PETROLEUM AND MINERALS
DEVELOPING THE KINGDOM'S
To optimize earnings from its vast hydrocarbon reserves, Saudi Arabia has expanded and modernized its oil and gas industry and established a network of modern refineries.
As the world’s largest producer and exporter of oil, and holding one-quarter of proven oil reserves worldwide, Saudi Arabia plays a unique role in the global energy industry. As such, the Kingdom’s policy regarding production and export of oil, natural gas and petroleum products has a major impact on the energy market, as well as the global economy. Cognizant of its position and the responsibility it entails, Saudi Arabia has worked tirelessly to ensure stability of supplies and prices.
The story of Saudi Arabian oil goes back to 1933 when King Abdulaziz bin Abdulrahman Al-Saud granted Standard Oil of California (SOCAL) the right to prospect for oil in the newly established Kingdom. After initial failure, SOCAL in 1938 discovered oil in commercially exploitable quantities in the Dammam Dome near the Arabian Gulf. Although limited exports began the following year, the start of World War II delayed development of the newly discovered fields until after the conclusion of the war. Beginning in the late 1940s, the company, renamed Arabian American Oil Company (Aramco) increased production exponentially, soon making Saudi Arabia one of the leading producers, and by the 1970s, the top producer and exporter of oil in the world.
Saudi Aramco, the national oil company, has nine modern refineries that meet the country's demand, and exports millions of barrels per day of petroleum products to countries around the globe.
The Saudi oil industry entered a new era in 1980 when the government assumed full ownership of Aramco, renaming it Saudi Aramco. The company began exploring in areas that had previously been untouched, particularly outside the traditional oil-producing regions in the Eastern Province and the Gulf. The discovery of new fields containing vast deposits of high-grade crude oil and natural gas in Riyadh Province and other parts of the Kingdom has raised Saudi Arabia’s proven oil reserves to more than 260 billion barrels, ensuring the country’s position as the premier supplier of crude oil and petroleum products to the world in the new century.
To optimize earnings from its hydrocarbon reserves, Saudi Arabia began building in the 1960s a string of refineries, which produce gasoline, fuel and diesel oil, liquefied petroleum gas (LPG), jet fuel, kerosene and other petroleum products for the domestic market and for export. The Kingdom now has nine refining complexes with an output of eight million barrels per day (bpd), most of which is exported to customers around the globe.
Once flared at the wellhead, natural gas produced in association with crude oil is now collected by gas-oil separation plants, such as this one in the Arabian Gulf, and used as a clean source of energy by industry and consumers.
Additionally, Saudi Arabia has entered downstream operations in other parts of the world. The first step was the formation of Star Enterprise with Texaco Inc. in 1989. The company — which owned three refineries, numerous distribution centers and thousands of gasoline stations in 26 states — was then amalgamated into a new joint venture with Shell Oil Company in 1997 to form one of the largest refining and marketing entities in the United States. Saudi Aramco also purchased stakes in refining and marketing ventures in South Korea, the Philippines, Greece, India and China, and in doing so has become a major player in the marketing and distribution of petroleum products in three continents.
Saudi Arabia also possesses vast reserves of natural gas, including dissolved, associated and non-associated. Until the 1970s, most of the natural gas produced in the Kingdom was in association with crude oil production and was flared at the wellhead. Implementation of the Master Gas System allowed Saudi Aramco to collect this precious resource and pipe it to major industrial and urban centers for use as an inexpensive and environmentally friendly source of energy.
Exploratory wells have uncovered large deposits of oil and gas in areas that had been untouched until the 1990s.
While establishing the system, Saudi Aramco also took steps to develop its reserves of non-associated gas by launching major exploration efforts, which resulted in the discovery of major supplies in the central and other parts of the country.
In addition to using natural gas as an energy source for urban and industrial use, Saudi Aramco also supplies vast quantities of gas to major industrial facilities for use as feedstock to produce petrochemicals, fertilizers, steel and other products that in turn feed a thriving industrial sector.
To develop the new Shaybah oilfield in the middle of the Rub' Al-Khali, the world's largest desert, new roads had to be constructed.
Saudi Arabia possesses valuable resources other than oil and gas. As early as 3,000 years ago, gold, silver and copper were being extracted from the famous Mahd Al-Dhahab mine some 180 miles northeast of Jeddah. The introduction of modern mining and extraction methods has once again made the mine a major producer of precious metals.
Exploration projects over the past two decades have unearthed extensive deposits of precious and industrial minerals throughout the country. These include not only gold and silver, but also copper, tin, tungsten, nickel, chrome, zinc, lead, phosphates, iron ore, bauxite, potassium ore and even table salt. The government has taken steps in recent years to encourage greater private sector involvement in the development of the mining sector. These include incentives for investment by both foreign and domestic companies, and support services intended to facilitate development of minerals.
The establishment of new facilities has allowed Saudi Arabia to become a major producer of associated and non-associated gas.
In the past year the Kingdom has unveiled decisions designed to further promote expansion of the energy sector and to encourage greater investments, especially by foreign companies. In January 2000, the Kingdom established the Supreme Council for Petroleum and Minerals (SCPM) to oversee the maximization of natural resources. One of the council’s first actions was to establish a ministerial committee to review proposals from 12 international oil companies involving investment of some 100 billion dollars in Saudi Arabia. A new law was passed in April 2000 that gives foreign investors the right to the same privileges, incentives and guarantees offered to Saudi Arabian investors, and a decision by the SCPM was announced in May 2000 to allow foreign investment in the gas sector and downstream industries.
The new Shaybah oilfield produces high-grade crude.
In November 2000 Saudi Arabia hosted the Seventh International Energy Forum in Riyadh to promote better understanding between oil producers and consumers. Addressing the forum, which was attended by senior officials from 47 countries, Deputy Prime Minister and Commander of the National Guard Crown Prince Abdullah bin Abdulaziz put forward a momentous proposal. Reiterating the Kingdom’s responsibility to work in cooperation with all oil producers and consumers to promote stability in the international oil market and serve the interests of both, he suggested the establishment of a secretariat as a channel for permanent dialogue. He also offered Riyadh as the headquarters of the secretariat.
The control room in Abqaiq for the Master Gas System.
Saudi Arabia’s track record combined with recent moves demonstrate its commitment to the continued expansion of the energy and minerals industries as a means of furthering the overall development of the Kingdom. They also manifest the Kingdom’s determination to work with international oil companies as well as oil producing and consuming nations to ensure the stability of the global oil market in a manner that benefits both producers and consumers.