of 2022, despite unprecedented volatility in the global economy and energy markets. Thanks to the dedication and hard work of our employees and support from all of our stakeholders. Let me begin by looking at the business environment. As the world began recovering from the pandemic, it encountered new geopolitical and economic challenges. Rapidly rising inflation has caused central banks around the world to tighten monetary policy, impacting prospects for economic growth and there is a growing consensus about a potential downturn. Oil demand had been expected to return to pre-pandemic levels by the end of 2022. Now most forecasters expect this to happen in 2023.
Further downgrades to this view are possible if the outlook continues to deteriorate. Looking beyond the short term, it is important to remain focused on the longer-term trends in the oil market. Oil demand is likely to grow for the rest of the decade. We believe that the world will continue to need oil and gas for the foreseeable future to support a sustainable and affordable energy transition. Our concern remains that the industry is not investing enough to meet even the most conservative estimate of future demand. We strongly believe that all stakeholders need to recognize this problem and support higher investment to ensure the market remains adequately supplied. In Aramco, we have been clear and consistent in our view that we are part of the solution to supply low-cost, low upstream carbon intensity barrels.
We will increase our maximum sustainable capacity to 13 million barrels per day by 2027 from the 12 million barrels we currently have available. We are confident that we can help manage the dual challenge of meeting the world's rising energy requirements, at the same time reduce emissions. Our strategy is resilient to market uncertainty and aims to maximize long-term value to our shareholders through oil price cycles. We have outlined our plan to execute the largest capital investment program in our history. Our opportunities are unique and we will capture them with capital discipline and financial prudence. As I mentioned earlier, we are increasing our maximum sustainable oil production capacity. Our production is among the world's lowest cost and least carbon intensive and we aim to preserve that competitive advantage.
We also aim to increase our gas production by more than 50% by 2030. The growth in gas supply comes with significant quantities of additional high-value liquids and displaces liquid burning. This will not only help the kingdom achieve a lower carbon energy mix but also make more liquids available for export. In downstream, our focus is on de-risking our leading upstream position and capturing integration value through our Liquids-to-Chemicals program. We are making good progress with developing prospects to reach our long-term goal of up to 4 million barrels per day. Our investment in low carbon fuels and solutions will reinforce our ability to achieve our Net Zero ambition. We are supporting our partners to increase localization through our flagship programs, iktva and Namaat, to further improve cost competitiveness and supply chain resilience.
All of this is enabled by maintaining financial flexibility and strength. Our strategy and plans integrate sustainability across all levels. Sustainability has been at the heart of what we do for many decades and has always been core to our value proposition. Our approach to sustainability reflects our view on the need for an orderly and sustainable energy transition. We believe oil and gas will continue to play an important role and our leadership position amongst the lowest cost and lowest emission producers will be critical to ensure the supply of reliable and affordable energy to our customers. Our 2050 net zero emissions ambitions is central to this and we have now laid out our initial pathway and interim emission reduction targets for the year 2035.
Our 2035 targets build on our leading upstream carbon intensity position with a minimum of 15% reduction from a 2018 baseline. We are coming from a very competitive starting position when compared to other major producers. By 2035, we plan to achieve a reduction of 52 million tons per annum in Scope 1 and Scope 2 greenhouse gas emissions. Our first sustainability report, published in June, provides detail of our performance and ambitions. I will now turn it over to Ziad to go through our first half performance.
Thank you, Amin and welcome everyone. It's nice to engage with you again. I'll take you through our performance for the first half of this year, leaving sufficient time to answer your questions at the end. Before we get into the financial results, let me highlight some of our key achievements in progressing our growth strategy so far in 2022. As Amin highlighted earlier, we are focused on executing the largest capital program in our history to help meet the world's needs for reliable, affordable and sustainable energy and to maximize long-term value for our shareholders. In crude oil, we are making good progress to increase our maximum sustainable capacity with the first increments coming on stream in 2025, followed by additional capacity coming in 2026 and reaching our target of 13 million barrels per day by 2027.
We continue to deploy leading technologies to maximize extraction at the lowest possible long-term cost. We deployed a new supercomputer for reservoir simulation, second only in the region to our own Dammam 7 supercomputer. In gas, we are achieving key milestones towards increasing our production by more than 50% by 2030. Specifically, for conventional gas, compression projects at Haradh and Hawiyah fields are progressing well. For unconventional gas, initial construction is underway for Jafurah gas plant. For gas storage, construction is near completion at Hawiyah Unayzah Gas Reservoir Storage, which is the first underground gas storage project in the kingdom. This will help us manage seasonal changes in demand and improve asset utilization and cost efficiency.
