Saudi Arabia outlook

One-quarter of the world’s proven oil reserves
* It is the second most important source of crude oil imports for the United States (after Venezuela), supplying nearly 17 percent of U.S. crude oil imports in 1996.
GENERAL BACKGROUND

* Saudi Arabia’s petroleum resources fuel a significant share of the world’s economies.
* The United States is Saudi Arabia strongest political allies.
* Saudi Arabia’s oil policy has been the pursuit of market stability and oil supply reliability.

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* Saudi Arabia’s economy is essentially oil-based (although investments in petrochemicals have increased the relative importance of the downstream petroleum sector in recent years).
* Most of Saudi Arabia’s export revenues are derived from the sale of crude oil, natural gas liquids, and refined products; for every $1/barrel increase in oil prices, the government gains an estimated $2.7 billion in additional revenues.
* The economy’s dependence on oil was not a great concern in 1996, as world oil price increases translated directly into a $10 billion revenue windfall and produced the kingdom’s first current account surplus since the early 1980s.
* The economy appears to be nearly recovered from the hardships experienced as a result of the 1991 Persian Gulf war, for which the Kingdom incurred a $55 billion debt (repaid as of May 1995).
* To gain additional integration into world markets, Saudi Arabia has applied for membership in the World Trade Organization.

* The Saudi government created a Consultative Council (Majlis al-Shoura) comprising non-royal family members.

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OIL
 
* 259 billion barrels of proven oil reserves currently account for about one-quarter of the world’s total.
* Over half of these reserves are contained in eight fields, including Ghawar (the world’s largest onshore oil field, with estimated remaining reserves of 70 billion barrels) and Safaniya (the world’s largest offshore field, with estimated reserves of 19 billion barrels).

* Saudi Arabia produces a range of crude oil grades, from heavy to super light.
* The lightest grades are produced onshore, while the medium and heavy grades come mainly from offshore.
* The Ghawar field is the primary producer of 34o API Arab Light crude, while Abqaiq produces 37o API Arab Extra Light crude.
* The Hawtah Trend, which includes the Hawtah field and smaller satellites, has been producing 45o-50o API Arab Super Light.
* Offshore production includes Arab Medium crude from the Zuluf and Marjan fields and Arab Heavy crude from the Safaniya field.

The Neutral Zone (shared with Kuwait) reserves is currently estimated at about 5 billion barrels of proven oil reserves.
* In the Neutral Zone, Japan’s Arabian Oil Co. operates the offshore fields (Khafji, Hout) and U.S. company Texaco operates the onshore fields (Wafra, South Fawaris, South Umm Gudair).

* Saudi Arabia is a key oil supplier for the United States, Europe, and Japan
* In recent years, western hemisphere producers (Venezuela, Canada, and Mexico) have challenged Saudi Arabia’s dominance in the U.S. market.
* Saudi Arabia supplies 600,000 b/d to the United Kingdom under a defense procurement agreement by which it obtains advanced aircraft and infrastructure development for the Saudi air force.

* To rmain within its OPEC quota (currently 8 million b/d of crude), Saudi Arabia has increased Extra Light and Arab Super Light production at the expense of Arab Heavy and Arab Medium crude oil.
* Saudi Arabia is also using field rotations to minimize reservoir pressure damage and preserve the option of bringing the capacity back online within a few months, if needed.
* Most of Saudi Arabia’s spare production capacity is medium crude.

* Oil production totaled about 8.9 million b/d in 1996, including 700,000 b/d of natural gas liquids and about 240,000 b/d of crude oil produced in the Neutral Zone shared with Kuwait.
* This compares with sustainable crude oil production capacity of about 10 million b/d and an OPEC crude oil production quota of 8 million b/d.
* Saudi Arabia has been producing close to its OPEC quota (production of natural gas liquids is not counted against the OPEC quota), but well below its full capabilities.

* Saudi Arabia is continuing to invest in the development of lighter crude reserves. * Priority is currently being given to the Shaybah field in the remote Empty Quarter area bordering the United Arab Emirates. The field contains an estimated 7 billion barrels of 40-42o API sweet crude oil, and will ultimately produce 500,000 b/d of crude oil and 870 million cubic feet/day of natural gas.
* Construction work on the field is scheduled for completion by August 1998.
* The project will include three gas/oil separation plants (GOSPs) and a 395-mile pipeline to connect the field to Abqaiq, Saudi Arabia’s closest gathering center.
* Two U.S. companies are playing a major role in the project: Parsons Corporation (project management) and Bechtel (construction).

Downstream Infrastructure
* Most of Saudi Arabia’s crude oil is exported through the Persian Gulf via the Abqaiq processing facility.
* Terminals in the Persian Gulf and the Red Sea have a combined handling capacity of up to 14 million b/d.
* In the Persian Gulf, the Kingdom’s primary oil export terminals are located at Ras Tanura (5 million b/d) and Juaymah (3 million b/d).
* The Yanbu terminal (3 million b/d) serves as the main oil port in the Red Sea.

