Kingdom of Saudi Arabia ...
Glorious History, Bright Present
and Promising Future
Saudi Arabia celebrated its 81st National Day in 23rd of September 2011. The staff of (Oil and Gas World Magazine) gives thinner congratulations to the Custodian of the Two Holy Mosques King Abdullah bin Abdul Aziz and the Crown Prince Nayef bin Abdul-Aziz and the princes and the Saudi people of all classes for the anniversary of this historic glorious day, wishing further progress and prosperity in various fields for them all.
On this occasion, Oil and GAS World magazine presents a documented report about the achievements of the petroleum sector in the Kingdom.
A special file on
achievements of the oil sector
in Saudi Arabia
Introduction
Saudi Arabia is the world’s largest Petroleum producer and exporter. Saudi Arabia’s economy remains heavily dependent on oil and petroleum-related industries, including petrochemicals and petroleum refining. According to the figures of the International Monetary Fund, the Saudi economy is expected to record a growth rate of 6.5% in 2011 compared to 4.1% in 2010 and about 0.1% in 2009. The oil export revenues represent about 90% of the total exports' value and about 80% of the government revenues and about 45% of the gross domestic product (GDP).
Given the great contribution of the oil sector to the revenues of the public treasury, the oil price is an important variable in the vitality of the Saudi economy. The IMF expects the average oil price to remain above $100 a barrel in 2011, while the average price of $74 a barrel is a parity rate between the revenues of this price and the planned expenditures in the Kingdom.
The Kingdom has a future vision for the petroleum sector which aims at creating a highly efficient oil industry, a developed refining industry in line with the potentials and the position of the Kingdom, a comprehensive national network covering the Kingdom areas in order to transfer all energy products, a major and comprehensive role of the private sector, technology transfer and indigenization, and making the Kingdom a global energy research and studies center in the area.
Supervision of the oil sector
The Supreme Council for Petroleum and Minerals (SCPMA) |
The state-owned oil company, Saudi Aramco, dominates Saudi Arabia’s hydrocarbon sector operations. Saudi Aramco is the world’s largest oil company in terms of proved reserves and production of hydrocarbons. Aramco adopts an innovative approach regarding the management of its local and international business, the perfect planning and implementation of its major petroleum projects and the optimum investment in all stages of its business full value system. Besides, it launches an ambitious program of research and technology development together with promoting its programs of protecting the environment.
The Ministry of Petroleum and Mineral Resources and the Supreme Council for Petroleum and Minerals (SCPMA) directly supervise the oil sector and the Saudi Aramco Company. The Council has been formed on 04.01.2000 under the chairmanship of the Custodian of the Two Holy Mosques. It consists of members of the royal family, industry leaders and ministers in the Saudi government. The Council takes decisions in all oil and gas affairs, approves their strategic policies including the identification of production quantities, approves the different pricing plans of fuel sources and feedstock in the Kingdom, defining the general policy of Saudi Aramco together with deciding its work plan including its program of crude oil production and exploration and development of new reserves and approves the capital investments 'program. Moreover, the Council examines and approves the general mining policies, agreements and contracts.
At the meeting of the (SCPMA) on 4/7/2011, chaired by King Abdullah bin Abdul Aziz, the Prime Minister and the SCPMA head, he confirms his keenness on the balance and stability of the global oil market in a way which benefits the producing and consuming countries in addition to his keenness on the growth of the global economy. He also stressed his commitment to the continuation of the OPEC countries' role as a stabilizing factor in the market.
Major companies
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In November 1988, the Saudi Arabian Oil Company (Saudi Aramco) was established to take over the administrative and operational tasks undertaken by Aramco. After the end of the Arabian Oil Company Ltd concession, Saudi Aramco established Aramco Gulf Operations Limited Company (AGOC) at the beginning of 2000 in Al Khafji city to take over the completion of the work within the concession of the Arabian Oil Company Ltd. in the offshore area of the divided region between Saudi Arabia and Kuwait. The company formed a joint venture with Kuwait National Petroleum Company under the name of "Khafji joint Operations Company (KJOC)" to take over the management of oil and gas resources in the neutral offshore area.
