Welcome to the Saudi Aramco's half-year 2023 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. Peter Hutton to begin.
Hello, welcome to this audio webcast discussing Saudi Aramco's half-year 2023 results. I'm Peter Hutton, Head of Investor Relations at Aramco, and it gives me great pleasure to be joined today by our CEO, Amin Nasser, and CFO, Ziad Al-Murshed. Our webcast today will comprise a presentation followed by a question and answer session, and we anticipate the entire call lasting up to an hour. I would also like to remind you that this webcast and conference call are being recorded, and 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 in this slide. Please also refer to our regulatory filings and website for more details. With that, I will now hand the call over to Amin.
Thank you, Peter. Welcome, everyone, and thank you for joining us today. As Aramco marks its 90th anniversary, I am pleased that the company continues to deliver strong performance. This continued success is driven not only by the quality of our assets, but also by the focus and dedication of all my colleagues and our wider stakeholders, and I offer them my sincere thanks. With the second half well underway, we are looking ahead with further confidence and optimism that our expansion and growth strategy will help meet the world's energy needs and our ability to maximize long-term value for our shareholders. Aramco continued to deliver strong performance in the first half of 2023, and our growth strategy remains on track. Our high reliability, high flexibility, and low cost of production underpin our ability to generate strong earnings and cash flows and a robust balance sheet.
This further demonstrates our ability to deliver through oil price cycles. Despite the market volatility, short-term global oil demand forecast show signs of improvement. Oil demand is expected to reach record levels of over 103 million barrels per day by the end of this year, reaching pre-pandemic highs, with further growth expected thereafter. We continue to expect that oil demand is likely to grow in the mid to long-term. With our increasing confidence in these fundamentals and further progression into the cycle, together with steady execution of our largest capital program and strong financial position, we have today announced our intention to share even further upside with investors through our performance-linked dividend. We are announcing this earlier at the top end of the announced range and on a higher cash flow base. Ziad will cover more of the details shortly.
Let me now turn to our progress in delivering on our strategy. Our strategy is to invest in our growing integrated portfolio by remaining the world's preferred supplier of conventional, low cost, lower emission upstream energy, and at the same time, build leadership positions in low carbon fuels and solutions. This strategy is on track, and we are delivering our milestones through the largest capital program in our history by investing in upstream, downstream, and low carbon fuels and solutions. In upstream, we are capitalizing on the need for ongoing investment in our oil expansion, and we are increasing gas production by more than 50% by 2030 to meet increasing demand, generating additional liquids for export and enabling a blue hydrogen value chain. Our downstream business is focused on capturing integration benefits and de-risking upstream.
We have made major investment in Asia to support our liquids to chemicals throughput to four million barrels per day. We are advancing the development of decarbonization options with our focus on low carbon fuels and solutions, with shipments of ammonia to key markets and investment in PV solar projects. Through our investment in the national ecosystem of thriving businesses, we are both increasing local content and increasing Aramco supply chain resilience and flexibility. All of this is being done from a position of financial strength and competitive advantage. We are pleased with the progress we are making. With that, let me now hand over to Ziad to discuss the details of our first half 2023 performance.
Thank you, Amin. Welcome, everyone, and thank you for joining us today. I want to start from where Amin ended, so I'll detail our key strategic achievements during the first half, to which Amin alluded, and then I'll move on to financial performance and dividends. We're progressing very well in executing our strategy, and we are on schedule with our record capital program. Our guidance remains unchanged at $45 billion-$55 billion for this year, and the profile going forward is also unchanged, increasing to peak around mid-decade. Specifically, in upstream, our crude oil capacity expansion plans are on track, with planned progress being made in engineering, construction, and procurement activities on our crude oil increment projects. The first increment from the Dammam development is expected to be on stream by the end of next year, followed by Marjan and Berri fields in 2025, and Zuluf by 2026.
In gas, key milestones are being delivered to achieve our target to increase gas production by more than 50% over 2021 levels by 2030. Progress continues to be made on the Haradh and Hawiyah gas compression projects, both of which are expected to reach full capacity this year, with five of the nine plants already completed, followed by the Tanajib gas plant, which is part of the Marjan development, to be on stream by 2025. In unconventional gas, design and construction activities continue on the Jafurah field and gas plant, which are planned to start production by 2025. We also commissioned the Hawiyah Unayzah gas storage facility and are proud to announce that the maximum injection target was reached. This is the first underground natural gas storage facility of its kind in Saudi Arabia.