In downstream, we continued to grow our presence in key markets and to develop prospects for our Liquids-to-Chemicals program to reach up to 4 million barrels per day. We made a final investment decision to participate in the development of a major integrated refining and petrochemical complex in China. We're also making strong progress and are well ahead of schedule in capturing integration synergies between SABIC and the rest of the group. In Europe, we are expanding our downstream presence with the acquisition of an interest in Poland's refining, wholesale and jet fuel marketing segments, along with PKN Orlen. Most recently, we agreed to purchase Valvoline's global products business, expanding our presence in the finished lubricants market and leveraging our global base oils production.
Turning to low carbon fuels and solutions, we set out interim targets to achieve our Net Zero ambition and to produce 11 million tons per annum of blue ammonia. Finally, we are further strengthening our localization of our supply chain through iktva and Namaat programs. We reached almost 60% local content in 2021 and still targeting 70%. It is worth noting that this accelerated localization has helped dampen the impact of global supply chain bottlenecks. On the financial side, we remain focused on maintaining a high investment-grade credit rating. During the first half, we prepaid about $20 billion worth of promissory notes related to the SABIC acquisition, which resulted in financing cost savings of around $2.2 billion and is gradually flattening our debt maturity schedule. Overall, we're making good progress in the delivery of our strategy.
Let me now turn to our key operational and financial highlights for the first half of this year. We generated $87.9 billion in net income, nearly double that of the same period of last year. We also generated $65.2 billion in free cash flow, almost 60% higher than last year. Our strong profitability and cash generation supported our dividend distribution of $37.5 billion for the first half of the year. We reduced our balance sheet gearing to 7.9% at the end of the second quarter, down considerably from 14.2% at the beginning of the year. Having said that, our focus is increasingly on maintaining a high investment grade credit rating across oil price cycles.
In doing so, we look at balance sheet gearing across the cycle and we also look at ascribed gearing, which is a more stringent metric that is widely used by credit rating agencies to assess financial strength. Our capital spending was $16.9 billion in the first half, growing by around 8% relative to the same period of last year. We expect spending to continue to increase in the second half of this year. Our full year 2022 capital investment guidance of $40 billion-$50 billion remain unchanged but we expect spending to be towards the lower end of this range, depending partly on whether external investments materialize before year-end or are pushed to next year.
Looking at the details, you can see improvements in the profitability of both upstream and downstream as a direct result of higher volumes, higher crude oil prices and stronger downstream margins. Upstream delivered EBIT of nearly $149 billion in the first half, which is about 75% higher than the same period of last year. This was mainly driven by higher production and an increase of $42 per barrel in realized oil prices. Downstream EBIT more than doubled from the same period of last year, reaching nearly $23 billion in the first half of this year. This strong performance was driven by a combination of stronger margins, SABIC synergies, inventory revaluation gains and benefits from our portfolio-wide transformation program. We also see all financial metrics continue to improve quarter-on-quarter.
Now before we take your questions, let me recap on how we are delivering shareholder value. We've had a record first half of 2022 under challenging circumstances. Our plans are on track to deliver long-term value to our shareholders and we continue to further strengthen our balance sheet with an increasing focus on maintaining a high investment-grade credit rating through cycles. One of our enduring strengths is our long-term approach. For us, it is about decades, not quarters, nor years. Let's now go to Q&A.
For asking a question, please press star followed by one on your telephone keypad. To withdraw your question, please press star followed by two. When asking your question, please ensure you are unmuted locally. I shall now hand back to Mr. MacLeod.
Thank you, operator. Thank you, Jordan. I'd like to take our first question, which comes from Mazen Al-Sudairi at Al Rajhi Capital in Riyadh. Mazen, would you please go ahead with your question?
Thank you for this opportunity and congratulations for the good results. I have just only two questions, please. Regarding, as the cash flow has improved, can we see any upgrade regarding the CapEx budget? If it is yes, can you please break down by segment? This is the first question. The second question, as the key Asian consumer like India are buying cheap Russian oil, what is the impact in the Aramco market? Thank you.
Great. Two very interesting questions, Mazen. I think the first one, is there any update on our capital spending guidance? You remember back in the March earnings call, we gave guidance of $40-50 billion for 2022 and we said it would be significantly higher in 2023 and then rising potentially through the middle of the decade. Is there any update on that? The second question I think is there any impact on our sales into our key Asian markets as a result of the reallocation of flows in the global crude oil markets since the conflict began a few months back?
Thank you, Mazen. I think our intention is to significantly increase spending to capture unique growth opportunities that create shareholder value. Our guidance is still the same, $40 billion-$50 billion for 2022. I think to increase capital spending is gonna be difficult because that would require re-engineering and engineering to reach a final investment decisions before we start spending on this capital program. You asked about a breakdown. I would say 50% is for upstream and 50% is for downstream and low carbon projects. That is the distribution of our capital program. With regard to the Indian market and the imports of Russian crude, you know, we have enjoyed good relation and we are a base supplier because of our reliability to our great customers in Asia and the rest of the world.
