New energy projects set to ensure sustainability in Saudi Arabia


Saudi Arabia’s energy sector remains the backbone of the economy. While the country’s reliance on the commodity exposes it to external shocks, domestic energy policy and influence within the Organisation of the Petroleum Exporting Countries (OPEC) can work to dramatically shape international oil prices, which in turn affects many parts of the world.

Internally, adjustments in the composition and control of the state’s hydrocarbon assets are seen as crucial to achieving long-term economic transformation. A few months after launching the biggest initial public offering (IPO) in history, Saudi Arabia announced that it was pushing forwards with the development of the Jafurah non-associated gas field, which promises to fuel power generation and industry in line with the Kingdom’s strategy to diversify the economy away from oil.

New Developments

The relative significance of oil in the Kingdom’s economy is closely tied to oil prices, which reflect fluctuations in global supply and demand. The oil sector accounted for 77.3% of export revenue and 27.4% of GDP in 2019. However, oil export revenue fell by 14% compared to the previous year, and the contribution of crude oil and natural gas, and petroleum refining to GDP at current prices contracted by 3.7% and 3.2%, respectively. According to Jadwa Investment, government oil revenue was SR602bn ($160.5bn) in 2019, down 2% from the previous year. In the 2020 budget, oil was initially expected to account for approximately 63% of government revenue, or SR513bn ($136.8bn). However the statement was released in December 2019, before the steep decline in oil prices that began in mid-February 2020 and the worldwide outbreak of Covid-19, which is on course to significantly slow global growth, and energy demand with it, in 2020.

Structure & Oversight

Saudi Arabia is a monarchy with King Salman bin Abdulaziz Al Saud ruling by decree and advised by the Council of Ministers. King Salman’s father, King Abdulaziz, the country’s founder, ruled Saudi Arabia when the Standard Oil Company of California (SoCal), today known as Chevron, signed an oil exploration concession agreement in 1933. Five years later the first oil was discovered, but the start of the Second World War delayed development. In 1949 SoCal was joined by other US companies, and the Arabian American Oil Company, or Aramco, was formed. By 1980 Aramco was fully owned by the Saudi Arabian government, and by 1988 it became known as Saudi Aramco, the national oil company responsible for all upstream and downstream operations.

In 1988 Ali Al Naimi became the first Saudi national to serve as the oil company’s chief executive. Saudi Arabia was one of the five founding members of OPEC in 1960, and the country’s interests on the international stage have typically been represented by energy ministers, with Ahmed Zaki Yamani serving from 1962 to 1986, and Al Naimi holding the post from 1995 to 2016. Brent crude dipped to $26.01 in January 2016 and two months later, Khalid Al Falih, who had served as Saudi Aramco chief executive and chairman, was appointed head of the new Ministry of Energy, Industry and Mineral Resources. By that time, Crown Prince Mohammed bin Salman bin Abdulaziz Al Saud had revealed plans for a partial IPO of Saudi Aramco as a key component of the national transformation strategy. Al Falih was to hold the ministerial post for three years until September 2019, when the ministry was sub-divided again, with the Crown Prince’s half-brother, Prince Abdulaziz bin Salman Al Saud, an industry veteran, assuming the role of minister of energy. Al Naimi, Al Falih and Prince Abdulaziz each adopted different strategies in response to oil price volatility through agreements with OPEC and other countries as they attempted to balance the market and maintain higher prices while protecting market share (see analysis). In March 2020 Saudi Aramco announced it had been directed by the Ministry of Energy to boost its maximum sustainable capacity from 12m barrels per day (bpd) to 13m bpd.

Aramco IPO

Crown Prince Mohammed bin Salman initially raised the prospect of an IPO for Saudi Aramco in January 2016, suggesting that the sale of 5% of the state-owned energy company would generate $100bn, effectively valuing Saudi Aramco at $2trn. On December 11, 2019 approximately 1.5% of the company’s shares were sold, generating some $26bn and valuing the company at $1.7trn. Shares were sold for SR32 ($8.51) when the offering was first made on the Saudi Stock Exchange (Tadawul). The $25.6bn proceeds were due to be transferred to the Public Investment Fund (PIF).

In March 2019 Saudi Aramco – which has business units across the value chain, from upstream exploration to downstream petrochemicals – signed an agreement to acquire the PIF’s 70% stake in SABIC, the state petrochemicals manufacturing company, for approximately $69bn.

In late February 2020 Saudi Aramco announced that it had received full clearance from the European Commission for its acquisition of SABIC. This represented the last jurisdiction in which antitrust filings were required for the deal to be approved. The Saudi Aramco IPO prospectus detailed the schedule of loan repayments that would be made over a number of years to complete the sale. The deal will ultimately provide the sovereign wealth fund with greater liquidity, while providing the state-owned oil company with an increased downstream portfolio.