Our downstream strategy is also underway by continuing to grow our presence in key markets and to direct up to four million barrels per day of our liquids into a dedicated liquids to chemicals portfolio. On the domestic front, EPC contracts were awarded for the $11 billion Amiral complex, which is a new world-scale petrochemical facility at the SATORP refinery in Jubail, that is expected to have one of the region's largest mixed-feed steam crackers. Internationally, we recently completed the strategic acquisition of a 10% interest in Rongsheng Petrochemical Company in China, and we broke ground on a new refining and petrochemicals complex, also in China. These two investments will enable Aramco to supply about 700,000 barrels per day of crude oil to high chemical conversion assets in China.
In addition, S-OIL broke ground on our largest investment ever in South Korea, to develop one of the world's largest refinery-integrated petrochemical steam crackers, pioneering our thermal crude-to-chemicals technology. We also completed our acquisition of Valvoline's global products business, thereby advancing our international lubricants growth strategy. In low carbon fuels and solutions, the group entered into a consortium to invest in the development of two PV solar mega projects that are expected to have a combined capacity of 2.7 gigawatts, which puts us well on our way to achieve our target of 12 gigawatts for renewables by 2030. Also, the group partnered with TotalEnergies and successfully converted oil derived from plastic waste into internationally certified circular polymers for the first time in the region. We also successfully delivered three shipments of accredited lower carbon ammonia to several key markets for both fertilizer production and power generation.
We signed an agreement with Linde Engineering for developing new ammonia cracking technology, further supporting lower carbon energy solutions. Finally, on lower carbon fuels and solutions, we were the lead bidder in the largest-ever voluntary carbon credit auction, which reflects our focus to offset some hard-to-abate emissions. Our localization effort continues to strengthen our local supply chain through our Namaat program. We signed an agreement with Baosteel and the Public Investment Fund of Saudi Arabia to establish a steel plate manufacturing complex in Saudi Arabia. This is the first facility of its kind in the region, helping to localize our supply chain and reduce our reliance on imported steel. We also signed an agreement with DHL Supply Chain for a new procurement and logistics hub in Saudi Arabia to enhance supply chain efficiency and sustainability for the industrial, energy, and petrochemical sectors.
Financially, we continue to optimize our capital structure with a cross-cycle view, so we balance between optimum WACC, credit rating, and financing needs throughout the years of the cycle. In that regard, we continued to smoothen our debt maturity profile by prepaying all remaining notes related to the SABIC acquisition. This not only significantly smoothened our debt maturity profile, but also generated savings of $2.8 billion during the first half of the year, which translated into a net gain of $1.5 billion. Overall, we are progressing very well on our strategy. Turning to our key operational and financial highlights for the first half. We generated $62 billion of net income and a free cash flow of $54.1 billion.
We also paid $39 billion of dividends in the first half, which is a 4% increase in our base dividend, which we've always said would be sustainable and progressive. We have also announced our intent to introduce a mechanism for sharing more upside with our performance-linked dividends. At the same time as increasing our base dividend, we further reduced our balance sheet gearing to negative 10.5%, down from negative 7.9% at the start of the year. Our ongoing focus remains on maintaining a high investment-grade credit rating across oil price cycles. As I mentioned earlier, we are progressing well with implementing our growth plans. Our capital investments are essentially on plan, amounting to $22.4 billion during the first half, including external investments, which is about 30% higher compared to the same period of last year.
Our full-year capital investment guidance remains unchanged at $45 billion-$55 billion. Our financial results in the second quarter remained solid compared to the first quarter, despite the softer market environment. Upstream EBIT was strong at $56.7 billion, a bit lower than in Q1, in line with the reduction in average realized oil prices. This was partially offset by seasonally higher gas production in the second quarter. Downstream EBIT was $800 million in Q2, which is down throughout the first half compared to the same period of last year, mainly due to weaker chemical and refining margins, as well as negative inventory valuation movements resulting from much lower prices compared to last year.
