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Saudi Arabia
With one-fourth of the world's proven oil reserves
and some of the lowest production costs, Saudi
Arabia is likely to remain the world's largest net
oil exporter for the foreseeable future. During
January-May 2005, Saudi Arabia supplied the United
States with 1.5 million barrels per day of crude
oil, or 15%, of U.S. crude oil imports during that
period.
Information
contained in this report is the best available as of
August 2005.
GENERAL BACKGROUND
With
Oil Export Revenues making up around 90-95
percent of total Saudi export earnings, 70-80
percent of state revenues, and around 40 percent of
the country's gross domestic product (GDP), Saudi
Arabia's economy remains, despite attempts at
diversification, heavily dependent on oil (although
investments in petrochemicals have increased the
relative importance of the downstream petroleum
sector in recent years).
The combination of relatively high oil prices and
exports led to a revenues windfall for Saudi Arabia
during 2004 and early 2005. For 2004 as a whole,
Saudi Arabia earned about $116 billion in net oil
export revenues, up 35 percent from 2003 revenue
levels. Saudi net oil export revenues are forecast
to increase in 2005 and 2006, to $150 billion and
$154 billion, respectively, mainly due to higher oil
prices. Increased oil prices -- and revenues --
since the price collapse of 1998 have significantly
improved Saudi Arabia's economic situation, with
real GDP growth of 5.2 percent in 2004, and
forecasts of 5.7 percent and 4.8 percent growth for
2005 and 2006, respectively.
For fiscal year 2004, Saudi Arabia originally had
been expecting a budget deficit. However, this was
based on an extremely conservative price assumption
of $19 per barrel for Saudi oil -- and assumed
production of 7.7 million bbl/d. Both of these
estimates turned out to be far below actual levels.
As a result, as of mid-December 2004, the Saudi
Finance Ministry was expecting a huge budget surplus
of $26.1 billion, on budget revenues of $104.8
billion (nearly double the country's original
estimate) and expenditures of $78.6 billion (28
percent above the approved budget levels). This
surplus is being used for several purposes,
including: paying down the Kingdom's public debt (to
$164 billion from $176 billion at the start of
2004); extra spending on education and development
projects; increased security expenditures (possibly
an additional $2.5 billion dollars in 2004; see
below) due to threats from terrorists; and higher
payments to Saudi citizens through subsidies (for
housing, education, health care, etc.). For 2005,
Saudi Arabia is assuming a balanced budget, with
revenues and expenditures of $74.6 billion each.
In spite of the recent surge in its oil income,
Saudi Arabia continues to face serious long-term
economic challenges, including high rates
of unemployment (around 13 percent of Saudi
nationals, possibly higher), one of the world's
fastest population growth rates, and the consequent
need for increased government spending. All of these
place pressures on Saudi oil revenues. The Kingdom
also is facing serious security threats, including a
number of terrorist attacks (on foreign workers,
primarily) in 2003 and 2004. In response, the Saudis
reportedly have ramped up spending in the security
area (reportedly by 50 percent in 2004, from $5.5
billion in 2003). Saudi Arabia's per capita oil
export revenues remain far below high levels reached
during the 1970s and early 1980s. In 2004, Saudi
Arabia earned around $4,564 per person, versus
$22,589 in 1980. This 80 percent decline in real per
capita oil export revenues since 1980 is in large
part due to the fact that Saudi Arabia's young
population has nearly tripled since 1980, while oil
export revenues in real terms have fallen by over 40
percent (despite recent increases). Meanwhile,
Saudi Arabia has faced nearly two decades of heavy
budget and trade deficits, the expensive 1990/1991
war with Iraq, and total public debt of around $175
billion. On the other hand, Saudi Arabia does have
extensive foreign assets -- around $110 billion --
which provide a substantial fiscal "cushion."
Movement towards economic reform (e.g., reducing
subsidies) in Saudi Arabia remains uneven at best.
In addition, the countryalso made only slow progress
on another of its main domestic goals -- attracting
foreign direct investment (FDI). In January 2004,
the Saudi cabinet approved a reduction in taxes on
foreign direct investment (to 20 percent in most
sectors; 30 percent in the natural gas sector) as
part of an effort to speed up the economic reform
and privatization process in the country.