In March 2020 Saudi Aramco revealed that its first annual results as a listed company. The 20% fall in net profit, from $111.1bn in 2018 to $88.2bn in 2019, was attributed to lower global oil prices, declining refining and chemical margins, and a $1.6bn impairment associated with its joint venture with US-based Dow Chemical Company, the Sadara Chemical Company. Total dividend payments in 2019 equated to $73.2bn.

The company’s total hydrocarbons reserves under the concession agreement rose from 256.9bn barrels of oil equivalent (boe) in 2018 to 258.6bn boe in 2019, while its total hydrocarbons production averaged 13.2m barrels of oil equivalent per day (boepd) in 2019. According to the annual statement, Saudi Aramco had returned to normal production levels within 11 days of missile strikes on two of its two key production facilities in September 2019.

Royalties & Taxes

Prior to the IPO of the oil company, a number of changes were made to the way proceeds from Saudi Aramco’s activities would be paid to the government. Royalty rates were introduced based on the prevailing price for a barrel of Brent crude oil. For times when the price is below $70, royalties will be reduced from 20% to 15%; when the price is between $70 and $100 the royalty rate will increase from 40% to 45%; and over $100 the royalty rate would rise from 50% to 80%.

There were also changes to the tax regime for downstream businesses. On September 17, 2019, Royal Decree No. M13 and Council of Ministers Resolution No. 54 were issued, followed by Ministerial Resolution No. 559 by the Ministry of Finance on October 9, 2019. The resolutions stipulated that for a five-year period starting from January 1, 2020, domestic oil and hydrocarbons production would be subject to the general corporate tax rate of 20%. The legal directions included a proviso that the relevant taxpayer would be required to split its downstream activities from its oil and hydrocarbons production activities by December 31, 2024, and to create separate legal entities for these activities. Failure to comply with the new proviso would result in the taxpayer being liable to repay the government on a retrospective basis that subject to the 50-80% multi-tiered tax regime, which preceded the new laws.

Jadwa Investment used data from 2018 to assess the difference that the new tax and royalties structure might have on government revenue. In that year Brent crude averaged $71 per barrel and government revenue stood at SR611bn ($162.4bn), made up of income tax (29%), royalties (35%) and dividends (36%). Jadwa found that under the new system, income tax would still contribute 29%, with royalties falling to 26% and dividends rising to 45%.


The prospectus for Saudi Aramco’s IPO revealed the impact on its facilities from attacks by “unmanned aerial vehicles” in 2019. In May 2019 the East-West pipeline that carries oil to Red Sea ports and processing facilities was hit, and in August 2019 a second attack caused fires and damage to the Shaybah natural gas liquids (NGL) and cogeneration facility, with the company estimating total damage of $28m. On September 14, 2019 drones and missiles were used to strike the Khurais oil field in the Eastern Province and the Abqaiq facility, which processes about half of Saudi Aramco’s crude oil. The September attacks saw a temporary suspension of processing at Abqaiq and Khurais, which in turn led to a 54% reduction in the production of crude oil and associated gas. The company replaced the immediate loss of Arabian Light and Arabian Extra Light crude oil by diverting inventories held outside the Kingdom, and swapping grades of delivery to Arabian Medium and Arabian Heavy. Oil tankers owned by the country’s national shipping carrier, Bahri, in which Saudi Aramco has a 20% share, were also attacked offshore from Yemen in 2018 and in the Strait of Hormuz in May 2019.


Saudi Aramco’s 2019 annual report indicated that at the end of the year the Kingdom’s hydrocarbons reserves amounted to approximately 336.7bn boe. Non-gas hydrocarbons products included 261.5bn barrels of crude oil and condensate, and 36bn barrels of NGL. The Kingdom’s proven reserves of natural gas was estimated at 237.4trn standard cu feet (scf) and its reserves of non-associated gas at 143.2trn scf. The estimated life expectancy of Saudi Aramco’s oilfields is 52 years.

Total average hydrocarbons production for the oil company fell from 13.6m boepd in 2018 to 13.2m boepd in 2019, representing a 2.9% decline. This included 9.9bn bpd of crude oil (including blended condensate), 202,000 bpd of unblended condensate, 9m scf per day (scfd) of natural gas and 960,000 scfd of ethane. Saudi Aramco is the exclusive supplier of natural gas in the Kingdom, which according to the IPO prospectus had the seventh-highest demand for gas of any country in 2018.

In February 2020 Saudi Aramco announced it received approval to move ahead with the development of the Jafurah non-associated gas field, which is expected to come on-stream in early 2024. By 2036 the company expects the new field to produce 2.2bn scfd of sales gas, plus 425m scfd of ethane, equivalent to 40% of production levels in 2019.