* Saudi Arabia operates two major oil pipelines.
* The 4.8 million b/d East-West Crude Oil Pipeline (Petroline) is used mainly to transport Arab Light and Super Light to refineries in the Western Province and to Red Sea terminals for direct export to European markets.
* Running parallel to the Petroline is the 270,000 b/d Abqaiq-Yanbu natural gas liquids pipeline, which serves Yanbu’s petrochemical facilities.
* The Trans-Arabian Pipeline (Tapline) was mothballed following the Persian Gulf War (after providing only limited service to a refiner in Jordan since the 1970s), and the 1.65 million b/d Iraqi-Saudi Pipeline (IPSA-2) was closed indefinitely after the start of the Gulf War.

* Saudi Arabia has attempted to boost its export capabilities by acquiring new tankers and increasing its overseas crude oil storage capacities.
* The Saudi fleet currently comprises 23 crude tankers and four product vessels.
* Saudi Arabia’s owned and leased storage facilities, including a 34 percent stake in Texaco’s 17 million barrel Maatschap terminal and a long-term lease on a 5 million barrel facility on St. Eustatius in the Caribbean, now have a capacity of over 30 million barrels.

Refining

* Saudi Arabia is currently investing in refinery upgrades and expansions.
* Nearing completion is a $1.2 billion upgrade of the Ras Tanura refinery, whose capacity may be further expanded to as much as 1 million b/d under longer-term investment plans (through 2007).
* Also slated for upgrading is the Rabigh refinery, on the Red Sea coast, which had formerly been a joint venture (Amoco acquired Greece-based Petrola’s 50 percent share in 1995).
* Plans call for boosting capacity to 325,000 b/d at an estimated cost of $2 billion.

* Saudi Arabia has taken aggressive measures to secure market share for its crude oil through refining ventures in the United States, Europe, and Asia (currently totaling 1.2 million b/d).
* The company took the first step in this direction in 1988, when it acquired a 50 percent stake in Texaco’s Star Enterprise joint venture.
* Star Enterprise controls distribution networks in half of the United States and has continuing contracts to purchase up to 600,000 b/d of Saudi crude oil for processing at the venture’s three refineries.
* In 1991, Saudi Arabia bought a 35 percent share in South Korea’s two 300,000 b/d Ssangyong refineries.
* This was followed in 1994 by the purchase of a 40 percent share of Petron (a Filipino refining company) and in 1995 by the purchase of a 45 percent interest in China’s Thalin refinery.
* Saudi Aramco has also agreed to acquire a 50 percent share in Motor Oil Hellas (MOH), a domestic Greek refining company with 700 retail stations and a 100,000 b/d refinery, for $400 million.

* Saudi Basic Industries Corporation (SABIC) accounts for 5 percent of world petrochemical production.
* Reduced tariff barriers for SABIC’s exports are a major force behind Saudi Arabia’s pursuit of membership in the World Trade Organization.
* In February 1997, Saudi Petrochemical Company (Sadaf), a joint venture between SABIC and Shell Oil Company of the United States, launched a $1 billion expansion program that includes a new 700,000 metric ton/year plant for methyl tertiary butyl ether (MTBE). The plant’s opening boosts SABIC’s total MTBE production capacity to 2.7 million metric tons/year.
NATURAL GAS

* Saudi Arabia’s natural gas reserves are estimated at nearly 189 trillion cubic feet. * Most of these reserves consist of associated gas, which comes primarily from the Ghawar field and the offshore Safaniya and Zuluf fields.
* The Ghawar oil field alone accounts for one-third of the country’s total gas reserves.
* Most new associated gas reserves discovered in the 1990s have been in fields which contain light crude oil, especially in the Najd region.
* Most of Saudi Arabia’s non-associated gas reserves are located in the deep Khuff reservoir, which underlies the Ghawar oil field.

* Domestic demand is driving investment in Saudi Arabia’s Master Gas System (MGS), which started up in 1982 (prior to that time, all of the country’s natural gas was flared).
* In November 1996, a project management contract was signed with the Parsons Corporation (a U.S. company) for construction of a grassroots gas processing plant at Hawiya.
* At an estimated cost of $2 billion, this is the largest gas project in more than 10 years.
* The Parsons Corporation is also working with a local partner on debottlenecking of the existing Uthmaniyah gas processing plant. Contracts for debottlenecking on the kingdom’s other existing gas processing plants (Berri and Shedgum) are expected to be awarded in 1997.
* The new plant plus the debottlenecking of the three existing plants will boost capacity to 6.3 billion cubic feet/day (Bcf/d) by 2002.

* Saudi Aramco projects that domestic gas consumption could exceed 6 Bcf/d by 2005.
* Most of this demand will come from industrial consumers, power plants, and petrochemical plants located in the Eastern Province.
* An important incentive for additional investment in natural gas is to provide a substitute for crude burning by electric utilities.
* In the summer of 1996, high demand by domestic power plants contributed to Aramco’s decision to reduce its crude oil deliveries under some term contracts by 5 percent.