Currently, large state corporations, like oil firm
Saudi Aramco (which has a monopoly on Saudi upstream
oil development, workforce of 54,000, and controls
98 percent of the country's oil reserves) and the
Saudi Basic Industries Corporation (SABIC; the
world's 11th largest petrochemical producer)
dominate the Saudi economy. To date, there has not
been a single sale of state assets to private
control, and privatization largely has been limited
to allowing private firms to take on certain service
functions. In May 2002, Saudi Oil Minister Ali
Naimi (reappointed in May 2003 for a third,
four-year term) stated that the country was
considering privatizing some operations of Saudi
Aramco. One impetus for Saudi privatization is its
desire to join the World Trade Organization (WTO),
but progress has been slow towards achieving this
goal, and there were no signs of an imminent
breakthrough as of December 2004.
In general, Saudi Arabia also has moved cautiously
and slowly towards government subsidy cuts, tax
increases, or financial sector reforms. Saudi
leadership (King Abdullah, in particular) has
indicated that it sees privatization -- although
controversial -- as a "strategic choice," and has
created (in August 1999) a "Supreme Economic
Council" charged with boosting investment, creating
jobs for Saudi nationals, and promoting
privatization. In May 2000, a new law aimed at
attracting foreign investment to the Saudi energy
sector came into effect. The law permits full
foreign ownership of Saudi property and licensed
projects, sets up the General Investment Authority
(SAGIA) as a "one-stop shop" for foreign investors,
and reduces taxes on company profits from 45 percent
to 30 percent. Previously, foreign companies were
limited to a 49 percent share of joint ventures with
Saudi domestic partners. Several important sectors,
however, remain closed to 100 percent foreign
ownership, including (as of July 2005): upstream
oil, pipelines, media and publishing, insurance,
telecommunications, defense and security, and more.
Thus, the foreign investment law is far less
attractive than it appears at first glance.
In November 1999, former King Fahd, who died on
August 1, 2005, stated that "the world is heading
for...globalization" and that "it is no longer
possible for [Saudi Arabia] to make slow progress."
In the context of successfully becoming integrated
into the global economy, Fahd also emphasized the
importance of regional unity among Gulf states --
economically, politically, and militarily. Along
these lines, a customs union among GCC countries was
agreed upon at the December 1999 GCC summit and came
into effect in 2003. The GCC has also agreed to form
a common currency by 2010.
In a treaty signed in June 2000, Saudi Arabia and
Yemen agreed on the delineation of sections of their
common border which had been in dispute since the
1930s. The deal is expected to open up opportunities
for increased Saudi trade and investment in Yemen, a
possible pipeline across Yemen to the Arabian Sea
(see below for more details), and the possible award
of oil and gas exploration rights for areas in Yemen
adjacent to previously disputed areas of the border.
In February 2001, Saudi Arabia and Syria signed a
bilateral free-trade agreement. On June 11, 2001,
Saudi Arabia announced (in a letter to UN Secretary
General Kofi Annan) that it was taking ownership of
Iraq's pipeline to the Saudi Red Sea coast (closed
since August 1990), saying that Iraq's behavior had
"destroyed any rationale for maintaining the
[pipeline] facilities."
OIL
According to the
Oil and Gas
Journal, Saudi Arabia contains 261.9
billion barrels of proven oil reserves (including
2.5 billion barrels in the Saudi-Kuwaiti Divided,
aka "Neutral" Zone), around one-fourth of proven,
conventional world oil reserves. Around two-thirds
of Saudi reserves are considered "light" or "extra
light" grades of oil, with the rest either "medium"
or "heavy." Although Saudi Arabia has around 80 oil
and gas fields (and over 1,000 wells), more than
half of its oil reserves are contained in only eight
fields, including Ghawar (the world's largest oil
field, with estimated remaining reserves of 70
billion barrels) and Safaniya (the world's largest
offshore oilfield, with estimated reserves of 35
billion barrels). Ghawar's main producing structures
are, from north to south: Ain Dar, Shedgum,
Uthmaniyah, Hawiyah, and Haradh. Ghawar alone
accounts for about half of Saudi Arabia's total oil
production capacity.