We did not see any impact by India importing more Russian crudes on the supply that is coming from Saudi Aramco. We continue to maintain our market share in terms of supply to the Asian market and India. As I said, they look at us as a base supplier because of our high reliability and we enjoy a good customer base that allow us to continue to supply even under these conditions. Thank you.
Thank you for the question, Mazen.
Thank you.
Yeah. Next question comes from Jason Kenny at Santander in Edinburgh. If you're there, Jason?
Oh yeah. Thanks, Fergus. Can you hear me?
We can hear you fine, Jason. Please go ahead.
Yeah, I was just wondering on the capital frame and the potential net cash position that certainly I think is possible by year-end. I mean, is this an opportunity for accelerating investments or do you think there's gonna be a focus on cash returns just to absorb some of that surplus cash? I know you think in decades rather than quarters but you're gonna have surplus cash for a few quarters yet, I think. So if you could just talk to me about the priorities for cash, net cash in particular, the next few quarters, that'd be great. Then secondly, on the working capital, quite a significant build, SAR 15 billion at the minute. How quickly do you think the bulk of that could unwind in the next three, six, nine months? Thanks.
Okay, Jason. Two questions there. I think the first one is, you know, in terms of the balance sheet, clearly, you know, we're not at a net cash position at the moment. Gearing at the end of the second quarter was just less than 8%. If the happy situation of very strong free cash flow continues, what would be the outcome? That's not a problem we have at the moment, Jason but it's a problem that you're projecting, I think, based on your own assumptions about oil prices and production into the future. If we were to have that a nice problem to have, where would we, what would we do? That's the first question.
I think the second question, as you correctly point out, quite significant build in working capital in the first half of 2022, $14.2 billion in the first quarter, $15 billion in the second quarter. Do we see that unwinding? I guess that also depends a bit on oil prices but I think those are your two questions.
Yeah. Thank you, Jason. I'll answer both of the questions and leave the rest to Ziad to elaborate on. With regard to accelerating our investment, I think that is the only avenue provided that we land and finalize our negotiation. There is good number of investment that we are looking at right now. However, as you appreciate, these require a lot of discussion and negotiation with the partners in different parts of the world. If we are able to accelerate any of these investments, bringing it forward, that would be fine and we are looking forward to that. However, realizing from our discussion in various investment that we have outside of the kingdom, it takes time to execute this mega project that we are intending to partner with different parts of the world.
Now, I will leave the rest of the questions to Ziad to answer. Ziad?
Thank you, Amin. Jason, on the cash priorities, those remain unchanged. We are, you know, still first and foremost sustaining CapEx and then the sustainable dividend, then investment in growth. Finally, additional deleveraging and/or additional distributions. Now, just a reminder, we've been, you know, we always talk about the fiscal discipline, so we want to be able to push projects that create significant shareholder value despite ups and downs in oil prices. We want to be able to cross-cycle fund our current capital program, which we believe has unique opportunities to create the shareholder value. As to your question on working capital build, that is mostly oil price dependent. Its building up and winding down is very closely correlated to oil prices.
Thank you, Jason. Thank you for your question. Next one comes from Mohammed Al‑Thunayan at Jadwa Investment. Mohammed, could you go ahead, please?
Yes, hi. Thank you for having us on the call and, congratulations for the great set of results. I would like to bring your attention back to the slide number 19 from the full year 2021 presentation, which had the cash flow allocation priorities, since I would like to build on that. During the first half, the company is heading to achieve its CapEx targets of $40 billion. I believe the gross cash balance on hand will be able to cover two years of the company's CapEx requirements. Also, the company was able to reduce debt leverage significantly, which is evident by the decline and the gearing ratio towards the low end of the guidance range.
Which was mainly attributable to the early deferred consideration payment to PIF, which amounted to $17.7 billion during the first half alone, which represent 23.6% of the $75 billion annual dividend payments. Moreover, at a production of around 10.8 million barrels and even if we assume crude averaging $65 per barrel and assuming a CapEx of $40 billion, Saudi Aramco Free Cash Flow will still cover for the current dividend payment $75 billion for all shareholders. During the last year also, the board has recommended a 10% bonus share, which is not equivalent to a dividend increase nor share buyback. I think we are all in agreement when it comes to that point.
Given the robust current oil environment backed by the growth of oil demand, limited spare capacity, it seems that there is one element that's missing in the previous years' dividends, which is additional dividends or the so-called sustainable and progressive dividend policy, which is something that we have seen other major IOCs have done, with Aramco being the only exception. The question is, would the state having almost a full participation in the upside of oil prices through higher royalty and income tax and the PIF is capturing the upside through early deferred consideration payments. How should we think about the benefit to minor shareholders and their participation in the upside of higher oil prices, given no increase in dividends so far? More clarity on specifics on the policy would be highly appreciated. Thank you.