Group net income in Q2 was very close to that of Q1, when you consider that about half of the difference in net income between the two quarters is actually due to the higher gain on prepayments of debt achieved in Q1, and not due to underlying performance. ROACE, which we report on a twelve-month rolling basis, was 25.9%. Overall, despite market softening, we delivered robust performance in the first half, with the ongoing ability to capture the upside. Speaking of the upside, let me cover the wider business environment before I turn to dividends. Economic forecasts continue to improve, with global GDP growth trending back towards the ten-year pre-pandemic historic average. Monetary policies of central banks across the world have helped to moderate inflation levels, and we are clearly seeing inflation moderate, although it is still relatively high compared to historic levels.
Having said that, we see oil demand continuing to be resilient, and the consensus is for high growth and a significant increase in demand in the second half of the year from a range of independent forecasters, including the IEA and others, as you can see in the chart. This increase is expected to come from several key areas and not just from China. China's demand has already been stronger than expected, with the first half of 2023 already above 16 million barrels per day. This is one million barrels per day higher than the same period last year, and more than two million barrels per day higher than the pre-pandemic levels. Okay, this brings us to our announcement on performance-linked dividends.
First, I want to remind you of our dividend framework, which is designed to maximize shareholder value by providing downside protection through a sustainable and progressive base dividend, and a mechanism to share the upside with shareholders through a performance-linked dividend, all while heavily reinvesting in the business through unique growth opportunities. With the results of the fourth quarter of last year, we increased the sustainable and progressive base dividend from $75 billion to $78 billion. With the results of the first quarter of this year, we introduced a mechanism for performance-linked dividends and sharing further upside in the range of 50%-70% of the group's annual free cash flow, net of base dividend and other amounts, including external investments. Today, as a result of continuing strong performance and stronger financial position, we are announcing the decision to increase performance-linked dividends in three ways.
First, the first performance-linked dividend will be based on the combined annual results of 2022 and 2023. This results in a significant increase in performance-linked dividends as a result of including the record free cash flow of year 2022. Second, this first performance-linked dividend is based on 70% of the group's annual free cash flow, net of the base dividend and other amounts, including external investments. This is right at the top of the announced range of 50%-70%. Third, because we are combining year 2022 performance with 2023, we are paying the performance-linked dividend much earlier, starting in the 3rd quarter of 2023.
The payment of the first performance-linked dividend is intended to be distributed over six quarters in order to take us through to the fourth quarter of 2024, after which we intend to base performance-linked dividends on the full year results of 2024, and distribute over four quarters as previously announced. When we do the math on 70% of the combined free cash flows of 2022 and the first half of 2023, after deducting base dividends and external investments, and then divide the total over six quarters, the result is a first payment of around $10 billion, which will be paid in the third quarter of 2023. We will adjust future payments based on actual performance through to the end of 2024.
After that, as I said, for year 2024 performance and onwards, performance-linked dividends would be determined based on full year results of each year within the previously announced range of 50%-70%, and distributed over the subsequent four quarters. This announcement demonstrates the strength of our balance sheet and our previously communicated plans to share excess cash balances with our shareholders. Like we always said, we are only building cash balances to ensure ability to fund our growth plans, and when we are comfortable with that, we would distribute excess cash to our shareholders. Now, it is important to keep in mind that all dividends are at the board's sole discretion after considering our financial position and ability to fund commitments, including growth capital plans, in accordance with the company's dividend distribution policy.
In summary, we have continued to deliver strong results, both operationally and financially, in the first half of the year. We remain focused on delivering shareholder value through fiscal discipline applied to a unique set of attractive growth opportunities, through diversifying financing sources and optimizing capital structure across the business cycle, and through enhancing distributions in a way that provides protection on the downside and sharing of the upside. Thank you very much for your attention, ladies and gentlemen. We are looking forward to answering your questions.
To ask a question, please press star followed by one on your telephone keypad. To withdraw your question, please press star followed by two. When asking a question, please ensure you are unmuted locally. I shall now hand back to Mr. Hutton.
Thanks, Alex, and we'll begin with the first question from Mazen Al- Sudairi of Al Rajhi Capital. Thank you.
Hello? Can you hear me?
Hi, Mazen, you're online.
Okay. Yeah, yeah, congratulations for the great results and the new mechanism policy of dividend. Actually, I have two questions. The first, as you plan to pay the PLD at the high end of the guidance, 70%, and you plan to combine the annual 2022 and 2023 to drive the free cash flows dividend, what does that actually indicate? That you are more confident in profitability and cash flow going forward? That drive us to other question, what is your view on demand supply dynamic in the near- term as well the medium- term? Thanks.