Saudi Arabia is the world's leading oil producer and
exporter, and its location in the politically
volatile Gulf region adds an element of concern for
its major customers, including the United States.
Saudi Arabia maintains crude oil production capacity
of around 10.5-11.0 million bbl/d, and claims that
it is "easily capable" of producing up to 15 million
bbl/d in the future and maintaining that production
level for 50 years. In June 2005, Saudi Aramco's
senior vice president of gas operations, Khalid
al-Falih, stated that Saudi Arabia would raise
production capacity to more than 12 million bbl/d by
2009, and then possibly to 15 million bbl/d "if the
market situation justifies it." Falih added that by
2006, Saudi Arabia would have 90 drilling rigs in
the Kingdom, more than double the number of rigs
operating in 2004.
One challenge for the Saudis in achieving this
objective is that their existing fields sustain 5
percent-12 percent annual "decline rates,"
(according to Aramco Senior Vice President Abdullah
Saif, as reported in
Petroleum
Intelligence Weekly and the
International Oil
Daily) meaning that the country needs
around 500,000-1 million bbl/d in new capacity each
year just to compensate.
Aramco estimates that the average total depletion
for Saudi oil fields is 28 percent, with the giant
Ghawar field having produced 48 percent of its
proved reserves. Aramco also claims that, if
anything, Saudi oil reserves are underestimated, not
overestimated. Some outside analysts, notably
Matthew Simmons of Houston-based Simmons and Company
International, have disputed Aramco's optimistic
assessments of Saudi oil reserves and future
production, pointing to -- among other things --
more rapid depletion rates and a higher "water cut"
than the Saudis report.
Production
For January-July 2005, EIA estimates that Saudi
Arabia produced around 10.9 million bbl/d of total
oil -- including crude oil, natural gas liquids, and
"other liquids"oil, and also including half of the
Saudi-Kuwaiti Divided Zone's 610,000 bbl/d). This
was up sharply from Saudi Arabia's 8.5 million bbl/d
of total oil production in 2002 (see graph).
Currently, Saudi Arabia is estimated to be producing
around 9.6 million bbl/d of crude oil, well in
excess of its current quota level of 9.099 million
bbl/d (effective July 1, 2005). In addition to crude
oil, Saudi Arabia produces around 1.3 million bbl/d
of natural gas liquids (NGLs) and "other liquids,"
not subject to OPEC quotas.
Saudi Arabia
produces a range of crude oils, from heavy to super
light. Of Saudi Arabia's total oil production
capacity, about 65 percent-70 percent is considered
light gravity, with the rest either medium or heavy;
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.
The Ghawar field is the main producer of 34o
API Arabian Light crude, while Abqaiq (a super-giant
field with 17 billion barrels of proven reserves)
produces 37o API Arab Extra Light crude.
Since 1994, the Hawtah Trend (also called the Najd
fields), which includes the Hawtah field and smaller
satellites (Nuayyim, Hazmiyah) south of Riyadh, has
been producing around 200,000 bbl/d of 45o-50o
API, 0.06 percent sulphur, Arab Super Light.
Offshore production includes Arab Medium crude from
the Zuluf (over 500,000 bbl/d capacity) and Marjan
(270,000 bbl/d capacity) fields and Arab Heavy crude
from the Safaniya field. Most Saudi oil production,
except for "extra light" and "super light," is
considered "sour," containing relatively high levels
of sulfur.
Saudi Arabia's long-term goal is to further develop
its lighter crude reserves, including the Shaybah
field, located in the remote Empty Quarter area
bordering the United Arab Emirates. (In June 2005,
the UAE said it wanted to amend a 1974 border pact
which gave the Saudis rights to Shaybah, which lies
80 percent in Saudi territory and 20 percent in
UAE). Shaybah contains an estimated 15.7 billion
barrels (or higher) of premium grade 41.6o
API sweet (nearly sulfur-free) Arab Extra Light
crude oil, with production as of May 2005 at around
500,000 bbl/d. Overall, the Shaybah project cost
around $2.5 billion, with production starting in
July 1998. According to Oil Minister Naimi (October
1999), the development of Shaybah showed that "the
cost of adding...capacity - that is, all the
infrastructure, producing and transportation
facilities - necessary to produce one additional
barrel of oil per day in Saudi Arabia is, at most,
$5,000 compared to between $10,000 and $20,000 in
most areas of the world." Plans are to increase
Shaybah output by as much as 300,000 bbl/d in the
next few years.