Mohammed, thank you. That's a very specific and detailed question. We'd be delighted to talk to you about your modeling, 'cause you went through some quite specific assumptions that you'd made, about the future. But that's, you know, that's great and we'd be delighted to talk to you offline about those. But I think your basic question does boil back down to the same issue about the balance of incremental investment versus incremental distributions, going forward. You know, in the happy situation that the strength of the financial performance we've seen in the first half of 2022 has continued into the future. I believe that's your question, Mohammed.
Yeah. Thank you. Thank you, Mohammed. We have a definitely unique opportunity to create shareholder value. If you ask by almost more than 50%, I would say 50%-70%. That's in eight years. That will eliminate almost a 1 million barrel of liquid burning, generate a lot of value and also reduce our emission significantly. We are also looking over the next eight years of up to 4 million barrels of Liquids-to-Chemicals and that will give us a lot of diversification, important diversification that we need and will ensure our long-term sustainability. Not to mention our big investment in renewables, in blue hydrogen. All of these are important projects. We need to capitalize on the opportunity and our strong cash position to ensure that these programs are cross-cycle to withstand any major market downturn.
We always stress-case our scenarios. We need to continue with our plan, the one I mentioned by 2030, regardless of what happened in the market. When you put a very highly stressed case, not the one you mentioned, we even stress at much lower prices to ensure that we can continue to carry on our capital program and to ensure funding flexibility while maintaining high investment-grade credit rating for the company. We don't compromise long-term value for short-term gains and we aim to deliver a sustainable and progressive dividend policy. No change on that plan. The company will review the dividend with full-year results in March 2023. Based on the results of 2022, the management and the board will consider the dividend requirement for the full year of 2022.
Yeah. Again, thanks for the question, Mohammed. As I said, we stand ready and in a position to follow up with you in detail on any of those very specific numeric numbers that you brought up. Next question comes from Alastair Syme at Citigroup. Alastair in London, are you ready to go ahead?
Yes. Thanks, Fergus MacLeod. Thank you very much for your time. Could you just talk a bit, little bit about MSC 13 and how much of the CapEx this year has been sort of directed towards that and really where we are on the plans? I mean, you said it's on track but you know, is all the contracted capacity being secured and I mean, what sort of roadmap signs are we gonna see as a market? Then the second question, you know, you've made a couple of acquisitions in downstream this year. You mentioned Orlen and Valvoline, so international downstream. Sort of what ties those together? I mean, you've clearly got a lot of capital to do anything. Why those two acquisitions in particular?
Okay. Very clear, Alastair. First question, MSC 13 update, where are we on the plans there? And secondly, an update on downstream strategy, I think particularly the inorganic component of downstream strategy.
Thank you, Alastair. You know, we are progressing very well in our expansion of our maximum sustained capacity from 12 to 13 million. As you know, this will come in phases. Very significant phase will come in 2025, where we will go to 12.3 with Marjan increments and Berri increments coming on stream. Then in 2027, we have Zuluf heavy, which is about 600,000 also coming on stream. 2026 actually will come on stream. That will take us from 12.3 to 12.7. We will be at 13 million in 2027. There are other increments planned in 2027 and beyond, like in Safaniya and other places. We are progressing very well with our contractors. We are on track to deliver the phases I mentioned and no issue whatsoever in terms of the execution, which already being progressing very well.
With regard to our capital investment, PKN Orlen is an important market. Europe, we are looking at JV and a placement of crude of about 400,000 in that market. That's an important market for us. This is the first time we have placement through a JV in Europe. It will further strengthen the position of Saudi Aramco in Europe. Valvoline, as you know, we are very strong and big when you look at base oil and we want to be in lubes big time. Valvoline, you know, is strong. It has 1.9% global share of lubricants and it is in different markets and represents a great opportunity considering our position in base oil, not only in the kingdom but also globally from our affiliates.
It will really strengthen the company position when it comes to the lubricant markets over the long term. We do have other investments. As I said, I cannot reveal them all. As you appreciate, it takes time. Even, you know, closing these investments that we are looking at because like if you look at even Valvoline, because of the regulatory requirement, it takes time to close this investment and make the payment for these transactions. We do have good number of transactions currently going on, especially in Asia and more particularly in China. It will take time for us to close all the discussion that is ongoing and agree on all the elements for these joint ventures.
As part of our 4 million barrels of Liquids-to-Chemicals, a lot of it will happen out of kingdom with our partners and this is where the investment will be carried through, hopefully over the next couple of years.
Great. Thank you very much.
Thank you, Alastair. Next question comes from Biraj Borkhataria at RBC. I think also in London. Biraj, please go ahead.
Hi there. Thanks for taking my questions. The first one's on CapEx again. This morning, I was a little bit surprised to see you guide to the low end of the CapEx budget. I would've thought you'd been, if anything, at the high end this year. Firstly, given inflation is driving up costs anyway. Secondly, you might want to accelerate some of the spend given the current environment. Could you just outline what I'm missing there and how we should think about 2023 also? Then the second question specifically for Mr. Nasser. Yeah, at the end of last year, you did a speech and you were kind of one of the first to come out and talk about explicitly a disorderly energy transition and some of the differences between hopes and reality.