Thank you, Mazen. I'll, I'll take the second question, and Ziad will elaborate on the first. With regard to demand supply fundamentals, as you have seen in the slides, second half, we're looking at, based on different forecasts, between 103 million and 104 million barrels of demand. If you want any predictions beyond that, different forecast shows a growth at around in 2024 and we are at around 1.5%. However, we need to take into consideration that the jet fuel is still at 85%. Yes, significant growth, but it is still at 85% compared to pre-pandemic levels. There is still a lot of potential, almost one million barrels of additional jet fuel that will be needed to meet just the pre-pandemic level.
The second point that needs to be taken into consideration in the mid to long-term with regard to demand is what we are seeing in the second half is 403 different forecasts, 404, with all of these recessionary, recessionary signals and economies not at their full potential, China is still growing. There is a lot of potential if the economy start to pick up in 2024 and beyond, and if China continue to grow in terms of their industry and other energy-intensive business, like the liquids to chemicals, that is growing big time in China, there will be significant demand growth going forward. With regard to, we, we don't see any anticipation of any downturn in demand.
The range, if you compare the second half of 2023, 2.5 million barrels compared to the second half of 2022. And most of that growth that you are seeing is coming from developing countries, especially, as I said, China. Our expectation that in China and, despite, the slower than expected economic growth, demand growth still is expected to grow by almost an 1.5 billion barrels higher in the second half of 2023 compared to the second half of 2022. So the expectation, the, the market volatility is quite high, and we believe, sustained investment in, in the sector is important for the global economy. For the first part of your question, Ziad.
Thank you, Amin. Thank you, Mazen, for the question. What we've announced today in terms of including 2022 performance and the performance-linked dividend is in line with our, you know, previous thinking of cash flow priorities. We're sticking to our cash flow priorities. We're still doing, you know, first priority, sustaining CapEx, second priority, sustainable and progressive dividend, and you've seen that both the sustaining and the progressive, and then the investment in growth, and then, you know, additional deleveraging and or additional distributions. Well, in the past couple of years, we've been doing massive deleveraging. Our gearing has gone down, now it's reached negative 10.5% in terms of balance sheet gearing. Our credit rating is exactly where we want to be.
Like I've explained before, we run a lot of, you know, scenarios in terms of cash flows going forward to make sure that we can fund our growth plans. We've always promised that once we're comfortable with that, that we would increase distributions. To answer your questions, we are comfortable with where we are. We have a very strong financial position, and it has strengthened even further in the first half. We are well along in our capital program, so the, the, that reduces as well the uncertainty of, of our financing needs or funding needs. As a result of all of this, we believe that it is, you know, good to share significant upside, because like we promised, we're not keeping cash.
We were not building cash for the sake of building cash. As a result, we've decided to include the performance of 2022 with 2023 as one bucket that is the basis of calculating the performance-linked dividends. As a result, at the end of the first half, now that the... Because we're including 2022, we said, well, there's no reason to wait until first quarter of 2024 to start distributing, because part of this is 2022 results. The decision was to start the distributions in the third quarter. So far, we have the first half as actual, so we based the calculations of the performance-linked dividends on the performance of years 2022 and the first half actuals of 2023.
Going forward, the adjustments, adjustments will be made, based on the performance of, in the second half. What that means is, payment of or the first payment, if you just do the maths, the first payment, which will be paid in the third quarter, will be just about $10 billion of performance-linked dividends on top of the $19.5 billion of base dividends. The total is about $29.4 billion that will be paid in the third quarter. The performance-linked dividends will, like I said, be adjusted, and we will pay it in on a quarterly basis until the end of next year, 2024, which then takes us to be in sync with the cycle of full year results for 2024.
Thank you, Mazin. Our next question is from Karen Kostanian from Bank of America Merrill Lynch. Thank you.
Yes, gentlemen, thank you so much for the presentation, and congratulations on the, the dividend decision. I just have one clarifying question about the dividend yield. This $9.9 billion was calculated for the six, for the six quarters of combined 2022, 2023. What is going to be the third quarter of 2023 distribution be calculated upon, just the previous quarter, or just need a clarification on how to compute this going forward?