The Shaybah complex includes three gas/oil
separation plants (GOSPs) and a 395-mile pipeline to
connect the field to Abqaiq, Saudi Arabia's closest
gathering center, for blending with Arab Light crude
(Berri and Abqaiq streams). In addition to oil,
Shaybah has a large natural gas "cap" (associated
gas), with estimated reserves of 25 trillion cubic
feet (Tcf). Gas production of 880 million cubic feet
per day (Mmcf/d) is reinjected, along with natural
gas liquids (NGLs). A possible gas recovery project
could be implemented within 5 or 6 years,
potentially for use in petrochemical production.
In March 2002, Aramco awarded major turnkey
contracts to Italy's Snamprogetti ($630 million) and
Technip-Coflexip ($360 million) aimed at increasing
total Saudi oil production capacity by 800,000 bbl/d
(500,000 bbl/d of Arabian light and 300,000 bbl/d of
Arabian medium). The $1.2 billion project, known as
the Qatif producing facilities development program
(QPFDP), involved construction of two gas-oil
separation plants (GOSPs), as well as gas treatment
and oil stabilization facilities, for the Qatif and
Abu Saafa oilfields. Additional Qatif and Abu Saafa
production had been slated to replace production
elsewhere in Saudi Arabia, not to boost overall
capacity, although recently this issue has been
thrown into some question as the Saudis attempt to
maintain a spare capacity cushion in the face of
rapidly growing world oil demand. As of December
2004, Saudi Arabia reportedly had brought production
from Qatif and Abu Saafa online.
Another project, at the Khurais field west of
Ghawar, could increase Saudi production capacity (of
Arab Light) by 1.2 million bbl/d at a cost of $3
billion. This is to involve installation of four
GOSPs, with a capacity of 200,000 bbl/d each, at
Khurais, which first came online in the 1960s but
was mothballed by Aramco.
Several other fields -- Abu Hadriya (1.8-2.0 billion
barrels in reserves), Fadhili (1-1.4 billion
barrels), Harmaliyah, Khursaniyah (3.5 billion
barrels), and Manifa -- were mothballed by the
Saudis during the the 1990s, but could be brought
back online given high world oil demand and the
desire to maintain Saudi spare production capacity.
In particular, Saudi Aramco appears to be pushing
ahead with development of the Abu Hadriya, Fadhili
and Khursaniya (AFK) onshore fields. In March 2005,
the Saudis awarded eight contracts for work at
Khursaniya and also at Hawiya (see below). The
Saudis reportedly have "fast tracked" development at
AFK. Production of 500,000 bbl/d (medium, 35o
API) of Arab Light from the AFK fields could begin
in late 2007. Besides AFK, the Saudis are planning
to increase Arab Light production from the
1-billion-barrel Nuayyim onshore field by 100,000
bbl/d in 2009.
The $280 million Haradh-3 project aims to increase
production capacity at the Haradh oil field to
900,000 bbl/d by February 2006. This will involve
adding a third, 300,000-bbl/d GOSP to Haradh (in
addition to two other 300,000-bbl/d GOSPs, one of
which was inaugurated in January 2004). Haradh also
will produce significant volumes of non-associated
natural gas, natural gas condensates (perhaps
170,000 bbl/d), and sulfur. The project is being
carried out by Aramco, along with private companies
like Foster-Wheeler.