In a televised speech also in February 2020 Prince Abdulaziz announced that the country could soon become a natural gas exporter. From 2016 to 2018 Saudi Aramco produced approximately one in every eight barrels of crude oil pumped globally. Saudi Arabia’s portfolio included 498 reservoirs distributed across 136 fields, both offshore and onshore. These include the Ghawar field, which at 280 km by 30 km, is the world’s largest onshore conventional oilfield; as well as the Safaniya field, which is the largest conventional offshore field in the world. Ghawar has liquid reserves of 48.3bn barrels and combined reserves of 58.3bn boe. Safaniya’s has liquids reserves of 33.7bn barrels, with combined reserves of 34bn boe. Saudi Aramco’s oil is not only plentiful, but comparatively cheap to lift: in 2018 and 2019 its average upstream lifting cost was SR10.60 ($2.82) per barrel. Capital expenditure in 2019 was equivalent to SR17.50 ($4.65) per barrel.


The crude oil, condensates, NGL and natural gas produced in the Kingdom are transported through a network of pipelines that can connect to any of the country’s refineries or export terminals. The 1200 km East-West pipeline from the oilfields of the Eastern Province to Yanbu on the Red Sea carried 2.1m bpd of crude oil in 2019, according to Saudi Aramco’s “2019 Annual Report”. The oil major operates four crude terminals, which had a storage capacity of 66.4m barrels as of the beginning of 2019. Additionally, it has strategic international delivery points in Rotterdam, the Netherlands; in Fujairah, the UAE; in Okinawa, Japan; and in Ain Sukhna, Egypt.

At the start of 2019 the Kingdom’s gas-processing network, which feeds the master gas system (MGS) had a capacity of 15.5m scfd, up from 11.5bn scfd in 2010. Saudi Aramco has made several upgrades to the MGS in recent years, including the commissioning of the Wasit Gas Plant in 2016, which has a capacity of 2.5bn scfd. The Fadhili Gas Plant is expected to come on-stream before the end of 2020 and will have a capacity of 2bn scfd from the Hasbah field and a further 500m scfd from the Khursaniyah field. In all, Saudi Aramco operates eight gas-processing plants: two straddle plants at Hawiyah and Shaybah, and four NGL fractionation plants at Juaymah, Yanbu, Ras Tanura and Wasit. The company expects to increase its processing capacity to 21.6bn scfd by 2023 following the completion of expansion projects.


Saudi Aramco’s downstream activity includes petrochemicals manufacturing and refining within the Kingdom and abroad. A number of its subsidiaries are operated as joint ventures. In 2019 the company’s downstream business consumed 38% of its upstream segment’s crude production. Its net refining capacity grew from 2.2m bpd in 2010 to 3.6m bpd at year-end 2019, by which time it was the world’s fourth-largest refiner. At the start of 2020 Saudi Aramco had four wholly owned local refineries: Ras Tanura, Yanbu, Riyadh and Saudi Aramco Jubail Refinery (SASREF). SASREF was initially operated as a joint venture with Shell until September 2019, when it acquired Shell’s 50% stake.

The Ras Tanura refinery has an installed capacity of 550,000 bpd and a throughput of 528,000 bpd; Yanbu has an installed capacity of 250,000 bpd and a throughput of 251,000 bpd; Riyadh has a capacity of 130,000 bpd and a throughput of 139,000 bpd; and SASREF has a capacity of 305,000 bpd and a throughput of 307,000 bpd. In addition, there are four other downstream facilities each with a capacity of 400,000 bpd capacity that operate as joint ventures. Saudi Aramco owns 50% of the Saudi Aramco Mobil Refinery Company (SAMREF) refinery with ExxonMobil. It has a 62.5% stake in the Saudi Aramco Total Refining and Petrochemical Company (SATORP), which it operates in partnership with France’s Total, and another 62.5% stake in a partnership with China’s Sinopec at the Yanbu Aramco Sinopec Refining Company (YASREF). Additionally, it has a 37.5% share in Petro Rabigh with Japan’s Sumitomo Chemical. SATORP, YASREF and Petro Rabigh are all combined refinery and petrochemicals complexes. SATORP and YASREF are expected to increase their refining capacities to 440,000 bpd and 430,000 bpd, respectively, by the end of 2020. A $1.4bn, 400,000-bpd refinery, petrochemicals complex and terminal project at Jazan in the south of the country is expected to commence operations in the second half of 2020 and will be fully owned by Saudi Aramco.

There is sentiment throughout the hydrocarbons industry that the Kingdom has the capacity to develop its in-country downstream activities even further. “Saudi Arabia must capitalise on its oil and gas advantages,” Jamal Malaikah, president and CEO of NATPET, a local petrochemicals firm, told OBG. “We need to take the necessary steps to become a global leader in the downstream segment.”

