Oil dominant but gas is growing too in KSA

The Saudi population is sustained by their country’s dominance of the world’s oil market.

Saudi Arabia sits on approximately one quarter of the world's oil reserves, or 260 billion barrels, is responsible for around 13% of world production and accounts for more than 20% of international petroleum sales. It has a refining capacity of up to three million barrels per day (bpd).

It has now embarked on a development programme aimed at increasing both upstream and downstream capacity. Crude output is expected to reach 12 million bpd by 2012 from the current 11.3 million bpd. This, according to the Ministry of Petroleum, will also allow it to maintain a surplus production capacity of 1.5 million bpd to satisfy any supply shortfall. Longer-term the ministry has said it might consider increasing production to 15 million bpd but this would depend on whether global consumption growth would justify such a move.

According to Saudi Aramco, some US $267 billion will be spent on oil, gas and petrochemical projects over the coming years. These projects, according to the company will enable Saudi Arabia to "maintain its position as the unrivalled world leader in oil production and exports". The company's expenditure over the next five years through 2012 include project investments worth US $45 billion and a further US $35 billion for downstream joint venture projects.

Projects include five new major crude increments with multiple facilities for oil production. Once completed, they will represent Saudi Aramco's largest crude production increase in its history. The five increments are: the Khursaniyah project, 500 000 bpd, Shaybah, 250 000 bpd, Nu'aayim, 100 000 bpd, Khurais, 1.2 million bpd, and Manifa, 900 000 bpd.

Khurais is the largest crude production increase ever undertaken in the company's history. Its central processing facility will be fed from three different fields producing Arab Light crude. Manifa covers major offshore and onshore facilities while Khursaniyah is currently under execution with international contractors and procurement activities under way. The Shaybah project is located near the Rub' Al-Khali and is under construction.

The last year has also seen new crude capacity come on stream. In February 2006 oil production began at the Haradh field located to the south of the Ghawar field. It produces 300 000 bpd of crude and 3.9 million m3 of gas. A project to upgrade production will see capacity rising to 900 000 bpd.

As well as new crude production, Saudi Arabia also plans to increase its reserves base over the next two decades. In May 2006, Saudi Aramco announced plans to increase reserves by 25% through increased exploration activity. Saudi oil minister Ali Al-Naimi was quoted as saying that reserves would be boosted by a further 200 billion barrels and that total recoverable reserves are now estimated at 1.2 trillion barrels.

Naimi said: "This estimate is very conservative. Our analysis gives us reason to be very optimistic. We are continuing to discover new resources and we are using new technologies to extract even more oil from existing reserves." Saudi Aramco said it discovered 3.6 billion barrels of crude in 2006, 6% more than it produced.

Processing the new crude streams is also leading to plans to increase refining capacity. In addition Saudi Arabia is upgrading some its existing refineries to handle heavier and more sour crude. Current refining capacity is around 2.5 million bpd. The country is not alone in increasing refining capacity, which is occurring elsewhere in the Middle East, because of the current global bottleneck in the refining sector.

Saudi Aramco is adding two new 400 000-bpd refineries for export, one in Jubail as a joint venture with Total, and the other in Yanbu with Conoco Philips. Both will be completed in 2011. It is also expanding the west coast Rabigh refinery in partnership with Sumitomo Chemical Investments, turning it into a full conversion configuration including petrochemical capacity. The Petro-Rabigh joint venture will have a capacity of 400 000 bpd and begin production in 2008.

The company has also announced plans to expand the existing Ras Tanura refinery into one of the world's largest petrochemical plants in partnership with Dow Chemicals. Refining capacity expansion is not just confined to within the country's borders. Motiva Enterprises, a joint venture between Saudi Refining and Shell, is to increase capacity at one of its US Gulf Coast refineries by around 325 000 bpd.

In China, Aramco is partnering with ExxonMobil and Sinopec to expand an existing refinery in Fujian province and include petrochemical facilities. It is also studying with Sinopec a possible grassroots refinery in Qingdao, Shandong province and is considering a 480 000 bpd refinery in South Korea.

Saudi Aramco says all its refining operations at home and abroad will increase total refining capacity by almost 50% over the next five years to around six million bpd.

Gas is assuming an increased importance in the Saudi energy mix. There are several reasons for this. One is to diversify the economy from it over-reliance on oil, use gas as a feedstock for petrochemical sector expansion, to fuel new industrial clusters to diversify the manufacturing base, and for new gas-fired power generation capacity. In addition Saudi Arabia wants to produce more gas for domestic consumption as population rises and also remove more oil from the national supply chain, freeing it up for export.

Per capita gas consumption in Saudi Arabia is among the highest in the world. According to Saudi Aramco, the country's demand for gas is expected to grow at 5% per year over the next two decades, as the country's domestic and industrial bases expand. One third of this consumption is for electricity, mainly for air-conditioning and one quarter for petrochemical feedstock.

The petrochemical sector is an important part of the government's economic diversification strategy and is expected to account for one half of the US $600 billion in non-oil investment Saudi Arabia is seeking over the next 20 years. The remaining demand comes from desalination plants and from the oil industry in support of the master gas system, which enables Saudi Aramco to use nearly all associated and non-associated gas, adding the equivalent of over one million bpd of oil to its supply.

Saudi Aramco launched a US $450 billion gas development investment programme at the start of this century. It will run for 25 years and focuses on developing upstream supplies and processing facilities. The company wants to add up to 140 billion m3 of new non-associated natural gas reserves per year to meet annual demand growth.

Most existing gas production is associated from the Ghawar oil field and offshore Safaniya and Zuluf. Ghawar accounts for one third of total gas reserves. According to the Ministry of Petroleum, total gas sales capacity will be around 70 billion m3 this year and could reach just short of 100 billion m3 by 2010. Saudi Aramco added 10.4 trillion f3 of gas to its reserves in 2006. Saudi Arabia has several contracts with international oil companies for gas exploration work in the Kingdom, including Itay's ENI, Spain's Repsol-YPF, Shell, Sinopec and Total.

February 2007 saw news of a discovery by Luksar, the joint venture between Saudi Aramco and Russia's Lukoil. An exploration well was drilled in Block A in the Tukhman structure raising hopes for more similar gas finds. The Luksar joint venture was established in 2004 with agreement to carry out exploration and production for 40 years. The company has already committed to spend over US $200 million. Block A is located in the northern part of the Rub Al-Khali and the joint venture is now assessing the discovery.

Also in February Saudi Aramco announced the discovery of a new field, Dirwazah-1 southeast of Ghawar. And in the same month, the company said it would shortly announce a tender for engineering work for its offshore Karan gas field.

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