Saudi-Kuwaiti Divided Zone; Bahrain
The Saudi-Kuwait Divided Zone contains about 5
billion barrels of proven oil reserves. Within the
Divided Zone, Japan's Arabian Oil Co. (AOC)
traditionally had operated two offshore fields
(Khafji and Hout) with 300,000 bbl/d in production,
but in February 2000, it lost the concession (in
January 2003, AOC reached an agreement with Kuwait
on the right to purchase at least 100,000 bbb/d of
crude for the next 20 years from Khafji). The
offshore Saudi Divided Zone had represented Japan's
most significant upstream oil interest, with 80
percent of revenues going to AOC and 10 percent each
to Saudi Arabia and Kuwait. ChevronTexaco,
meanwhile, operates three onshore fields (Wafra,
South Fawaris, and South Umm Gudair) in the Divided
Zone. Saudi Arabia had stated that it wanted AOC and
Japan to increase their investments in Saudi Arabia
(including more than $1 billion in a railway linking
remote mining areas to export terminals), as well as
their purchases of Saudi oil, as a condition for
renewal of AOC's drilling rights in the Divided
Zone. Efforts to negotiate an extension with Saudi
authorities failed when Japan refused to commit to
investment in development projects desired by the
Saudis. Saudi Aramco has taken over operation of
the former AOC fields.
Besides the Kuwaiti-Saudi Divided Zone, Saudi Arabia
also produces oil jointly with Bahrain, from the Abu
Saafa offshore oilfield. As a way of supporting
their neighbor's economy, since 1996 the field's
Saudi administrators had donated all of the income
from its 150,000 bbl/d of production to Bahrain.
However, in late 2004, with output from Abu Saafa
doubling to 300,000 bbl/d, the Saudis apparently
reduced this share to 50 percent. In addition,
Bahrain traditionally has received around 50,000
bbl/d of Saudi oil from other fields, apparently at
a significant discount. The Abu Saafa pipeline
passes through this area on its way to Bahrain. It
now appears that the Saudis have stopped supplying
that oil to Bahrain.
Exports, Ports, Pipelines, Shipping
Saudi Arabia is a key oil supplier to the United
States and Europe. Asia (e.g., China, Japan, South
Korea, India) now takes around 60 percent of Saudi
Arabia's crude oil exports, as well as the majority
of its refined petroleum product exports. During the
first five months of 2005, Saudi Arabia exported
1.57 million bbl/d of oil (of which 1.51 million
bbl/d was crude) to the United States. For this time
period, Saudi Arabia ranked fourth (after Canada,
Mexico, and Venezuela) as a source of total (crude
plus refined products) U.S. oil imports, and third
for crude only. Saudi Arabia is eager to maintain
and even expand its market share in the United
States for a variety of economic and strategic
reasons. During the first five months of 2005, Saudi
Arabia's share of U.S. crude oil imports was 14.9
percent, up from 13.9 percent during the first five
months of 2004.
Most of Saudi Arabia's crude oil is exported from
the Persian Gulf via the huge Abqaiq processing
facility, which handles around two-thirds or so of
the country's oil output. Saudi Arabia's primary oil
export terminals are located at Ras Tanura (6
million bbl/d capacity; the world's largest offshore
oil loading facility) and Ras al-Ju'aymah (3 million
bbl/d) on the Persian Gulf, plus Yanbu (as high as 5
million bbl/d) on the Red Sea. Combined, these
terminals appear capable of handling around 14
million bbl/d, around 3.0-3.5 million bbl/d higher
than Saudi crude oil production capacity (10.5-11.0
million bbl/d), and about 4 million bbl/d in excess
of Saudi crude oil production during the first half
of 2005. Despite this excess capacity, there have
been reports that the Saudis are planning to conduct
a feasibility study on construction of an oil
pipeline from the Empty Quarter of southeastern
Saudi Arabia through the Hadramaut in Yemen to the
Arabian Sea.
Saudi Arabia
operates two major oil pipelines. The
5-million-bbl/d East-West Crude Oil Pipeline
(Petroline), operated by Aramco since 1984 (when it
took over from Mobil), is used mainly to transport
Arabian Light and Super Light to refineries in the
Western Province and to Red Sea terminals for export
to European markets. The Petroline was constructed
in 1981, with initial capacity of 1.85 million bbl/d
on a single, 48-inch line (AY-1). The Petroline was
expanded in 1987, during the height of the Iran-Iraq
war (and specifically the so-called "tanker war" in
the Gulf), to 3.2 million bbl/d, with the addition
of a parallel ("looped") , 56-inch line (AY-1L).