That view, I think, is more widely accepted now. We haven't really seen a big increase in investments in oil and gas across the industry outside some of the NOCs. Could you just talk about your views as it stands today relative to what you thought at start of the year? Do you think your message has hit home or, you know, what more needs to be done? Thank you.
Thanks, Biraj. I think two things there. The first one was update on capital spending guidance 2022 and anything you might be able to say about 2023, including the impact of inflation and level activity and whether it could be accelerated. Secondly, as you said, about the disorderly transition that our chief executive talked about a few months back and whether we see any mitigation to the problems of underinvestment in the upstream that indeed I think the company's been talking about for several years now.
Yeah. Thank you, Biraj. You know, the one thing we are sure of is our capital program in the kingdom and what we spend in our building, the mega projects like the Marjan, the Berri, the Zuluf, the drilling activities, the expansion in the downstream, the kingdom. That is we are carrying on and we don't have any issues. The investment takes time. As I said, I talked about Valvoline. I hope the team can close it by year-end but my expectation because of the regulatory approval, it's gonna happen the first quarter. I hope it will happen this year. But these things take time. Investment, even though we are in the middle of.
If you look at the number of investment that we are currently in discussion with our partners across the globe, it's very significant if you add them all up. Until you complete all the agreements and then go through whatever an antitrust regulatory requirement, it's gonna take time. I have no doubts that all of it is gonna happen over the next two-three years. That's why when we talked about our capital program, we think it's gonna expand until the mid of the decade. By 2025, we'll reach significant amount in our capital and investment and then it will stabilize after that beyond 2025. With regard to my message about the orderly transition and the investment, honestly, I'm still not disappointed in the amount of investment. I don't blame, you know, anybody.
You know, it's very difficult to execute investment. When we talk about the investment like the one we have, it takes, as I said, five-seven years. With the current environment and climate and from regulatory and all of these people to put these huge investment and take accelerate them, regardless of what you wanna do, it's gonna take five-seven years if you are looking at sustainable long-term plateau for production that will come from these facilities. If you're talking about short-term project, yes, we see good number of short-term projects happening globally but that is not gonna satisfy what's needed over the mid to long term. If, you know, IEA issued a report talking about 102 million barrels requirement next year. Today, you have less than 2 million barrels in spare capacity.
If you talk about 102 next year and if aviation even picks up a little bit more, because aviation is still down significantly, if it picks up, it will be difficult to really. First, you will erode all the spare capacity. Second, you will not be able to meet any disruptions that might happen anywhere. In our industry. You know, our industry goes through a lot of disruptions here and there, so it's gonna be very difficult. Yes, I'm still not satisfied with the level of investment. We don't see it really increasing to the level that will really meet the demand over the mid to long term.
Thank you, Biraj. I hope that answers your question. The next one comes from Michele Della Vigna at Goldman Sachs. Michele, are you there? If so, could you please go ahead.
Thank you very much. Once again, congratulations on the best results ever of any company. It doesn't happen very often to say that. I wanted to ask two questions. The first one, as the world's premier producer and marketer of oil, I was wondering if you could comment on areas of strength and of weakness that you are currently seeing on demand. The market is clearly very worried, especially around gasoline demand in the U.S. and also potential slowdown from China. I was wondering if from your privileged standpoint, you could make a comment on that. My second question is about carbon capture. An absolutely key technology to achieve decarbonization and sustainable lower carbon fuels for the future. You've always been one of the leaders in technological development there. You're gonna clearly apply it for the blue ammonia project.
I was wondering if you could comment on some of the technological developments there and where you think that technology would fit on the cost curve of decarbonization. Thank you very much.
Well, thanks, Michele. I'll just start off by saying thank you to you for your very kind words that you just shared with us. Two questions really. What are we seeing about the oil market in the short term? I think it was very much a question about the near term rather than the longer term that Mr. Nasser was just talking about in answer to the previous question. Secondly, where do we see the cost curve for carbon capture and storage? What are the key technologies to move down that cost curve?
Yeah. Thank you, Michele. Now we see some sign of demand recovery with China COVID restrictions now starting to ease and strong summer demand with recovery in air travel. Oil demand, as I mentioned, is expected to return to pre-pandemic level and actually beyond pre-pandemic level in 2023. The Russia-Ukraine conflict amplified volatility further and disrupted oil refined product trade flows. In the mid to long term, we are confident of demand growth. There is, as I said, limited spare capacity due to industry under-investment and that will continue to be with us because I don't see anything in terms of mega giga project coming to really boost the demand in a sustainable way. You know, we see some unconventional oil being added in North America but you know, the decline there is significant.