On the other hand, the Saudi Arabian Chevron Company holds the management of the Kingdom share in the onshore divided area between Saudi Arabia and Kuwait. The Extension and Amendment agreement has been approved between the Government of Saudi Arabia and the Saudi Arabian Chevron Company concerning the oil concession in order to manage the Kingdom share in onshore neutral zone, while the Gulf Oil Company takes over the management of the Kuwaiti share of it.
Energy projects
The Petroleum and Mineral Resources Minister Dr. Ali Al-Naimi said that Saudi Arabia is committed to providing energy to the world, and therefore it implements projects with massive investments over the coming years in various oil industry stages. Besides, it focuses on researches aiming at achieving sustainability and which include alternative energy sources that contribute to energy security. Therefore, the Kingdom will spend SR500 billion on energy projects starting from next year (2012) until 2016.
Most of the investments will come from two companies: Saudi Aramco and the Saudi Basic Industries Corporation (SABIC). Both companies intend to increase their investments in manufacturing industries and focus on manufacturing specialized chemical materials rather than basic petrochemicals, as chemicals generate higher income if compared to petrochemicals and provide more job opportunities.
In the field of natural gas, there are large investments and the largest in the world. The future projects will raise the coming amounts of feedstock to gas plants from 9 to 15 billion cubic feet per day.
The private sector contributes to investing in energy projects in the Kingdom where the "Manufacturing and Energy Services - ENERGY," in partnership with the private sector was established to do business including exploration, drilling, maintenance, seismic surveys, and the development of services provided to petroleum and petrochemical industries.
Oil Sector
Reserves
The kingdom has about 20% of the world proven oil reserves. It maintains such global position regarding the reserves through replacing the produced quantities with new discoveries carried out by Saudi Aramco and its affiliates, together with constructing more pipelines, production facilities and treatment plants. The Kingdom takes into account the achievement of balance between its economic interests and cooperation with all oil producing and consuming countries, given its pivotal interest that oil remains the primary energy source.
Aramco continues the drilling of several developmental and exploratory wells to increase oil and natural gas reserves in the coming years. The Petroleum Minister affirms the permanent quest of the company to increase its oil production capacity to meet the increasing global demand through the development of its fields pointing in this regard to the development of Khurais, Ibouhdria, Al Fadla, Al Kharasania and Al Shiba fields.
According to BP figures the kingdom contains approximately 264.5 billion barrels of proven oil reserves (including 2.5 billion barrels in the Saudi-Kuwaiti shared "Neutral" Zone). The Kingdom accounts for 57% of the reserves of the Gulf Cooperation Council (GCC) and 29% of OPEC total reserves and 20% of the global reserves.
Around two-thirds of Saudi reserves are considered "light," "extra light" or “super light” grades of oil, with the rest either "medium" or "heavy." 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 1260-square mile Ghawar (the world's largest oil field, with estimated remaining reserves of 70 billion barrels) and Safaniya, including Khafji and Hout (the world's largest offshore oilfield, with estimated reserves of 20 billion barrels).
Production
Saudi Arabia maintains the world’s largest crude oil production capacity, estimated at 12 million b/d. And according to the latest issue of BP Statistical Review of World Energy, Saudi Arabia produced on average 10 million b/d of oil, (including its share in Neutral Zone's production of 600,000 b/d) and comprising crude oil, lease condensate, natural gas liquids, and other liquids.
The Kingdom lands contain a set of giant oil fields; Al Ghawar field is the largest in the world. It pumps oil since 1951 with a total cumulative production of about 66 billion barrels. Aramco pumps more than 5 million b/d from this giant field; a rate which exceeds more than half of the kingdom crude production. Aramco plans to inject 40 million cubic feet daily of carbon dioxide into the field to raise its pressure; so as to increase and speed the flow rate.