Finally, in 1993, Petroline capacity was increased
to 5.0 million bbl/d by adding significant pumping
capability on the line. Reportedly, the Saudis
expanded the Petroline in part to maintain Yanbu as
a strategic option to Gulf port facilities in the
event that exports were blocked at that end.
In purely economic terms, Yanbu remains a far less
economical option for Saudi oil exports than Ras
Tanura. Among other factors, shipments from Yanbu
add about 5 days roundtrip travel time for tankers
through the Bab al-Mandab strait to major customers
in Asia compared to Ras Tanura (via the Strait of
Hormuz). In addition, according to Oil Minister
Naimi, the Petroline is only utilized at half
capacity.
Running parallel to the Petroline is the
290,000-bbl/d Abqaiq-Yanbu natural gas liquids
pipeline, which serves Yanbu's petrochemical plants.
The Trans-Arabian Pipeline (Tapline) to Lebanon is
mothballed, and the 1.65-million-bbl/d, 48-inch
Iraqi Pipeline across Saudi Arabia (IPSA), which
runs parallel to the Petroline from pump station #3
(there are 11 pumping stations along the Petroline,
all utilizing on-site gas turbine electric
generators) to the port of Mu'ajjiz, just south of
Yanbu, was closed indefinitely following the August
1990 Iraqi invasion of Kuwait. In June 2001, Saudi
Arabia seized ownership of IPSA "in light of the
Iraqi government's persistence in its stands."
Theoretically, IPSA could be used for Saudi oil
transport to the Red Sea, although the Saudis have
stated that "there are no plans" to do so. According
to Oil Minister Naimi, Saudi Arabia has "surplus oil
export and pipelines capacity...[including the]
East-West oil pipeline system [which] can carry and
deliver 5 million bbl/d" but is being run at "only
half capacity."
Aramco's shipping subsidiary Vela has around 20
VLCC's (very large crude carriers) and 4 ULCC's
(ultra large crude carriers), carrying a significant
proportion of Saudi oil exports. In September 2004,
the Saudis placed a $200 million for two VLCCs from
Hyundai Heavy Industry, with delivery expected in
2007. In addition to tankers, Aramco owns or leases
oil storage facilities around the world, in places
like Rotterdam, Sidi Kerir (the Sumed pipeline
terminal on Egypt's Mediterranean coast), South
Korea, the Philippines, the Caribbean, and the
United States.
Refining
Saudi Arabia has eight refineries, with combined
crude throughput capacity of around 1.75 million
bbl/d, plus around 1.6 million bbl/d of refining
capacity overseas. The Rabigh refinery on the Red
Sea coast is slated for upgrade, with plans to shift
the refinery's product slate away from low-value
heavy products towards gasoline and kerosene. In
addition, there is talk of building a $4 billion,
400,000-bbl/d heavy conversion export refinery in
Yanbu.
In July 2004, Aramco signed an agreement with Shell
to purchase a 9.96 percent share in Showa Shell
Group, a refining and marketing company based in
Japan. Under the deal, Aramco will supply Showa
Shell with 300,000 bbl/d of crude oil. In March
2005, Saudi Arabia and India signed an agreement on
oil cooperation, with the Saudis reportedly
interested in acquiring a stake in the 300,000-bbl/d
Paradip refinery and the 152,000-bbl/d Vizakh
refinery in India. Saudi Aramco also is reported to
be considering a forward oil stockpile and a
400,000-bbl/d, $3 billion refinery in India. In July
2005, a new, $3.6 billion refinery and petrochemical
plant complex was inaugurated in Fujian, China. The
facility is a joint venture between Sinopec (50
percent), ExxonMobil (25 percent), and Saudi Aramco
(25 percent). Crude oil for the plant is to be
supplied by Saudi Arabia. Aramco reportedly is in
talks with Sinopec on building a second major
Chinese refinery, in the northern province of
Shandong. Both plants will be able to handle high
sulphur ("sour") oils, which is important because
there is a dearth of such capacity worldwide.
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