ELECTRICITY
* Five regional state-owned companies run Saudi Arabia’s electricity sector.
* Electricity demand increased by 35 percent in the 1990-1995 period, and the government projects an additional 36 percent increase in the 1996-2000 period (to about 117 billion kilowatthours).
* The Sixth Development Plan sets a target of 28 gigawatts of electric generating capacity by 2000 (compared with 20 gigawatts in 1995).

* Several projects now underway employ financing mechanisms that are new to Saudi Arabia’s electric power sector.
* The PP9 power station in Riyadh is being funded with extra revenues generated by a special tariff imposed on heavy users since January 1995.
* Expansion of another power plant (Ghazlan) is being financed by an internationally syndicated commercial loan.
* Greater private sector involvement is planned for the 1750-megawatt Shuaiba power station project, which is being put out for bid on a build-operate-transfer basis.
* The Royal Commission for Jubail and Yanbu is launching a joint venture company with U.S. firms (Bechtel and Parsons Corp.) to develop power and water utilities in Saudi Arabia’s flagship industrial zones.
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ECONOMIC OVERVIEW
Real GDP Growth Rate (1996E): 1.7%
Inflation Rate (consumer prices)(1996E): 1.3%
Current Account Balance (1996E): $0.2 billion
Major Trading Partners: Japan, United States, EC
Trade Balance (1996E): $29.2 billion
Merchandise Exports (1996E): $57.0 billion
Merchandise Imports (1996E): $27.8 billion
Major Exports: Crude oil and petroleum products
Major Imports: Industrial goods, metals, food
Oil Export Revenues (1996E): $50.4 billion
Oil Export Revenues/Total Export Revenues (1996E): 88.4%
Monetary Reserves (11/96, non-gold): $8.2 billion
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ENERGY OVERVIEW
Proven Oil Reserves (1/1/97): 259 billion barrels
Oil Production (1996E): 8.9 million barrels per day (b/d), of which 8.2 million b/d is crude oil (includes ½ Neutral Zone)
OPEC Crude Oil Production Quota: 8 million b/d (includes ½ Neutral Zone)
Oil Production Capacity (1996E): 10.4 million b/d
Oil Consumption (1996E): 1.1 million b/d
Crude Oil Refining Capacity (1/1/97E): 1.66 million b/d
Net Oil Exports (1996E): 7.8 million b/d
Natural Gas Reserves (1/1/97): 189 trillion cubic feet (Tcf)
Natural Gas Production (1996E): 1.5 Tcf
Natural Gas Consumption (1996E): 1.5 Tcf
Electric Generating Capacity (1995): 21 gigawatts
Net Electricity Generation (1995): 65 billion kilowatthours
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ENVIRONMENT OVERVIEW
Total Energy Consumption (1995): 3.7 quadrillion Btu
Energy Consumption per Capita (1995): 201 million Btu (vs. 331.8 million Btu in the United States)
Energy-Related Carbon Emissions (1995): 66.5 million metric tons (1.1% of world carbon emissions)
Carbon Emissions per Capita (1995): 3.5 metric tons (vs. 5.42 metric tons in the United States)
Major Environmental Issues: Coastal pollution, water depletion, and desertification
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OIL AND GAS INDUSTRIES
 
Organization: The Supreme Petroleum Council governs the nationalized oil industry, including Saudi Arabian Oil Co. (Saudi Aramco) ­ crude production, refining and marketing; Saudi Basic Industries Corp. (SABIC) ­ petrochemicals; Star Enterprise (U.S.) ­ Saudi Refining Inc. (50%), Texaco (50%); Ssangyong Oil Refining Co. (S. Korea) ­ Saudi Aramco (35%), Ssangyong (65%); Luberef – Mobil (30%) and Petrolube – Mobil (29%) – lubricating oil joint ventures; Vela International Marine Ltd. – shipping subsidiary; Aramco Services Co. (Houston) and Aramco Overseas Co. (Netherlands) – services subsidiaries; Saudi Petroleum International Inc. (New York) and Saudi Petroleum Overseas Ltd. (London/Tokyo) – marketing subsidiaries.
Major Foreign Oil Company Involvement: Mobil, Shell
Major Oil Fields (reserves – billion barrels)(1995E): Ghawar (70), Safaniya (19), Abqaiq (17), Berri (11), Manifa (11), Zuluf (8), Shaybah (7), Abu Saafa (6), Khurusaniya (3.5)
Major Pipelines (capacity – million b/d): Petroline (4.8), Tapline (0.5), IPSA 1 (0.5), IPSA 2 (1.7), Abqaiq-Yanbu NGL line (0.3), (Tapline and IPSA lines shut since 1990)
Major Refineries (capacity, 1/1/97): Aramco – Ras Tanura 300,000 b/d, Rabigh 290,000 b/d, Yanbu 190,000 b/d, Riyadh 140,000 b/d, Jeddah 82,000 b/d; Aramco/Mobil – Yanbu 331,700 b/d; Petromin/Shell – al-Jubail 292,000 b/d; Arabian Oil Company – Ras al-Khafji 30,000 b/d

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