Sure. Thank you for the question, Karen. The intent is to combine the full year 2022 with the full year 2023 performance in determining the performance-linked dividend. Because we decided to distribute earlier, starting this third quarter, we don't have the performance of the second half yet, and so the adjustments that will be made will be made on a recalculation of 22 and 23 put together. As we go forward, we will, we will adjust the calculation based on actual performance that we have at that time.
If you will, we would add the, third quarter, then we'd add the fourth quarter, in order to come up with a total payment, and then adjust, the distributions, accordingly, so that the total, payments of performance-linked dividend will be based on the full year results of 2022 and full year results of 2023, put together in, one bucket.
Thank you, Karen. The next question is from Iyad Gholam of SNB Capital.
Thank you for the opportunity to ask question. My question is about the free cash flow. You had a very strong free cash flow generation in H1. We know the CapEx has been at the lower end of the guidance. How can we think about that considering the early activation of the dividends policy and your CapEx plans for the full year? Thank you.
It's, thank you, Iyad. We are on track for the 2023 record investment of based on the guidance of $45 billion-$55 billion. You are right, the first half CapEx and external investment is $22.4 billion. You cannot extrapolate and multiply that by two, you will come up to $45 billion. We are expecting to have completion of number of projects and accelerated investment in our capital program in the second half. We are comfortable with the guidance of the $45 billion-$55 billion that we have announced earlier, and hopefully by the year-end, we will be in that, within that range.
Iyad, just to build on what Amin said. Yes, it is not a straight line. If you notice, the first quarter was $8.7 billion. The second quarter was $10.3 billion. These are not equally divided throughout the year. There are many considerations like, you know, the timings of contract awards and, and, calendarization of some of these. You know, we're still comfortable with the $45 billion-$55 billion.
Yeah, no, the biggest also element is any external investment, and we are in discussion with a lot of investment planned in the, in the pipeline currently, currently that are being discussed. Don't forget, whatever invested in the first half is on 50% higher than the same capital at the same time last year.
Okay. Thank you, Iyad. Our next question is from Christyan Malek of JP Morgan.
Hello, good morning, Amin and Ziad, and congratulations on the excellent result. Two questions and a bit more sort of fundamental, one on sort of the macro outlook and how it pertains to your spare capacity. It, it's clearly demand discovery this year, I think, quite a different conference cause. This is quite a range in terms of your outlook on demand, and clearly it surprised positively. Now, in the event that it surprised negatively over the medium term, is there a flex for you to delay your spare capacity increase? I'm sorry, I don't mean spare capacity, I mean your production increase, but I mean it's spare capacity in the context of the kingdom. Is there a flexibility to delay your production capacity plans?
I say that particularly in the context of, one, if demand does surprise negatively, and two, that you have a lot of liquids production through the, you know, very differentiated energy strategy of the kingdom in terms of being far more efficient in your demand consumption. I just wondered to what extent is there a flex within your frame? Has that been considered at the board level? My second question, I know you've done a huge amount of marketing and sort of investor roadshows across the world, I wonder, at what point do you, would you consider, what are the sort of prerequisites or factors that you need to consider a listing outside the kingdom?
I'm not trying to understand when or what, I just want to understand what sort of framework are you looking at to consider that being a tangible, sort of move for you over sort of, you know, the near to medium- term? Thank you.
Thank you, Christian. I, I, I need to point that the maximum sustained capacity is for the shareholder. When we announced going in 2020 from 12 million-13 million barrels of additional capacity, one million barrels is based on the request of the shareholder. When, during the, as part of the concession agreement, anything related to the capacity and the monthly production targets is something for the shareholder. For us, we are, since we got the request to increase the capacity, we started a number of projects to execute Marjan, the Berri, the Zuluf, and all of these increments, and they are progressing very well in terms of execution, and we are on target to complete them as per plan to meet our maximum sustained capacity.
The way that we view the market, we think demand will grow in the mid to long-term. Don't forget, we are a company that are always focused on the long-term. The signals that we are getting are just in the slides, as I mentioned earlier, if you are talking about 103 million-104 million barrels by in the second half of this year, based on different forecasts, and this is not with a full economic recovery from different countries because they are at different levels, and China is still picking up growth potential. As I said, also, there is a lot of potential growth in the aviation industry, and as economy improves going forward, there will be additional demand.