Saudi Arabia produces a range of crude oils, from heavy to super light. Of Saudi Arabia's total oil production capacity, about 65 to 70 percent is considered light gravity, with the rest either medium or heavy; and the country is moving to reduce the share of the latter two grades. Lighter grades generally are produced onshore, while medium and heavy grades come mainly from offshore fields. Most Saudi oil production, except for "extra light" and "super light," is considered "sour," containing relatively high levels of sulfur.
The Kingdom shoulders the responsibility of securing the flow of oil supplies to the world at all circumstances. Therefore, during the recent disturbances in Libya, Saudi Arabia has mixed some of its oils to form an exceptional mixture similar to the Libyan oil to meet the customers' demand. It is worth noting that the kingdom had raised its production by 900 thousand b/d to reach 9.8 million b/d in last June to cover the lack of the Libyan production, and then the kingdom output fell gradually to 9.4 million b/d in September 2011 in line with the global demand conditions.
Local consumption
Saudi Arabia is the fastest growing consumer of energy in the Middle East, particularly in the area of transportation fuels. Domestic consumption growth has been spurred by the economic boom due to historically high oil prices and large fuel subsidies.
Total energy consumption including natural gas and its liquids has been increased to about 3.7 million in 2009. It is expected to continue its increase during the Ninth Development Plan (2009-2014) with nearly 7% per annum to reach 5.2 million in 2014.
In view of the oil consumption alone, it has grown steadily to reach 1.7 million in 2009 and is expected to rise to 2.3 million in 2014. Refined products are sold in the Kingdom at prices much lower than what they are in the global and neighboring markets. This comes as part of the governmental supporting policy to the local consumer.
Domestic oil demand grows rapidly given its increased use in the electricity production which grows by 8% annually. Saudi Arabia uses about 800 thousand b/d of crude oil in summer months in electricity production. Saudi Aramco sells oil to the Saudi Electricity Company at a very low price of 4.3 dollars a light oil barrel and 2.7 dollars for heavy oil, while the barrel is sold at about $100 in the global market.
Domestic consumption of petroleum products is currently estimated at 2 million barrels per day, or about 19.3% of the Kingdom production. This consumption grows by 7% per year, and is expected to reach about 3.7 million b/d in 2020, and about 7.3 million b/d in 2030. Observers fear that the growth of domestic consumption at this accelerated rate is at the expense of exports to the outside world, and they suggest the definition of legislations to rationalize fuel consumption and pump more investments in oil sector.
Joint Ventures
The total refining capacity of Saudi Aramco from local and joint refineries in 2009 is about 4.2 million barrels per day, which are divided almost equally between the local and foreign refineries. There are plans to raise its local refining capacity to 3.5 million b/d by 2016, and this will raise the total refining capacity to about 6 million b/d in 2016. Aramco continues its efforts to upgrade its refineries to produce larger quantities of high quality products. Therefore, refined products have witnessed a shift towards the higher-value light products.
Local Refineries
The kingdom owns and operates a group of refineries as following:
- The Saudi Aramco Mobil Refinery Company Limited (SAMREF) in Yanb and able to process 400 thousand b/d of Arabian Light oil. Aramco and Exxon Mobil share the refinery equally; it is the largest manufacturing refinery in the world and is considered one of the most developed refineries in the Kingdom and has the highest ability to produce gasoline.
- The Saudi Aramco Shell Refinery Co., Ltd. (SASREF), equally shared by Aramco and Shell, has been established in Jubail on the east coast of the Kingdom and able to process 305 thousand b/d of Arabian Light crude oil. SASREF has large contributions in the refining business through the production and sale of high quality products which comply with international and environmental standards.
- Saudi Aramco Company for Refining Lubricating Oil (Luberef) which was a joint venture between Petromin (70%) and ExxonMobil (30%). In 2007, Exxon Mobil sold its stake in Luberef to Gadwa Company for Industrial Investment. The company has two base oil laboratories: (Luberef 1) in Jeddah with a capacity of 1.9 million barrels per year, and (Luberef 2) in Yanbu with a capacity of 2.1 million barrels per year.
