Oil and gas to Saudi Arabia

(Last updated: 31 Jul 2007)

Trends and opportunities

The market

The oil industry is the leading industry in Saudi Arabia, and possesses slightly more than 25 per cent of the world’s known oil reserves and 33.3 per cent of the Organization of the Petroleum Exporting Countries (OPEC) total known reserves. It is the single largest producer in OPEC accounting for approximately one-third of its output and 10-13 per cent of total world production. Moreover, Saudi Arabia absorbs very little of its own production which makes it the largest oil exporter.

Even with the increased oil prices and subsequent increase in oil revenues, oil output has been maintained at Saudi Arabia’s OPEC quota of eight million barrels per day (b/d). It is estimated that the oil sector will generate revenue for more than 80 years.

Although the private sector is completely excluded from all levels of the hydrocarbon industry in Saudi Arabia, several private firms are engaged in oil exploration and development abroad. Fresh domestic and foreign investments will come to supply petrochemicals to new industries. The new projects are expected to produce 18 million metric tonnes of petrochemicals and minerals to serve as a basis for downstream industries such as plastics, insulators, carpets and fertiliser.

Saudi Aramco, headquartered in Dhahran, is government owned and became a fully integrated oil company in 1993 when it absorbed the Saudi Arabian Refining and Marketing Company (SAMAREC) taking over the oil interests of the General Organisation for Petroleum and Minerals (Petromin). It is now the largest oil company in the world and the only oil company in Saudi Arabia. 

Oil reserves, production and exports:

• Saudi Aramco’s concession area in Saudi Arabia covers 220,000 square kilometres (189,000 square kilometres onshore and 31,000 square kilometres offshore) in six ‘retained areas’ remaining from an original concession area of 1,285,000 square kilometres.
• Maximum sustained production capacity is 10m b/d of crude oil, all from Retained Area Number 1, which contains the world’s largest offshore and production fields.
• Saudi Arabia has approximately eight oil refineries with a total effective capacity of 1,625,000 b/d.  Aramco owns and operates the Ras Tanura plant, the three domestic refineries, and owns 50 per cent of three export refineries.
• Saudi Aramco has made two new oil and gas discoveries. The company's Abqaiq-480 gas well has flowed 40 million cubic feet per day of non-associated gas from two Khuff reservoirs at depths up to more than 4877m. The other discovery, the Ghazal-15 well, is flowing crude oil over Unayzah-B Reservoir at 4233m. The well also extended the gas reserve in the Unayzah-A Reservoir. 
• Saudi Aramco's exploration teams have also discovered a new gas reservoir in the Eastern province know as the Shaybah Field, a 700 well flowing gas at a rate of 20 million cubic feet and 650 barrels of condensate per day from a cased-hole test conducted in the Arab-C Reservoir at a depth of 2382m. Drilling at the well will continue so that gas potential at lower depths can be evaluated. Shaybah oil field produces an average of 500,000 b/d of extra light Arabian oil from the Shuaiba reservoir at a depth of 1417 metres. The Kingdom has an estimated natural gas reserve of 220 trillion cubic feet.
• The Saudi Government signed a landmark agreement with the Royal Dutch/Shell group of companies and Total to form a joint venture with the Kingdom’s own Aramco company for the exploration of gas in an area of 200,000 square kilometres in the southern part of the Rub Al-Khali (the Empty Quarter). The consortium is the first ever western oil company to win rights to the vast energy reserves in Saudi Arabia, nationalised three decades ago. Consortium leader Shell will retain a participation of 40 per cent of the new joint venture, with Saudi Aramco and Total, each holding 30 per cent participation. 
• The oil resources of the Divided Zone, between Saudi Arabia and Kuwait, are operated by foreign companies such as Saudi Arabian Texaco (concession expires 2010).

