Saudi Arabia - Oil

Saudi Arabia’s revenues dropped due to historically low oil prices and reduced economic activity amid lockdowns and curfews implemented to curb the spread of the coronavirus. Its oil revenues fell 24 percent in the first quarter of 2020 to 128.771 billion riyals, while non-oil revenues fell 17 percent to 63.3 billion riyals. The Kingdom slipped into a $9 billion budget deficit in the first quarter, and its central bank foreign exchange reserves fell in March at their fastest rate in at least 20 years and to their lowest since 2011. To mitigate the impact of the COVID-19 pandemic on its public finances and economy, Saudi Arabia announced on 11 May 2020 austerity measures, including reducing expenditure by 100 billion riyals ($26.6 billion), tripling VAT and suspending cost of living allowance. Saudi Aramco may float on the stock market at a valuation below the $2 trillion the Kingdom initially targeted, but it will soon rise above that level on the open market, Prince Abdulaziz bin Salman, the Kingdom’s Energy Minister, predicted on 06 Decembwer 2019. The state oil company is expected to start trading for the first time on 04 Decembwer 2019 at a valuation of $1.7 trillion, making it the most valuable company in the world. This Initial Public Offering (IPO) supports Crown Prince Mohammed bin Salman’s (MBS) Vision 2030 to modernize the country and its economy, a process that in turn is underpinned by a social and cultural revolution of pivotal consequence to the global battle against extremist interpretations of Islam. The listing established a mechanism to allow follow-on offerings and/or secondary listings of the company in the future. Listing also advances a culture of transparency throughout the Kingdom (one of the Crown Prince’s original goals), gives depth to the Saudi Arabian stock market, and attracts global equity interest.

Saudi Aramco has been one of the most successful FDI (foreign direct investment) experiments in modern history. It was founded by US oil companies in the 1930s and was managed jointly and consensually with the Saudi government for decades, eventually being acquired from those partners at full market value by the Saudi Arabian government in the 1980s

The United States was the world's top producer of petroleum and natural gas hydrocarbons in 2013, surpassing Russia and Saudi Arabia. For the United States and Russia, total petroleum and natural gas hydrocarbon production, in energy content terms, was almost evenly split between petroleum and natural gas. Saudi Arabia's production, on the other hand, heavily favors petroleum. Since 2008, US petroleum production has increased 7 quadrillion Btu, with dramatic growth in Texas and North Dakota. Natural gas production has increased by 3 quadrillion Btu over the same period, with much of this growth coming from the eastern United States.

Comparisons of petroleum and natural gas production across countries are not always easy. Differences in energy content of crude oil, condensates, and natural gas produced throughout these countries make accurate conversions difficult. Total petroleum and natural gas hydrocarbon production estimates for the United States and Russia for 2011 and 2012 were roughly equivalent—within 1 quadrillion Btu of one another. In 2013, however, the production estimates widen out, with the United States outproducing Russia by 5 quadrillion Btu.

Saudi oil reserves are the largest in the world, and Saudi Arabia is the world's leading oil producer and exporter. Oil accounts for more than 90% of the country's exports and nearly 75% of government revenues. Proven reserves are estimated to be 263 billion barrels, about one-quarter of world oil reserves.

More than 95% of all Saudi oil is produced on behalf of the Saudi Government by the parastatal giant Saudi ARAMCO. In the 20 years since its amicable nationalization, Aramco has developed into one of Saudi Arabia's most efficient and modern institutions, developing several generations of world-class leaders. It is noteworthy that, when the King wants something done quickly and right, like completion of his signature project of the King Abdullah University of Science and Technology (KAUST), he turns to Aramco. It is also noteworthy that Aramco continues to enjoy very close relations with the USG and with American companies, based in part on the fact that many top officials studied in the US.

In June 1993, Saudi ARAMCO absorbed the state marketing and refining company (SAMAREC), becoming the world's largest fully integrated oil company. Most Saudi oil exports move by tanker from Gulf terminals at Ras Tanura and Ju'aymah. The remaining oil exports are transported via the east-west pipeline across the kingdom to the Red Sea port of Yanbu.

