The Kingdom of Saudi Arabia (KSA) was the world’s largest producer and exporter of total petroleum liquids in 2010, and the world’s second largest crude oil producer behind Russia. Their economy remains heavily dependent on crude oil with export revenues accounting for 80-90% of the total and above 40% of the country's gross domestic product (GDP).
The Kingdom has been shifting its focus beyond increasing its upstream oil production since the state owned Oil Company; Saudi Aramco said that it had reached its target production capacity of 12 million barrels per day. In addition, its spare oil production capacity is well above their stated target of 1.5-2 million barrels per day. Subsequently, they are moving to diversify their economy by expanding the refining, petrochemicals, and mineral products industries (such as high-value fertilizers).
Saudi Aramco is the world’s largest oil company in terms of proven reserves and production of hydrocarbons. Saudi Arabia’s Ministry of Petroleum and Mineral Resources and the Supreme Council for Petroleum and Minerals have oversight of the sector and Saudi Aramco directly. The Supreme Council, which is comprised of members of the royal family, industry leaders and government ministers, is responsible for petroleum and natural gas policy-making, including contract review, as well as Saudi Aramco’s strategic planning. The Ministry is responsible for national planning in the area of energy and minerals, including petrochemicals.
KSA is the largest consumer of petroleum in the Middle East, particularly in the area of transportation fuels and direct burn for power generation. Domestic consumption growth has been spurred by the economic boom due to historically high oil prices and large fuel subsidies. In 2008, the Kingdom was the 15th largest consumer of total primary energy, of which almost 60% was petroleum-based and the rest natural gas. They are currently moving forward with plans to produce power from nuclear reactors by 2020 which they hope will meet domestic power needs and therefore free up oil and natural gas for export and higher-end uses than direct burn for power generation. In the interim, they are actively participating in the Gulf Cooperation Council’s efforts to link the power grids of member countries in order to reduce shortages during peak power periods.
According to the Oil and Gas Journal, Saudi Arabia contains approximately 260 billion barrels of proven oil reserves (plus 2.5 billion barrels in the Saudi-Kuwaiti shared "Neutral" Zone), amounting to around one-fifth of proven, conventional world oil reserves. Although Saudi Arabia has around 100 major oil and gas fields (and more than 1,500 wells), over half of its oil reserves are contained in only eight fields, including the giant 1,260-square mile Ghawar field (the world's largest oil field, with estimated remaining reserves of 70 billion barrels) which has more proven oil reserves than all but six other countries in the world. They are also the largest oil consuming nation in the Middle East. In 2009, Saudi Arabia consumed approximately 2.4 million bbl/d of oil, up 50% from 2000, due to strong economic and industrial growth and subsidized prices.
On the production side, Saudi Arabia maintains the world’s largest crude oil production capacity, estimated by U.S. Energy Information Administration (EIA) to be over 12 million bbl/d at the end of 2010. Over 2 million bbl/d of capacity was added in 2009 with the addition of increments at Khurais, AFK (Abu Hadriya, Fadhili and Khursaniyah), Shaybah, and Nu’ayyim.
For 2010, the EIA estimates that Saudi Arabia produced on average 10.2 million bbl/d of total oil, comprising crude oil, lease condensate, natural gas liquids, and other liquids (including half of the Saudi-Kuwaiti Neutral Zone's 600,000 bbl/d). In addition to 8.4 million bbl/d of crude oil, around 1.8 million bbl/d of natural gas liquids (NGLs) and other liquids (not subject to OPEC quotas) was produced. They are also a leading world producer of NGLs, has experienced a rise in demand for NGLs from developing countries, including India (the leading export destination), where it is used for cooking and transportation.
One challenge the Saudis face in achieving their strategic vision to add production capacity is that their existing fields experience 6 to 8% annual "decline rates on average (as reported by PlattsOilgram in 2006) in existing fields, meaning that the country needs around 700,000 bbl/d in additional capacity each year, just to compensate for natural decline. Decline estimates for Saudi Arabia vary widely, however. The Ministry of Petroleum maintains that decline rates in Saudi Arabia are around 2% annually. Saudi Aramco has stated that it will also conduct additional drilling at existing fields in order to help compensate for the natural declines from the mature fields. As a result of this, a large proportion of their planned capital expenditure over the next five years will involve exploration and development of the offshore acreage on the western side of the country covering the Red Sea. A rumoured spend of some $15 to $20bn cannot be discounted for this particular area where a fair degree of seismic mapping has already taken place with early results being found to be extremely encouraging.