Gas reserves and products:

• Demand for gas in Saudi Arabia will amount to more than 12 billion cubic feet daily by 2025.
• Most reserves are associated gas contained in oil fields. The Ghawar field currently accounts for around one-third of total gas reserves. New sources of non-associated gas have been found in the central region and a major gas and condensate structure discovered in the north-west.
• Production has risen, with Saudi Aramco producing up to 1.95 billion cubic feet per day of non-associated gas. Up to 450 million cubic feet per day of additional gas production capacity is available in gas caps created over the Abqaiq oil reservoir.
• Aramco has a complete gas gathering/processing network, the Master Gas System (MGS), with current capacity of some 4.3 billion cubic feet per day of raw gas. It yields up to two billion cubic feet per day of methane gas; 360 million cubic feet per day of ethane gas; 325,000 barrels per day of NGLs (propane, butane and natural gasoline) and 4100 tonnes per day of sulphur.

Opportunities

Opportunities include ongoing oil well development and pipeline work, gas plant development, and ongoing maintenance shutdown and upgrade of existing refineries and plants.

Australian companies need to look at the Saudi oil and gas industry sector segment by segment in terms of capability requirements and size, as well as the environmental regulations and other barriers to entry. There are considerable projects in the pipeline for the period 2004 to 2007:

• Saudi Aramco is proceeding with a substantial expansion and upgrade program that includes the construction and modernisation of gas plants, oil refineries, pipelines, water desalination plants and refined product loading facilities.

  
  

  The company has a continuing demand for experienced oil/gas design engineering firms, and oil/gas facilities construction contractors. Demand is also ongoing for quality products and services such as valves, compressors, pumps, chemicals, turbines, drilling rigs and parts, generators, computers and software, telecommunication equipment, instrumentation and industrial process controls, fire fighting and safety equipment, spare parts, refinery supplies and equipment, oil/gas storage monitoring systems, etc.

  
  

  Saudi Aramco is developing the onshore Abu Hadriyah oil field, located in the Eastern Province, which is an estimated $1700 million program to expand the Kingdom’s gas handling infrastructure. The field development plan is expected to call for capacity of up to 500,000 barrels per day at a cost of US$1-1.5 billion. The Abu Hadriyah field, first discovered in 1940, is located near the Gulf coast, about 200km north of Dammam. Aramco puts its proven recoverable reserves at 260,000 million barrels.

  
  

  Observers/planners envisage that Saudi Aramco will need to invest heavily either alone or with equity partners. Aramco engineering standards, requirements, and material specifications is available at Aramco Services Company.
  

• The Chairman of the Saudi Arabia Basic Industry Corporation (SABIC), Prince Saud Ibn Abdullah Ibn Thunayan Al-Saud, endorsed expansion investments of US$6.4 billion, which would include:

  • Confirmation of plans to construct new petrochemical plants in Yanbu for 3.8 million mt/y of ethylene, ethylene glycol, polyethylene and polypropylene products to come on stream in 2007. 
  • Expansions at the Eastern Petrochemical Company (SHARQ) adding 2.9 million mt/y of ethylene, polyethylene and ethylene glycol by 2008. SHARQ is a 50:50 joint venture between SABIC and SPDC, a Japanese consortium headed by Mitsubishi. 
  • An additional 1.7 million mt/y of methanol at the Saudi Methanol Company (AR-RAZI) scheduled for production in the latter half of 2007. This will make AR-RAZI, a 50:50 joint venture with Mitsubishi, the largest single methanol-producing complex in the world.

Competitive environment

Australia faces strong competition from American and European companies that are already very well established in Saudi Arabia.

Major design, engineering and project management contracts are normally awarded to large foreign firms (with a local partner/sponsor). Many construction subcontracts and limited scope engineering/design contracts are awarded to local firms, which generally employ expatriates at all levels to do the work.

Holding a majority market share, some of the leading US companies in Saudi Arabia include:

• Brown and Root
• Ralph M. Parsons Company
• Bechtel
• Stone and Webster Engineering Corp
• ABB Lummus Crest
• Foster Wheeler
• Fluor Daniel
• M.W. Kellog Company
• Chicago Bridge
• Iron Co.

Japanese firms have about 13 per cent market share, followed by Italian firms at seven per cent, British at three per cent and South Korean and Saudi firms at one per cent each. 

Foreign companies taking part in Saudi Aramco’s oil and gas engineering and construction tenders include: McConnell Dowell, Toyo, Lucky International, SNC, Dong Ah Sembawang, Daelim and Babcock King.

Tariffs, regulations and customs

All imported equipment is subject to between four and 12 per cent import cost, insurance and freight (CIF) ad valorem duty. However, spare parts are exempt, when supplied directly for government contracts.