- Rabigh Company for Refining and Petrochemicals (Petro Rabigh), a joint venture owned equally between "Saudi Aramco" and the Japanese "Sumitomo Chemical". This partnership had turned into a Saudi joint company in 2007 after selling 25% of its shares to Saudi citizens and the remaining shares were equally distributed by 37.5% each. Petro Rabigh is considered the largest integrated facility for the petrochemicals' production and oil refining as well.
- In May 2006, an understanding memorandum was signed between Saudi Aramco and ConocoPhillips to establish the Yanbu Export Refinery (YERP) in Yanbu to process 400 thousand b/d of Arabian Heavy crude, so that it would produce high-quality fuels to meet the global fuel specifications. It is planned to start the project by end 2014.
- In June 2008, Saudi Aramco and Total has signed an agreement to establish the Saudi Aramco Total Refining and Petrochemical Company in Jubail Industrial City, with its refinery able to process 400 thousand b/d of Arabian Heavy crude to produce high quality products, and its production is expected to begin in the second quarter of 2013.
- In October 2011, the Chief Executive of the Royal Authority in Yanbu has declared that the Authority is currently implementing a project of the Red Sea refinery to produce petroleum products directed towards the petrochemical industry. The refinery is considered the third and largest refinery on the West Coast and its cost is estimated to reach about 20 billion riyals, and will be operational within the next three years.
The shared facilities outside the Kingdom
In August 1996, Aramco Overseas (AOC), which is a subsidiary of Saudi Aramco, had owned the largest share in the facilities of S-Oil Company in South Korea, including the advanced Korean Ulsan refinery whose capacity reached 565 thousand b/d.
In August 2004, Saudi Aramco, through Aramco Overseas, owned shares in Showa Shell Company for Oil Refining and Marketing in Japan, which owns varied oil facilities in addition to getting 515 thousand b/d through agreements and a share ownership in three Japanese refining companies representing 11% of Japanese total refining capacity.
Aramco is also involved with Exxon Mobil and Sinopec in Fujian Petrochemical Corporation in China, which is considered the first integrated project for both refining and petrochemicals with a foreign participation. This project, located in the city of Qguanzo in the Chinese Fujian Province, will lead to expanding the refining capacity and petrochemical there. Moreover, Aramco is involved with Exxon Mobil and Sinopec in a joint venture to market the products of Fujian project in the Chinese domestic market.
As for Motiva refinery expansion project in Port Arthur, USA, it is a joint refining and marketing venture which began in 1988, and is now divided equally between Shell and the Saudi Refining Company which is a subsidiary of Saudi Aramco. The project includes 7800 outlets, and three refineries with a capacity of 740 thousand b/d and which will exceed a million b/d after the expansion of its refineries in Port Arthur, Texas, to become the largest in the United States and the fifth largest refinery in the world.
And through its subsidiary "Aramco Overseas", in 1994 Saudi Aramco, with the subsidiaries of Texaco, got stakes in refining and storage facilities in the Netherlands.
Natural gas
Reserves
The Kingdom follows a gas strategy aiming at intensifying and exploiting gas resources given the added value of the natural gas to the national economy and its contribution to the development and diversification of the sources of non-oil revenues.
The Kingdom has continued to develop its natural gas reserves and increase its production capacity either through the investments of its national company "Saudi Aramco", or by opening the investment field in the natural gas sector before the global investments in all the processes of exploration, drilling, production and marketing. With the completion of Karan, Manifa, Arabia, and Al hasbbah fields, the gas processing capacity is expected to increase to reach 15 billion cubic feet in 2015.
According to BP Sources, Saudi Arabia has the fourth largest proven natural gas reserves in the world, estimated at 283 trillion cubic feet (4.3% of world), and comes fourth after Russia, Iran and Qatar. However, around 57 percent 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. The Ghawar oil field alone accounts for approximately one-third of the country's proven natural gas reserves.
