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A fast-changing energy landscape

Article - October 15, 2013
Saudi Arabia remains the world's largest exporter of crude oil, but developments like the shale gas boom in the US and the fast-growing demand for power domestically are pushing the Saudi government to rethink the way it manages its energy resources
Home to almost a fifth of the world’s crude oil reserves, Saudi Arabia plays a crucial role in ensuring global energy security. In 2012, the kingdom produced on average 11.6 million barrels per day (bbl/d) of total petroleum liquids, 84 per cent of which was in crude oil, and exported approximately two-thirds of its production.  
According to the OPEC Annual Statistical Bulletin 2012, Saudi Arabia ranks first worldwide for both the production and exportation of total petroleum liquids, and first for exports and second for the production of crude oil. It is also fifth for the size of its proven natural gas reserves. The country enjoys a spare capacity of 2.2 million bbl/d, which means that Saudi Arabia is uniquely positioned to compensate for shortages in production elsewhere and to help stabilise global oil prices. 
Fossil fuels account for the lion’s share of the Saudi economy, as the energy sector generates a staggering 90 per cent of exports and 50 per cent of gross domestic product (GDP). Energy revenues finance the Saudi government’s large-scale infrastructure projects aimed at diversifying the economy away from oil and gas, as well as the generous budget dedicated to education, healthcare and defence.
The energy sector has also enabled the development of the first downstream industry in Saudi Arabia, petrochemicals, which has become the largest non-oil sector in the country and has turned Saudi Arabia into a leading exporter of chemicals.
Sector overview 

Saudi Arabia’s national energy policy and oil and gas resources are overseen by the Ministry of Petroleum and Mineral Resources and by the Supreme Council for Petroleum and Minerals, a government body comprising members of the royal family, ministers and industry experts. The national oil company, Saudi Aramco, manages the country’s resources. 
Based in Dhahran on the Persian Gulf Coast and employing a staff of over 55,000, Aramco is an economy in itself that manages over 100 oil fields, two large R&D centres and numerous processing, petrochemical and power plants, as well as hospitals, training facilities and residences for its staff.
In 2010, Forbes estimated its value at $10 trillion, significantly bigger than China’s annual GDP, which makes Aramco the world’s largest company. 
A leading exporter of crude oil  

The country has over 100 major oil and gas fields, but more than half of its proven crude oil reserves, estimated at 265 billion barrels, are contained in eight fields. The largest of them is the onshore Ghawar field, with remaining reserves of 70 billion barrels, followed by the Safaniya, Khurais, Manifa, Shaybah and Qatif fields. Saudi Arabia produces eight grades of crude, all but two of which have high concentrations of sulphur. Medium and heavy grades account for 35 per cent of total output, while light varieties make up the rest. 
The most prominent upstream development in recent years has been the Manifa Project, a shallow-water Persian Gulf field that started producing in April 2013 at a rate of 500,000 bbl/d. It is Saudi Aramco’s most challenging oil production programme ever, according to CEO Khalid Al-Falih, as it involved the construction of more than 25 miles of causeways and almost 2 miles of bridges to link the 27 man-made drilling islands, 13 platforms and 15 onshore drill sites that comprise the project. 
Innovation to enhance value and output  

Developments like the Manifa Project reflect a shift in the focus of Aramco’s operations towards technological innovation and advanced recovery methods to enhance output. In 2012, the company laid out a long-term sustainability strategy for its crude oil production and reviewed all its reservoirs to maximise hydrocarbon recovery. As a result of these endeavours, the recovery rate for some fields, such as Abqaiq, reached 69 per cent, a rate that compares positively to average recovery rates of 50 per cent across the industry.
In 2012, Aramco embarked on and progressed in a series of new projects and joint ventures aimed at integrating its energy operations and enhancing the value of its exports. 
Foremost among these are the Yanbu Aramco Sinopec Refining Company Limited (YASREF), a joint venture with China Petrochemical Corporation (Sinopec); the Jazan Refinery; the Saudi Aramco Total Refining and Petrochemical Company (SATORP), a joint-venture with France’s Total; the Rabigh II petroleum refining and petrochemical complex; Sadara Chemical Company, a joint venture with Dow Chemical Company; and the establishment of the Aramco Asia headquarters in Beijing. 
The 400,000 bbl/d YASREF and Jazan refineries, expected to start operating in 2014 and 2016 respectively, promise to have a significant impact on the value of Saudi Arabia’s energy exports, as they have the capacity to meet the demand for refined products of a large economy, such as Spain.
Looking ahead, R&D will play an increasing role in the Saudi energy sector. Indicative of this trend was the announcement in May 2013 of a fivefold increase in Aramco’s R&D budget. 
According to Vice President of Petroleum Engineering and Development, Khaled Al-Buraik, “We are emphasising high impact technologies that typically involve long-term strategies. We are pursuing R&D to bring about breakthrough achievements.” 
This new strategy includes the construction of two research centres in the US, in Houston (Texas) and Cambridge (Massachusetts), which will complement the already established Aramco Research and Development Centre and the Exploration and Petroleum Engineering Centre – Advanced Research Centre (EXPEC ARC). 

Shale gas: a real threat?   

The shale gas boom in the US and Europe promises to turn former energy importers into net exporters as early as 2017. And while it is too early to determine how this development will play out, OPEC member countries have expressed varying degrees of concern about the changing state of affairs. While countries like Nigeria and Angola have seen their exports dwindle, Saudi Arabia and its neighbours in the Persian Gulf have yet to suffer the negative consequences of this phenomenon. 
So far, the high sulphur Saudi crude has proven irreplaceable in American refineries, which continued to import as much as 1.35 bbl/d from the kingdom in 2012, the highest rate since 2008. The fact that Saudi Arabia co-owns various refineries in the US gives it certain leverage in deciding on the provenance of imports. 
But the future implications of the shale gas boom could be dire, especially when China, estimated to have the world’s largest shale gas reserves, taps into them. Saudi Arabia has positioned itself to take advantage of the economic growth in Asia, which accounts for over 53 per cent of the kingdom’s oil exports, compared to 16.5 per cent for the US and 5 per cent for Europe. If the Asian markets become self-sufficient, Saudi Arabia might find itself in a conundrum. 
Meanwhile, the Minister of Petroleum and Minerals, Ali Ibrahim Al-Naimi, has welcomed the increased US energy production as an opportunity for Saudi Arabia to free some of its spare capacity and to focus on exploring its own unconventional oil and gas reserves. His message to the international community on the occasion of the OPEC bi-annual gathering that took place in May 2013 in Vienna was that: “Supplies are plentiful, demand is great.”