Not like the project that we're talking about here in increasing our MSC. It is more sustainable because you're talking about a plateau of 20-30 years with limited decline. The gasoline situation in the U.S., you know, it's easing up but you know, it's a lot to do also not only to supply but to limited refining capacity in the U.S. It's really impacting that market as well. With regard to your question, Michele, about carbon capture and sequestration, yes, we are gonna do significant number of projects. We're talking about 11 million tons by 2035. There will be a lot of requirements for our blue hydrogen in terms of also sequestration.
A lot of work that needs to be done from understanding the geology and identifying the best geological zone, because, you know, you need to study that very well and this is what we are doing through our simulation and mega computers, supercomputers, to understand the subsurface for sequestering that amount of CO2 and ensure that it stays in the ground in a good geological containers. I think rather than technologies, I think scaling up will help a lot. There is not that many Carbon Capture and Sequestration project. The minute we scale up and others scale up, I'm sure you will see a significant reduction. You're talking about capturing CO2 and there are a lot of technologies that will help in the capture because not all the CO2 is pure.
The cost is in the capturing of that CO2 and ensuring the purity and that's where the most of the cost is. It's not in the transport or the sequestration. Technologies that are gonna help a lot is in the capturing and this is what we are through our R&D center and working with our partner, is trying to reduce the cost of capturing CO2. We are confident in terms of compression, transport, the wells that require and the geological zones that we'll be sequestering. We know that business very well. It's the issue, as I said, technological development in capturing to reduce the cost. The minute we start, you know, scaling up, we will definitely reduce the cost.
The minute you start seeing tens of these projects, because usually technology development happens when there are so many projects and, you know, the industry will really start reducing the cost. Of course, also we're looking at, you know, useful use for CO2. These are projects that we are looking through R&D like CO2 in cements and others and these also will help to get rid of CO2 without sequestering it underground. Thank you.
Thank you, Michele. I know you've been a pioneer in focusing on these issues, so I know it's a subject close to your heart. Next question comes from Iyad Ghulam at SNB Capital. Iyad, could you go ahead, please?
Thank you for giving me the opportunity to ask question. I have two question. One is regarding Jafurah field. What is the current status of the project? Is it fair to say that it's taking relatively longer period to develop due to its metric? And the second question is about inflation impact on lifting costs? Will that further increase by the Jafurah field?
Great. Two good questions there. Yeah, very quickly. Just Jafurah update and what's the latest on lifting costs and the trends we see there, please.
Thank you, Iyad. Inflation cost, I leave it to Ziad. With regard to Jafurah is our largest unconventional project. It is the source rock for the Ghawar field. It's a huge area. You're talking about 17,000 square kilometers with an estimated of 200 trillion standard cubic feet of gas in place. It's a very profitable business. The development is going very, you know, as planned. You know, for unconventional, it's different than conventional. You start with your exploration program and then before you start development, you have to do a pilot. The pilot, you're talking about hundreds of wells that you have to put in the ground and you monitor them and then you start the development. Yes, the nature of unconventional is a little bit different but the minute you start, it accelerates quickly after you complete your pilot.
The first phase should come in 2025, the gas plant. The second phase will come in 2027 and we should ramp up to full capacity in terms of wells that will be drilled in the Jafurah by 2030. Don't forget also that Jafurah will bring with it a lot of ethane, close to 500 million standard cubic feet per day of ethane. It will bring a lot of condensate. There are a lot of liquids that will be coming with it. We're looking at expanding it in the future further. The nature of the business, you know, we started with reducing drilling costs in Jafurah in order to make it commercial by 68%. We reduced stimulation costs in Jafurah by 95% compared to 2015 approved cost standard.
We couldn't have started it earlier because it took time to ensure that you reduce the cost, so to make it commercial for development. This is where they talk about the pilots and doing a lot of these wells. Inflation, I think Ziad will answer that.
Yes. Thank you, Amin. Iyad, thanks for the question. On inflationary pressures, of course, the entire world is seeing higher costs. In our case, this is partly or significantly mitigated by steps that we took during the down cycle. Two things in particular, we negotiated a lot of contracts and we made the decision counter-cyclically to expand or actually to invest in most of our projects, including expanding our capacity and increasing our gas and the rest of our capital program. As a result, we were able to put in place a lot of measures, including negotiating contracts and benefited from, you know, the goods and services as well that we're procuring domestically. All of these have partially mitigated what the world is experiencing in terms of inflation.
Specifically on lifting costs, our overall cost per barrel is among the lowest in the industry globally. We are the lowest among major producers. In fact, our lifting cost remains below $3 a barrel. If you actually compare the first half of 2022 to the first half of 2021, our lifting cost is actually lower. Our total upstream unit cost is actually lower. The increase in our volume has more than offset the increases or more than offset inflation.
Thank you, Ziad. Now we'll pass over to Gordon Gray to HSBC. Gordon, could you please go ahead with your question?