To meet growing domestic needs, in November 2006, the Petroleum Ministry and Saudi Aramco announced a $9-billion strategy to add 50 Tcf of non-associated gas reserves between 2006 and 2016 through new discoveries, and potentially another 50 Tcf of associated reserves.
Production
Despite sizable reserves and increasing demand, dry marketed natural gas production and consumption in Saudi Arabia remains limited (estimated at 8.1 Bcf in 2010). According to OPEC and other sources, an estimated 13 to 14 percent of total production is lost in flaring, wells reinjection and other processes.
"Aramco" focuses on increasing gas production to meet the growing domestic demand for electricity, in addition to supporting the petrochemical industry to which the kingdom directs its attention, especially with the announcement of the establishment of a new petrochemical company under the name of "Sadara" in which Saudi "Aramco" and American "Dow Chemical" are partners.
"Aramco" constructs two major gas plants in Wasit and al-Shibah project for natural gas liquids, which is expected to be completed in 2014. It is expected that the projects of Wasit, kharasania and Karan would help to achieve the Kingdom goal of increasing the unprocessed natural gas production from 10.2 billion cubic feet per day in 2010 to 15.5 billion cubic feet by 2015.
The Kingdom has recently launched a new gas network which produces, processes, and distributes gas and is able to supply the industrial city of Yanbu by about 15 million cubic feet per day of natural gas. The Electricity and Water facilities in Jubail and Yanbu (MARAFEK), owned by the Royal Authority in Jubail and Yanbu, the Saudi Arabia Basic Industries Corporation (SABIC), the Public Investment Fund and Saudi Aramco run the gas network so that its capacity would reach 55 million cubic feet per day.
Karan gas field
The majority of gas fields in Saudi Arabia is “associated” with petroleum deposits, or found in the same wells as the crude oil, and plans to increase production of this type of gas remain linked to an increase in oil production.
But In April 2006, the offshore Karan gas field was discovered in the water and it is the first free non-associated gas field. It is located 160 kilometers north of Dhahran city in eastern Saudi Arabia. "Aramco" has developed it by investments totaled $3 billion. The field began production in July 2011 at 450 billion cubic feet per day. The gas is pumped into a 110 km pipeline below the water surface to deliver gas to Al Kharasania laboratory, and production is directed to power plants instead of oil. It is expected that the field would reach full production capacity of 1.8 billion cubic feet by 2013.
The cost of dry gas production is less than the its production cost when associated with oil; this will also save costs in its production and supply for its beneficiaries, and accordingly will contribute to providing more of the oil used locally in the production of electricity and petrochemicals so as to promote oil exports in a better way than it was when Saudi Arabia was extracting it accompanied with oil.
Natural Gas Consumption
As for gas consumption within the Kingdom, the electricity and water desalination sectors, followed by petrochemicals, iron and steel industry, represent most of the demand for natural gas in the Kingdom. Aramco is currently boosting its natural gas production of gas to replace oil in power plants.
Saudi Arabia currently has many gas processing plants with a total gas production capacity of approximately 9.3 Bcf/d, including 1.1 million bbl/d of natural gas liquids (NGLs) and approximately 2,700 tons of sulfur at facilities Berri, Shedgum, Uthmaniyah and Hawiyah.
According to Saudi Aramco forecasts, natural gas demand in the kingdom is expected nearly to double to 14.5 billion cubic feet per day (Bcf/d) by 2030.
Transferring Oil and Products
Oil, gas, and refined products are delivered to the plants, pumping and distribution stations within the Kingdom through a 20 thousand kilometers network of pipelines owned by Saudi Aramco. The Saudi oil and refined products are transferred to the world and the local market by Vela International Marine Company, a subsidiary of Saudi Aramco. In recent years, a group of tankers have been added to the company fleet which is currently composed of 30 large and medium-sized tanker.
A number of international and Arab companies participate in transferring crude oil and refined products to global markets, including the Saudi National Shipping Company and the Arab Maritime Petroleum Transport Company to which the Kingdom contribute in its ownership.