Even if you consider at the low end, a 1.5% increase in a 100 million barrel system, you're talking about 1.5 million-1.7 million barrels of additional demand. Considering the depletion of 5%-7%, you need to have huge investment just to maintain the current decline that we see in existing mature fields. At that level, you need a huge investment. To meet that growth of 1.5, even at the low end of 1.5%, you need really significant investment, and you need to be prepared. With regard to listing, this is something we have always said, this is up to the shareholders to decide if they want to list in different jurisdictions other than Tadawul.
Christyan I, I want to make sure you don't read too much into the non-deal roadshows that we're going through. They're, as the name implies, they're non-deal roadshows. Expect us to continue with the same level of engagement, both, you know, at, at all levels and in all regions, and expect that to continue into the future. We just like engaging with you guys, so, expect that to continue.
Thanks, Christyan. Next question is from Biraj Borkhataria of RBC Capital Markets.
Hi there. Thanks for taking my questions. Thanks, Riyadh, for the clear explanation on special dividends. That's very helpful. Two questions for you. The first one, just thinking about cost inflation, you know, we're seeing a lot of commentary around supply chain issues across upstream, downstream, and even low carbon. Given you have the, you know, the biggest CapEx budget in the industry at this point, you'll probably have the most data points. Could you give some color on what you're seeing currently as it regards to inflation, and if there are any areas in particular are becoming worse or easing up? The second question is just on the MSC targets.
I know those are set by the government, but, I mean, you've said previously, you know, you, you think in decades, and given your view on oil demand over the long-term, your, your task is to deliver on the, on the targets set by the government. Could you talk at all about the potential of your asset base beyond 2027 as we look to 2030, 2035? Should we be thinking about, you know, 14 or 15 million barrels a day MSC, if you keep this level of CapEx going? Just color on that would be helpful. Thank you.
Thank you, Biraj. With regard to the cost inflation, we experience cost inflation like many other companies in the oil and gas sector. However, we have partly mitigated inflation by renegotiating contracts and commissioned work at lower prices. You know, a lot of our expansions that happened started in 2020, in mid-2020, when the market was low. We were able to secure good contract at a very reasonable cost. Aramco also benefit from a domestically sourced supply chain through our iktva initiative, In-Kingdom Total Value Add initiative, and 63% of our goods and services were sourced from our iktva in 2022, and we have a longer-term aim of 70% by 2025.
We are much better prepared to mitigate any increase in inflationary of materials and commodities by our localization program and our long-term contracts with our suppliers and providers. With regard to MSC, you know, as I said, this is an item for the government to decide on whether they want to increase an MSC or not. We're not going to speculate about 27 and beyond. All what I can say is that we, we have significant reserves. Our reserves are published, and we continue to replace what we produce every year, almost at 100% or more. That program exploration, not like other companies, we maintain our exploration program for gas, to identify additional gas.
That's why our additional gas supply, which more than 50%, is mainly because of our additional gas resources that we identify every year. For oil, we have been successful for several decades now of replacing what we produce, and we will continue to avail additional resources in oil and gas.
Thank you, Biraj. Next question is from Kim Fustier of HSBC.
Hi, good afternoon, thank you for taking my question. Firstly, I wanted to go back to the balance sheet. Could you give some more color on what you mean by strategically deleverage the balance sheet? With the performance-linked dividends related to 2022 profits, which you've announced today, unless oil prices rise further, then it looks like Aramco is likely going to releverage the balance sheet in the next few quarters. You're obviously now in a net cash position, so could you talk about where you see gearing settling as a kind of mid-cycle target? Secondly, are you able to talk about how Aramco is implementing the OPEC+ and the voluntary production cuts, particularly with respect to crude grades?
Are you reducing production of heavy grades first, for instance, and what impact is this expected to have on your realizations against Brent? Thank you.
Thank you, Kim. I'll answer the second part of the question. First part will be answered by Ziad. The cut we have implemented fully, whenever we get the targets every month, we implement based on the numbers that we get of production targets. Now, it is up to the company, based on our markets and our customer, to decide. There is no, the targets that we get, it does not specify which grades that we need to cut. Specify that you need to produce at this level, and it is up to the company to optimize with the different. We have five grades, and we optimize based on our customer base and the need of different markets. Ziad?