Thanks very much. Question's around the balance sheet. Despite the level of excess free cash flow, your net debt rose a little bit in the quarter. At the same time, your short-term investments were up by SAR 16 billion. The question really is why do you not net off short-term investments from net debt? The sort of secondary part of this, is there a level of cash and/or short-term investments that you want to get to to be consistent with your CapEx program? Thanks.
Okay, Gordon. Balance sheet question. You know, why do we define gearing the way that we do in the non-IFRS measures, which doesn't include, as you correctly point out, the short-term investments in that calculation? Second, do we have a target level of liquidity, whether that's in the near term, whether that's cash or cash and short-term investments?
Thank you for the question, Gordon Gray. Two things. On the gearing, it's just a definition that we chose. We could easily, you know, you could easily do the calculation. Let me help out with the numbers, this time. If we actually adjust this 7.9% balance sheet gearing for the same level of short-term investments that we had. Previously, it was down to about 4.9%, so a little bit less than 5%. If we actually include all short-term investments, you're talking about roughly 2.3% balance sheet gearing if we adopt that definition . In terms of an appropriate or sufficient level of cash, we really look cross-cycle. You know, we shared with you before our capital program will increase year by year until mid-decade. You know, that's when it'll peak.
What we do basically is run many scenarios of, you know, what could happen to prices and volumes and economic situation. We make sure that we are able to fund our capital program through the cycle. What we do is we match our spending to determine how much we put in short-term investments and how long maturities. We do this. We even map them in the two main currencies that we use, U.S. dollars and Saudi riyals. What you see is the result of this. Also a factor of this, lower interest rates. You can expect us to move more and more into short-term investments. In terms of gearing, you're absolutely right. You can think of it as cash and marketable securities and do the calculation that way.
Let me add to what Ziad, Gordon said about any comfortable level of cash. You know. What scenarios, as I said, we take into consideration in addition to our investment and our capital program and the growth that we talk about, is any downturn that could happen. We make sure in these scenarios, with lower prices for whatever it takes, that our programs will continue, our long-term programs will continue as is. This time, you know, people think we are adding 1 million barrel to the market. In reality, we are adding 2 million. The 1 million that we are bringing with our Maximum Sustainable Capacity and the other million barrels that we are bringing by increasing our gas by more than 50%.
That will facilitate the blue hydrogen and at the same time will eliminate liquid burning in the kingdom. That will bring another million barrels to the market. Basically you need to carry the crude program, the significant investment in the gas program. In order to do the gas program, by the way, there is a huge infrastructure that we developed across the kingdom. In order to have that gas go to different utility centers and industrial cities. A huge program, a huge capital program that we are determined to complete. In addition to all of that, talk about the Liquids-to-Chemicals that we are up to 4 million barrel. That's a significant program. A lot of it will be in-Kingdom and out-of-Kingdom.
And for that we are in some of this work in engineering and a lot of discussion with the partners. There are huge programs that we need to be comfortable that we can carry all of these programs, for they present great opportunities for Saudi Aramco over the long term. We complain about lack of investment. We need to do the opposite. You know, we strongly believe that crude and gas will continue to be part of the energy mix for the next number of decades. We are really making all of these investments. Thank you.
Thanks.
Thank you, Gordon. We've got a couple of questions remaining. I want to thank the two gentlemen waiting for their patience. First of the remaining questions comes from Henri Patricot at UBS. Henri, can you go ahead, please?
Yes, thank you, Fergus MacLeod. Hello, everyone. Thank you for the update. I have two questions, please. The first one, coming back on the MSC and the long term. I also think you could give some context around recent comments from Crown Prince Mohammed bin Salman, who said that Saudi Arabia would raise capacity to 13 million but that it wouldn't go above that level. If I think back about the presentation we gave two-three years ago, I mean, you had Saudi liquids supply going above these sort of numbers. I was wondering what has changed over the past two-three years that you're actually not raising capacity above that level potentially. Then secondly, on renewables, you have this 2030 target of 12 GW.
Can you expand on the timeline to get these 12 gigawatt and whether there's room for that to increase over the next years? Thank you.
Great, Henri. The first question about MSC 13, obviously comments made by people other than those in the company about the future and what can we say about that and potential beyond MSC 13. The second, could we go beyond the 12 GW of renewables that we've indicated is our share of the national, the kingdom's target by 2030?
Yes. Thank you. You know, as per our concession agreement. The production targets every month and the maximum sustained capacity comes from the government in terms they set that and that was agreed. That's where the plan to go, you know, we got the go ahead in April of 2020 to go to 15, we start planning accordingly. The numbers you talked about a couple of years back, it's IHS, you know, forecast of how much we can go to. There's no questions, you know, it's all a function of depletions and plateau. Numbers, you know, differ depending on what sort of plateau you are looking for. Is it 20 years, is it 30 years, is it 40 years at the current maximum sustained capacity?