Overseas Refining

At the start of 2019 the oil major had a share in four overseas refineries with a combined capacity of just over 2m bpd and throughput of 1.9m bpd. By far the most significant of these assets for Saudi Arabia is the Port Arthur refinery in the US, which is controlled by Saudi Aramco’s fully owned subsidiary Motiva. It has a capacity of 630,000 bpd and throughput of 654,000 bpd. Saudi Aramco has a 61.6% interest in a refinery of a similar size in South Korea: the 669,000-bpd S-Oil facility. Additionally, Saudi Aramco has a 25% share in the 280,000-bpd refinery and petrochemicals complex in Quanzhou, China, which is jointly owned by Sinopec and ExxonMobil, and in Japan Saudi Aramco has a 15.1% stake in the 445,000-bpd Showa Shell refinery.

Commercial operations are scheduled to commence in the second half of 2020 at the 300,000-bpd Pengerang Refining and Petrochemical (PRefChem) complex in Malaysia, as part of a joint venture with Malaysia’s state-run oil company Petronas. In late 2019 Saudi Aramco completed its $1.2bn acquisition of a 17% share of South Korean oil refining company Hyundai Oilbank, which has a refining capacity of 650,000 bpd. The company anticipates its net refining capacity to increase to 4m bpd and gross refining capacity to increase to 6.8m among both its local and international refineries by the end of 2020.

Import & Export

According to the General Authority for Statistics, oil and related hydrocarbons products accounted for 77.5% of all merchandise exports in December 2019, at a value of SR65.9bn ($17.5bn). Combined sales of oil in 2019 amounted to SR759bn ($201.8bn), with monthly exports accounting for an average of 77.3% of all exports. The value of oil exports fell by 14% in 2019, while overall exports fell by 10.4%. In 2016, 2017 and 2018 customers in Asia bought approximately 69%, 71% and 71% of Saudi Arabia’s crude oil exports. Of the total of 7.3bn barrels of oil exported internationally, customers in Asia received 5.2bn barrels, followed by North America with 1bn, Europe with 864m and other regions accounting for the remaining 240m.

In its January 2020 “Quarterly Oil Market Update”, Jawda Investment reported that in 2019 Saudi Arabia was the leading exporter of crude oil to China, at an average of 1.7m bpd, and that China’s crude oil imports had grown 9% that year despite signs of slower economic growth. Also in 2019 crude oil exports to India declined by 2.1%, as economic growth in the subcontinent’s economy slowed.


In mid-March 2020 when Saudi Aramco reported its financial reports for 2019, the company revealed capital expenditure that year had made a slight decrease from $35.1bn in 2018 to $32.8bn in 2019. At the time of the announcement, some of the implications of the impact of Covid-19 on China’s economy were becoming clearer; and one week earlier a pact to support oil prices by curbing production, struck by OPEC and Russia, fell apart following talks in Vienna, sending oil prices tumbling before the situation was restored in April 2020 (see analysis). Amin Nasser, the CEO of Saudi Aramco, said in a statement in mid-March that the company expects capital spending to be between $25bn and $30bn for 2020 considering current market conditions and commodity price volatility, and that capital expenditure for 2021 and beyond is under review.


Since 2015 Saudi Aramco has been working to ensure the benefit of the billions of dollars it invests every year in the energy sector is shared as widely as possible across the economy through its In-Kingdom Total Value Add (IKTVA) programme. In 2019 the company spent 56% of its procurement in the Kingdom, and signed 66 memoranda of understanding worth $21bn with partner companies from around the world aimed at increasing opportunities for local business. One example was its 50:50 joint venture with Baker Hughes to establish a non-metallic business to innovate and develop non-metallic and composite materials for the oil and gas industry.

Renewable Energy

Saudi Arabia is also trying to optimise the benefits of oil exports by reducing the volumes of fossil fuels used to generate electricity and desalinate water in the Kingdom. The Middle East Solar Industry Association estimates the nation will invest $50bn in renewables by 2023, as it strives to increase from less than 1 GW of installed capacity at the start of 2020 to 27.3 GW in 2023 and 58.7 GW by 2030. This is set to include 40 GW of photovoltaics and 2.7 GW of concentrated solar power.


As of March 2020, Saudi Arabia’s energy sector faced the twin challenges of low prices for its products as well as the prospect of a severe shock in demand as economies around the world temporarily shuttered following the outbreak of Covid-19. However, the fundamentals underpinning the Kingdom’s energy sector remain strong. The size of its endowment, the comparatively low cost of recovery and the opportunities to tap new natural gas fields suggest that when the world’s industrial economies start up once again, the country’s energy sector will be a valuable source of competitively priced fuel.

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The Report: Saudi Arabia 2020

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