Kim, on your balance sheet and gearing question, we, like we've always said, we're more focused on high investment-grade credit rating. Our balance sheet gearing, nevertheless, since you asked about it, has gone down to negative 10.5%. If you notice, if you're relating that to the performance-linked dividends, keep in mind that the performance-linked dividends is a percentage of free cash flow after the base dividend and after deducting other amounts like external investments. At the end, you can think of it as we are, in terms of the performance-linked dividends, we're keeping, you know, up to or maybe around 30% of the free cash flow after all these deductions. I wouldn't make a direct connection into releveraging of the company.
Like I said, we're in a very strong position. Beyond this point, we're comfortable that we can fund our growth programs. Beyond this point, we would be holding cash for the sake of holding cash, which actually destroys value for our shareholders, which we obviously don't want to do.
Thank you, Kim. Our next question is from Mohammed Al-Thunayan of Jadwa Investment.
Yes, hi, thank you for having us on the call, and, congratulations on the great set of results and the activation of the performance-linked dividend mechanism, which confirms further of site sharing. I have a question on the accredited lower carbon ammonia shipments and whether you're witnessing an uptick in demand? given that it's difficult to kind of take agreements. Is there any update on Aramco's blue and green ammonia initiatives and targets? Thank you.
Yeah. Thank you, Mohammed. Yes, I think the uptick in demand is, is there. There is a demand. We have signed an MOU, I would say, with customers in Japan and Korea. I think our customers that are planning to take the blue ammonia are waiting for the government incentives. We are confident that this incentive will come through. For that, we are proceeding with our first phase, which is a major increment of blue ammonia. We're talking about nine million ton of blue ammonia, which is one of the biggest in the world, and this is phase 1. Engineering is ongoing and progressing very well.
We are, as I said, based on this certified ammonia shipments that we had to different markets, and the customers are happy with all of these certified shipments that met their requirements and was put in good use in the different markets from Japan to Korea to Taiwan to India. We are, it's a matter of them receiving the incentives so that we can go ahead with the offtake agreements.
Thank you, Mohammed. Our next question is from Alastair Syme of Citigroup.
Thanks, Peter, and hi, Amin and Ziad. There's quite a lot of tightness in the oil product markets as we start through Q. I mean, refining margins have picked up quite a lot. I just wanted your perspectives on why you think that the margins are, you know, rallying to the levels that are much higher than they were, you know, pre-pandemic. Secondly, you know, you've added quite a lot of capacity into the gas system this year in the Kingdom. You know, can you just give us some color on, you know, what's happening to the Kingdom's gas demand through the summer? I'm particularly interested in, you know, how much oil burn is still going on in the Kingdom for power generation. Thank you.
Alastair, can I just clarify your first question? Was that around refining margins, or was it around demand volumes?
Refining margins, Peter. Thank you.
Okay, thank you.
Yeah. Thank you, Alastair. With regard to the gas, there is a pickup on in, in demand in, in the Kingdom, but it's not like it's a significant. Still, the plan is to go with the Master Gas System 3, which will avail gas to different utility centers. The renewable project still ongoing. So it will take time until all of these gas avails are put into these different utility sectors across the Kingdom. Also the utility, I mean, the solar and wind plants that are currently under construction will pick up, and that will really avail reduce the liquid burning.
The plan is, is to reduce liquid burning, eliminate liquid burning by 2030, by shifting 50%, as I said, of the renew- of the utility sector to renewable and replacing liquid burning, which is approximately in the neighborhood of one million barrel, especially during the summer months, by eliminating that with, with gas and renewable. Definitely, we are also doing the gas storage, which will, allow us... The project started. We are at full injection capacity. By end of 2024, we should be able to start reproducing, that gas. That will avail a significant amount of gas into the system that will be used, especially during the summer, and you can reinject that gas when you have excess capacity in the winter.
We have, I mean, gas for the hydrogen as well program, and that's where we are also progressing very well in our blue ammonia by capitalizing on the gas coming from Jafurah. Additional gas potential is coming on stream, especially also with the Jafurah that we highlighted today, that will be on first plant. Phase one will be on stream in 2025, and by 2030, we'll have Jafurah at $2 billion. Gas is increasing by 50%-60%, mainly to be utilized in Kingdom to eliminate liquid burning, supported by renewable for 50% of that sector. Does Zayed anything on the margins?