Industry standards

The Higher Petroleum Council directs oil policy and governs the Ministry of Petroleum and Mineral Resources.

The Saudi Arabian Standards Organization (SASO) regulates product standards. Also, under the Saudi Arabian Government’s International Conformity Certification Program (ICCP), imported products may be subject to pre-shipment inspections.

Marketing your products and services

Market entry

Saudi commercial regulations stipulate that foreign companies may establish a company in Saudi Arabia, however, the most common form of market entry is through an authorised Saudi representative, agent or joint venture partner registered in Saudi Arabia.

Australian companies may sell services or products direct to Saudi firms (excluding works), but without ongoing Saudi-based marketing efforts, the chances of development and a sustained market presence are severely limited.

Since April 2000, the government has allowed 100 per cent equity investment in Saudi Arabia. Generally, joint venture companies are managed by the foreign principal who provides management, marketing know-how, technical expertise and who submits bids for government or private sector tenders. To obtain a contract with the Saudi Government, foreign companies are required by regulation to appoint a Saudi service agent unless they have established a company there. The primary functions of a service agent are to obtain temporary commercial registration and assist in routine tasks, particularly obtaining visas for expatriate employees.

Any Australian company considering entering the Saudi Arabian oil or gas market, whether for products or services, should first pre-qualify with Saudi Aramco. Saudi Aramco’s Purchasing Department is the sole agency authorised to purchase goods for Saudi Aramco operations and processes over 36,000 requisitions each year servicing over 100 Saudi Aramco user organisations. 

If a foreign vendor appoints a Saudi Arabian vendor to represent their interests in Saudi Arabia, they should notify the Saudi Aramco Vendor Liaison Unit in Dhahran direct, or through their vendor, providing details of products offered.

If the foreign vendor is currently qualified by Aramco, their relationship with the Saudi Arab vendor is noted immediately. If not currently qualified, the vendor should contact Aramco to initiate pre-qualification. After a supplier has been approved by Saudi Aramco, the Vendor Liaison Unit enters all financial, technical and product information into the Supplier Information System (SIS), a computer system that records Saudi Aramco’s worldwide sources of supply.

For each quotation request, a bidders list is compiled from the SIS by Materials Commodity Classification Codes (CCCS) or Saudi Aramco stock numbers. More than 14,000 foreign vendors are currently registered, of which 9000 are associated with or represented by Saudi Arabian vendors.  Saudi Aramco has a long-standing policy of according preference to qualified Saudi Arabian vendors and manufacturers.

Links and industry contacts

Oil and gas related resources

Aramco Services Company - www.aramcoservices.com
Ministry of Petroleum and Mineral Resources - www.mopm.gov.sa
Organization of the Petroleum Exporting Countries (OPEC) – www.opec.org/home
Saudi Arabia Basic Industry Corporation (SABIC) - www.sabic.com

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Saudi Arabian Oil Company (Saudi Aramco)­­­­­ - www.saudiaramco.com
P.O. Box 5000 
Dhahran 31311
Kingdom of Saudi Arabia
Tel: (966 3) 872 6823
Fax: (966 3) 873 4517

Saudi Aramco, Contracting Dept. - http://apps.saudiaramco.com/contracting/index.jsp
Box 1500 
Dhahran 31311
Kingdom of Saudi Arabia
Tel: (966 3) 873 2997/8844
Fax: (966 3) 873 9450

Saudi Aramco Purchasing Department
Box 87 
Dhahran 31311
Kingdom of Saudi Arabia
Tel: (966 3) 874 0005
Fax: (966 3) 874 0002

Saudi Petroleum Overseas Ltd (SPOL)
Ark Mori Building (P.O. Box 549)
West 16^th Floor, Number 12-32 Accasacca
1-ChomeMinato-Ku, Tokyo107 Japan
Tel: (81 3) 5563 0551
Fax: (81 3) 5563 0588

Government, business and trade resources for Saudi Arabia

Saudi Arabian Standards Organization (SASO) - www.saso.org.sa

Media

Arab News - www.arabnews.com - Saudi Arabia’s English-speaking daily newspaper
The Saudi Times - www.sauditimes.com