Due to a sharp rise in petroleum revenues in 1974 following the 1973 Arab-Israeli war, Saudi Arabia became one of the fastest-growing economies in the world. It enjoyed a substantial surplus in its overall trade with other countries; imports increased rapidly; and ample government revenues were available for development, defense, and aid to other Arab and Islamic countries.

But higher oil prices led to development of more oil fields around the world and reduced global consumption. The result, beginning in the mid-1980s, was a worldwide oil glut, which introduced an element of planning uncertainty for the first time in a decade. Saudi oil production, which had increased to almost 10 million barrels per day (b/d) during 1980-81, dropped to about 2 million b/d in 1985. Budgetary deficits developed, and the government drew down its foreign assets. Responding to financial pressures, Saudi Arabia gave up its role as the "swing producer" within OPEC in the summer of 1985 and accepted a production quota. Since then, Saudi oil policy has been guided by a desire to maintain market and quota shares and to support stability in the international oil market.

Saudi Arabia was a key player in coordinating the successful 1999 campaign of OPEC and other oil-producing countries to raise the price of oil to its highest level since the Gulf War by managing production and supply of petroleum. That same year saw establishment of the Supreme Economic Council to formulate and better coordinate Saudi economic development policies in order to accelerate institutional and industrial reform.

In response to increasing international demand for oil, Saudi ARAMCO engaged in an expansion of its oil production capacity and planned to raise its capacity from 11 million barrels/day (mb/d) to 12 mb/d by 2009. Saudi ARAMCO is also increasing production of associated and non-associated natural gas to feed the expanding petrochemical sector. Notably, Saudi Arabia has awarded contracts to foreign companies to conduct gas exploration in selected regions of the country--the first such foreign participation in the petroleum sector upstream since the nationalization of ARAMCO began in the 1970s.

China recently surpassed the US as the largest importer of Saudi oil. Saudi Arabia's investments in China have increased significantly over the last few years, including a $3.5 billion refinery in Fujian and a $2.86 billion joint-venture petrochemical complex in Tianjin. Additionaly, President Hu Jintao commemorated the opening of a cement plant when he visited Saudi Arabia in February 2009. China is now the SAG's number two trade partner after the US. Saudi-Chinese bilateral trade was estimated at $40 billion in 2008, while Saudi-U.S. trade was estimated at $67 billion during the same time period.

Saudi Arabia is committed to maintaining sufficient reserve capacity to stabilize prices. Aramco is completing its $120 billion worth of projects to increase production capacity towards 12.5 million barrels a day, an investment that Saudi officials have noted the Kingdom made at the peak of prices for engineering and construction services. The Kingdom is also exploring other projects to bring non-conventional oil on line to meet the evolving needs of the international market and expand reserves, such as Saudi Arabian Chevron's project in the Partioned Neutral Zone with Kuwait to steam flood heavy oil in limestone cavities. Thanks to this project, which Al-Naimi strongly supports, Chevron is the only International Oil Company producing oil upstream in the Kingdom.

By January 2015 Iranian hard-liners lashed out at Saudi Arabia, accusing it of conspiring with the West to keep oil prices low in a bid to harm the Islamic Republic’s economy and pressure the country to conclude a nuclear deal with West. In retaliation, Iranian hawks urged restive Shia Muslims in eastern Saudi Arabia to rebel against the ruling House of Saud. Iranian hawks’ accusations had mounted over the Saudi’s refusal to cut production – in an effort to maintain its share of the global oil market – fueling the precipitous slide in prices. Crude oil prices had fallen by more than half since June 2014, from $115 a barrel to below $50.

"We will not forget which countries schemed to lower the price of oil," the speaker of Iran’s parliament, Ali Larijani warned darkly during a visit in December 2014 to Damascus, the Syrian capital.

Saudi Arabia approved on 01 May 2015 the restructuring of the kingdom’s oil giant Aramco, to see it separated from the oil ministry. The country’s Supreme Economic Council approved the restructure plan that had been proposed by Deputy Crown Prince Mohammad Bin Salman. Amin H. Nasser on was promoted to acting president and CEO of Aramco. He was previously Aramco’s senior vice president for upstream operations.