Yeah, on refining margins, I mean, you can see that a lot of this is regional and depends on what's been happening to refineries across. Demand that we talk about is demand for the finished products. Now, how much of the value ends up being in the refining sector versus the rest of the value chain depends on how, you know, how much refining capacity you have. You've seen a lot of refining closures in the U.S., for example, which is boosting energy margins there. Sorry, refining margins there. You see refining margins in the U.S. higher. Elsewhere in the world, that may not be the case. What we are seeing-...
is compared to the first half of last year, we're seeing a drop in refining margins and a significant drop in chemicals margins. We understand this is a cyclical business. Both of those, whether it's refining or chemicals, are cyclical, and we're, we're kind of going through a down cycle on the chemicals. like we always say, we're a long-term investor, and we're, we're focusing, we're pushing ahead with our downstream plans, nevertheless.
Thank you, Alastair. Our next question is from Anna Kuchina of T. Rowe Price.
Hello, thank you for giving me the opportunity to ask the question. I was coming back to the strength of the balance sheet. I was wondering what we should expect from the debt supply. You've got a few maturities coming up. Would you, could you please guide if you just repay, or would you prefer to maintain the cap? Thank you.
Okay, Anna, I'm gonna, I'm gonna summarize because the line wasn't particularly clear here, but I understood that the question was around the maturities of the debt profile, and are there any issues related to that?
Yeah, thank you, Anna, for that question. One of our top priorities over the past couple of years has been to flatten our debt maturity schedule. The... You know, if you look a couple of years ago, the absolute majority of our debt matured by 2026, with, with, relatively, high parts maturing during these years. We, most of that was due to the PIF notes as a result of the acquisition of SABIC, because, if you recall, that transaction was mainly financed through seller financing. We have now completely paid that those notes out, and so, our debt maturity schedule is now relatively flat, so absolutely no issues with this.
We look at our debt maturity schedule over the next 50 years plus, and we've got a strategy of spreading out debt maturities across. The short answer to your question is absolutely no issues. We've flattened it out over the last couple of years.
Thank you, Anna. Our next question is from Henri Patricot of UBS.
Yes, hello, everyone. Thank you for the update. I have two questions, please, around petrochemicals. The first one, I wanted to just follow up on the comments you just made about the industry being in a bit of a cyclical downturn. How long do you think it'll be before we see an improvement in chemical margins? Secondly, during the quarter, you announced that your successful plastic waste to chemicals. I was wondering how long do you think it's gonna take to actually scale up this value chain? Thank you.
I'm sorry, Henry, can you just repeat that second question? It wasn't clear at this end, slight, partly because of the line.
Yes, so sorry. The second question is around the processing of oil from plastic waste that you announced a few weeks ago. I was wondering how long do you think it's gonna take to, to have a completely scaled up production process using this technology?
Okay, I will take the first question with regard to petrochemical and when would we see a pickup. I think it's all depends. You see, China is almost 50% of the market. China is picking up. It depends how fast that they will pick up in terms of demand. As soon as, you know, they reach their full potential in terms of demand and economy start really at full scale, that will really help the market big time. As I said, China is an important factor in the chemical sectors, and the more China starts picking up and recovering, the more demand that you will see from China, and that will really, it creates a better environment for the chemical sector.
Just to add to this, Henry, again, we're both a long-term investment investor, so the investment decisions that we make are not looking at the short term. The other thing is, we look at our downstream investments mainly with an upstream lens. We have our liquids to chemicals program that's investing in converting our liquids to chemicals with the main objective of de-risking our upstream position. On your second question, it's still not clear how long scale-up is happening. As you know, these things start with, you know, test cases and then reevaluate. Going forward, the group with its different members will announce as appropriate, where, you know, if and when scale-up plans are in place.
Thank you, Henry. I can also refer to an announcement that we put out on the seventeenth of July relating to this in partnership with Total and SABIC. If there's anything further on that one, then you can always contact investor relations as well for supplementary information. With that one, that's the last of the calls. I'd like to thank everybody for participating today, both for, for, for analysts and investors joining the call, but particularly to the CEO and the CFO for taking the questions. Thank you very much. As always, if there are any follow-up questions at any time, please don't hesitate to contact us in investor relations. We're always happy to answer your questions. Thank you very much. Speak again.
This concludes today's call. You may now disconnect your lines.