It differs depending on your view of what plateau you would like to sustain over the longer term. With regard to renewable, yes, the plan right now is by 2030 to go to 12 GW renewable energy capacity. Most all of these are in the kingdom, because the kingdom is going through a significant renewable program, almost 58 GW of renewable by 2030. Basically 50% of the energy mix for power sector will come from renewable. We are also participating on that with ACWA Power and Badeel. If there is more need to expand beyond the 58 GW, we will definitely be part of that. It is an area where we would like to have more investment in renewable.
Thank you, Henri.
Thank you.
The final question, again thanks for holding on is from Martijn Rats at Morgan Stanley. Martijn, please go ahead with your questions.
Yeah, thank you. A lot of my questions have already been asked but there's one that I wanted to sort of ask you and to, if I can round it off. Let me ask you about this one specific thing. So there is data from Baker Hughes about the rig count outside the United States. On a monthly basis, Baker Hughes publishes, you know, rig count data, you know, like, sort of most oil-producing countries, including for Saudi Arabia. This data shows that the rig count in Saudi Arabia is sort of stubbornly low at about sort of half the pre-COVID levels. It deteriorated a lot during COVID, as you would imagine but then sort of never really recovered. I've been kind of sort of somewhat flabbergasted by this data because the country's ambition to grow production is clearly there.
You would imagine that with growing production would come a recovering rig count but this data doesn't show that. But at the same time, it would be kind of consistent also with Biraj's comments that it's. I was also a little bit surprised that CapEx came in sort of at the bottom end of the guided range. Rig count quite low, CapEx quite low. There was a degree of consistency in there. I was wondering if you could sort of clarify and perhaps maybe say a few things about whether these numbers from Baker Hughes are actually correct or not. I presume that Baker Hughes knows where the world's rigs are. I mean, they're difficult to hide. Is the oil-directed rig count in Saudi Arabia still at sort of broadly half the pre-COVID level?
Or is your rig count, your oil-directed rig count actually recovering? What's going on with this particular time series that Baker Hughes publishes? Is it correct or should we just forget about it?
The two questions there, Martijn. Is the Baker Hughes data accurate as far as we're concerned? The second question, is there any correlation between that and the trends that you're seeing capital spending in 2022, the lower end of the guidance range of $40-$50?
Thank you, Martijn. With regard to rig counts, we are in 2020 dropped, you know. Basically, it's a function of reduced supply. We average, if you look at our number, lower than what we had averaged in 2021. We are recovering fast. We are putting much more rigs on the ground currently. We have no lack of available rigs to really carry on our programs. We are very comfortable with the levels that we are progressing with right now. There is, as I said, strong recovery currently this year. You will see it by year end. We have no issue in terms of meeting our accelerated MSC of 13 million and maintain potential requirement. At the same time, carry on our expansion of gas. Don't forget also, you know, with every year there's more efficiency introduced in our operation.
We are able to drill more productive wells. If you look at some of the technology that is being used, for example, in gas, by our teams, increased the gas by threefold, three to fourfold from certain wells just by capitalizing on. These are the same wells. It's just capitalizing on our data analytics and understanding the zones that we are drilling in and making sure, you know. You know, I just give you an example. Before, we rely a lot on porosity and permeability to drill wells. Now, clay content plays a big major and these are technologies we developed where we are able to target more productive wells. So efficiency improvement is a welcome thing while you are meeting your requirements.
Something we don't compromise on is ensuring that we have a healthy Maximum Sustainable Capacity that can be sustained. We carry on our gas program. You see, most of our gas is utilized in the kingdom and we always meet the requirement for gas delivery within the kingdom. As I said, efficiency improvement and drilling wells, increasing productivity really helped us big time in cutting the cost and reducing the number of wells required. Thank you.
There is one last question. Alice Skinner at J.P. Morgan. Alice, if you're still there, do please go ahead with your question. Okay. We may have lost Alice, so apologies for that if that's happened. Anyway, I'd like now to hand over to Mr. Nasser for some concluding remarks.
Thank you, Fergus. In summary, we have seen strong momentum with record results in the first half of the year and the highest level of profitability of any company in the world. Our focus remains on providing the sustainable, reliable and affordable energy the world needs. Some might ask why we are so deeply committed to growth and reliability, while others are calling for reduced investment in oil and gas. Some feel that anyone who continues to produce oil will be on the wrong side of history. To them, I say that we believe we are on the right side of reality. Just look at the challenges the energy markets have faced in recent months. If alternative energy sources could have shouldered the burden, they would have. Ambition is still years ahead of reality.
Longer term, we know the rest of the world will not transition at the same speed as the developed world. This is where most of humanity lives. Most of the roughly 2 billion new energy consumers on the planet by 2050 will be living there too. In short, we know the world is going to need energy from hydrocarbons for many decades to come. That is why we will never back down from our responsibility to the billions of people around the world who depend on us or to our commitment to an orderly and sustainable energy transition. Thank you very much, ladies and gentlemen.
This concludes today's call. You may now disconnect your lines.