Saudi currently has seven domestic refineries, with a combined crude throughput capacity of about 2.1 million bbl/d (of which Aramco’s share is approximately 1.1 million bbl/d). The Saudi Aramco development plan calls for a $70-billion investment in the sector, increasing domestic refining capacity to 3 million bbl/d and international holdings by at least 1-2 million bbl/d by 2011, particularly in an effort to meet requirements of the fast-growing Asian market. Several of these new refineries will be integrated with large petrochemicals complexes, in what has been described as the creation of petrochemical cities. Saudi Aramco has begun a Saudisation initiative (General Engineering Services Plus, or GES+) to improve Saudi technical capability in these projects. At the time of writing, five of these contracts have been awarded with one remaining. The successful international parties so far are KBR, Mustang Engineering, Foster Wheeler, SNC Lavalin and Jacobs Engineering.
Mega Projects in the pipeline include a 400,000 bbl/d joint venture export refinery with Total in Jubail, which is expected to be fully operational by end-2013. It will run mainly Arab Heavy crude, and maximize production of diesel and jet fuel. A 400,000 bbl/d Yanbu refinery project, scheduled for start-up at end-2014. Conoco-Phiilips was originally to have been a joint venture partner in this project, which will process heavy oil from the planned Manifa project. A decision was taken by Aramco to relocate its joint petrochemical project with Dow Chemical from Ras Tanura to Jubail and they also plan to move ahead with their first venture into the petrochemical business, a $10 billion expansion at its integrated PETRORabigh Refinery and petrochemical joint venture with Sumitomo. A long talked about 400,000 bbl/d Jizan refinery project without any petrochemicals component is expected to kick off in early 2012 whilst abroad in the United States, Aramco and partner Royal Dutch/Shell own three Motiva joint-venture refineries in Louisiana and Texas. The three facilities currently have a total capacity of about 740,000, or approximately 5% of the U.S. refining market.
Aramco is already the world’s seventh largest natural gas producer and has aggressively explored for additional reserves to meet growing demand, although success has been limited. According to the Oil and Gas Journal, Saudi Arabia has proven natural gas reserves estimated at 275 trillion cubic feet (Tcf), fourth largest in the world behind Russia, Iran, and Qatar. Over 12 Tcf was added in 2010. However, about 50-60% of the natural gas in Saudi Arabia is associated with petroleum deposits, or found in the same fields as crude oil, and plans to increase production of this type of gas remain linked to an increase in oil production. About 57% of Saudi Arabia's proven natural gas reserves consist of associated gas at the giant onshore Ghawar field and the offshore Safaniya and Zuluf fields. Of the remaining 100 tcf of free (non-associated) natural gas, 75% is sour (high sulphur) or in tight formations, leaving only 25 tcf of conventional natural gas deposits that are easy to develop.
The Saudi domestic natural gas market has traditionally been the sole domain of Saudi Aramco. However, the Saudi government has allowed international oil and gas companies’ access to upstream ventures in the Empty Quarter in an effort to develop non-associated gas to meet rising natural gas demand. Saudi officials had hoped that the effort would produce some 2 Bcf/d by 2011, although success has been limited. Four upstream joint ventures were formed and awarded exploration concessions in the Empty Quarter: • South Rub al-Khali Company, or SRAK (a venture of Saudi Aramco and Royal Dutch/Shell) • Luksar Energy Limited (a venture of Saudi Aramco and Lukoil) • Sino Saudi Gas Limited (a venture of Saudi Aramco and Sinopec) • EniRepSa Gas Limited (a consortium of Saudi Aramco, Eni, and Repsol-YPF). Unfortunately to date, these ventures have not made significant commercial discoveries. SRAK’s 4th unsuccessful well, Kidan-6, was reportedly among the most expensive onshore wells in industry history.
To participate in the Saudi oil sector, all vendors and contractors must be registered with Saudi Aramco. Full details of the process plus some background towards the latest policies being adopted by Aramco can be found on their web site at the following address: www.saudiaramco.com/en/home.html
For UK companies, the first port of call is Aramco Overseas based in The Hague. Details of their procedures can be found at the following on their web site: www.aramcooverseas.com/en/doing-business-with-us/register-to-supply-materials-to-aoc. The prime contact is Frans deZwart who’s email address is Frans.deZwart@aramco.nl
Please be aware that Aramco is now concentrating solely on any new vendors who can actually offer something that will add value to their business or else from parties who are seriously considering setting up a facility within Saudi Arabia that will eventually lead to employing Saudi nationals. They no longer consider applications for straight forward supply from outside the kingdom.
Registration is required with SABIC. More information can be found at their web site: -
In conclusion, it cannot be denied that Saudi Arabia with its position as the world’s guardian of the largest reserves in hydrocarbons means that it will continue to be a rich source of business opportunities for many years to come.