Saudi Arabia's Oil and Gas Industry: An Overview
Saudi Arabia is the anchor of the Middle East oil industry and one of the most important upstream and refining markets in the world. This overview summarises the structure, reserves, production, exports and gas business of the Saudi oil and gas sector.
1. Industry overview
Saudi Arabia holds 16% of the world's proven oil reserves, the second largest after Venezuela. In 2016 it was the world's largest exporter of crude oil and refined products; its crude production ranked second after Russia, and its combined crude and product output second after the United States. The economy is heavily dependent on oil exports, which accounted for 75% of total export revenue in 2016. The EIA estimated Saudi crude import and export revenue at USD 301 billion in 2014, USD 159 billion in 2015 and USD 133 billion in 2016; the fall in prices sharply reduced fiscal revenue, which recovered year on year in 2017 as prices rose.
Saudi Aramco is the main operator of the country's oil and gas resources, with crude output second only to Rosneft. The Ministry of Petroleum and Mineral Resources regulates the industry and Saudi Aramco. In 2016 the Kingdom announced Vision 2030, a comprehensive programme of political, economic, cultural and social reform; on the economic side it aims to reduce dependence on crude exports and diversify the economy, with the planned Saudi Aramco IPO (originally scheduled for the second half of 2018) helping to finance the transition.
Saudi Arabia lies between the world's two busiest crude shipping chokepoints, the Strait of Hormuz and the Bab el-Mandeb. Hormuz, between Oman and Iran, links the Persian Gulf with the Arabian Sea and is the world's most important oil hub; throughput reached a record 18.5 million b/d in 2016, more than 30% of the global total. Bab el-Mandeb is the passage between Africa and the Middle East and the strategic link between the Mediterranean and the Indian Ocean, with about 4.8 million b/d in 2016.
According to the 2017 BP Statistical Review of World Energy, Saudi Arabia was the world's tenth largest primary energy consumer in 2016, using 265.5 million tonnes of oil equivalent, of which oil products accounted for 63% and natural gas 37%. High oil prices before 2014, together with generous energy subsidies, drove consumption growth of 7% a year between 2006 and 2016. Although prices fell after 2014, subsidies kept consumption growing. Saudi Arabia is the largest oil product consumer in the Middle East, particularly for transport fuels and direct-burn power generation, where summer peak demand for crude-fired generation can reach 900,000 b/d. The Kingdom is gradually diversifying power supply through gas, nuclear and renewables, which may curb direct-burn demand.
2. The oil sector
Reserves. According to Oil & Gas Journal, as of January 2017 Saudi proven oil reserves were about 266 billion barrels, 16% of the world total. The country has some 130 oil and gas fields, and more than half of its reserves are concentrated in nine fields in the northeast. It has the world's largest onshore field, Ghawar, with remaining reserves of about 75 billion barrels, and the largest offshore field, Safaniyah, with about 35 billion barrels. Saudi Arabia also holds half of the roughly 5 billion barrels in the Partitioned Neutral Zone, an area established with Kuwait in 1922 to settle a border dispute, whose resources the two countries share equally.
Production. Average output was 9.66, 10.24, 10.42 and 9.97 million b/d in 2014, 2015, 2016 and 2017 respectively. In 2015 and 2016 Saudi Arabia pursued a policy of raising output to defend market share against growing non-OPEC supply, particularly from North America; in 2017 it led the production-cut agreement, targeting 10.06 million b/d, and crude output fell sharply year on year while non-crude liquids stayed high.
By the end of 2016 Saudi Arabia held the world's highest crude production capacity, about 12 million b/d, and upstream investment is currently focused on sustaining existing capacity. Longer term the emphasis is on developing light crude capacity, replacing decline at mature fields with new fields, and expanding output from existing fields. Offshore expansion continues, notably at Zuluf, Marjan and Berri, with combined capacity of about 1.5 million b/d.
Saudi crude grades range from extra light to light, medium and heavy. More than 70% is on the lighter side and comes mainly from onshore fields, while the medium and heavy grades come mainly from offshore fields; sulphur content is relatively high overall. Production is still largely primary recovery, and enhanced oil recovery has not yet been deployed at scale.
Exports. In 2016 Saudi crude exports were about 7.1 million b/d, of which some 70% went to Asia. Japan, at 1.2 million b/d, China at 1.0 million b/d, South Korea at 0.9 million b/d and India at 0.8 million b/d were the main Asian buyers, and exports to the United States were 1.1 million b/d.
Port loading capacity is about 13 million b/d. Ras Tanura on the Persian Gulf is the world's largest offshore oil port, with total export capacity of about 6.5 million b/d through two crude terminals: Ras Tanura, at 3.4 million b/d with berths up to 500,000 dwt, and Ras al-Ju'aymah, at 3.12 million b/d with berths up to 700,000 dwt. The remainder is exported mainly through the Yanbu King Fahd terminal on the Red Sea, with 6.6 million b/d.
3. The natural gas sector
According to OGJ, as of January 2017 Saudi gas reserves, including the Neutral Zone, were 303 trillion cubic feet, the fourth largest in the world after Russia, Iran and Qatar. Most Saudi gas fields are adjacent to or associated with oil fields, so gas output rises with crude production.
Production and consumption. Saudi Arabia neither imports nor exports gas; output goes entirely to domestic demand. In 2016 production and consumption were both 3.9 trillion cubic feet. More than 60% came from four fields, Ghawar, Safaniya, Berri and Zuluf, with associated gas from Ghawar alone accounting for over 48% of total output. As refining capacity expands and gas-fired power generation grows, gas demand is expected to rise.
Exploration and development. The phase of concentrated development of the large onshore fields has come to an end, and the focus has shifted to gas, refining and petrochemicals. Saudi Arabia plans to double gas output within a decade. Associated gas has limited growth potential, so non-associated gas is the priority. In 2011 Saudi Aramco published an upstream unconventional gas programme covering three areas: the northwest, the Ghawar area in the south and the Rub al-Khali desert in the south; offshore fields in the Persian Gulf are also a target.
The main fields include Karan, on stream in 2012 as the Kingdom's first offshore non-associated gas project, with 1.8 Bcf/d delivered through a 68-mile subsea pipeline to the Khursaniyah gas plant; Hasbah, on stream in 2016 as part of the Wasit gas programme, with 1.3 Bcf/d and an expansion planned to add a further 2 Bcf/d; and Arabiyah, also part of Wasit and on stream in 2016, with 1.2 Bcf/d.
Pipelines. The Master Gas System, built in 1975, is the national gas backbone, combining gathering, processing, transmission and distribution. It was originally built to collect associated gas from Ghawar, which had previously been flared, and carries it to processing plants where natural gas liquids are separated and sent to Ju'aymah, Yanbu and Shaybah for further processing. The system is still being expanded, including a new 250-mile gas line along the Petroline corridor.
Republished from the Zhihu account “Dr. Oil Talk”; copyright remains with the original author.
