The drop in the price of oil since mid-2014 has had a significant impact on Saudi Arabia, which relies on oil for the vast majority of its fiscal revenue – 73% by some estimates – and for around 40% of its GDP. While global demand remains high, the increasing supply of oil on the international market, much of which is coming from Russia, US shale oil and Iran, has continued to push prices down.


The price of crude oil in early 2016 was about 70% below its 2014 peak, having declined steadily for a year and a half. In June 2014 Brent crude was selling for $115 per barrel, compared to $37.30 at the start of 2016. This dropped to a low of $28.50 per barrel in late January before recovering to around $52 as of October 2016. This has led to government budget cuts, and was one of the factors that led to a discussion of an initial public offering (IPO) of part of Saudi Aramco, the Kingdom’s state-owned energy giant and the world’s largest crude oil exporter (see analysis).

In this climate, the Kingdom is increasingly focusing on opportunities outside the traditional upstream oil and gas industries, as well as pursuing strategies including efficiency programmes to bring down its own energy usage.

Published in April 2016, the Kingdom’s long-term development strategy, Vision 2030, outlines the regulatory, budget and policy changes that will be implemented in order to reduce the Kingdom’s reliance on oil over the next 14 years (see Economy chapter). It also sets an initial target of generating 9.5 GW from renewable sources by 2023. Nev- ertheless, the energy sector continues to play the dominant role in the economy, and the Kingdom is moving forward with new oilfield discoveries and increased upstream and downstream capacity.


In the past Saudi Arabia has played the role of the world’s swing producer of crude oil, reducing or raising its oil exports depending on global demand. Given the current climate, however, it has proved less willing to take on this role and risk losing market share to other oil-producing economies. This has been exacerbated by the fact that no other oil-producing nation has appeared willing to cut its own production, while Iran has been increasing production to regain market share.

In recent years the Kingdom has continued to produce ever-greater quantities of oil, with the discovery of new fields and improved upstream and downstream facilities. According to a February 2016 report from Jadwa Investment, Saudi crude oil production averaged 10.2m barrels per day (bpd) in 2015, with this number expected to remain unchanged in 2016. In May 2016 production reached 10.27m bpd. The recent peak of 10.5m bpd was set in June 2015, according to the International Energy Agency (IEA).

Furthermore, the Joint Organisations Data Initiative (JODI) noted that Saudi Arabia exported a total of 7.49m bpd in December 2015 – a drop of 233,000 month-on-month but still the second-highest year-on-year (y-o-y) rise recorded in the past five years. Downstream, the Kingdom has also seen strong growth. According to the JODI, oil products refinery output across the country reached 2.77m bpd in December 2015, the peak since monitoring began in 2002.

Oil Demand

According to OPEC data, global oil demand in 2015 was 92.98m bpd. Demand growth hit a five-year high of 1.6m bpd in 2015, according to the February 2016 “Oil Market Report” published by the IEA. While the report suggested that global oil demand growth is forecast to ease considerably in 2016, to around 1.2m bpd, oil demand is set to rise strongly over the next 25 years.

Saudi Aramco predicts that global demographic growth and an upward trajectory in living standards across the developing world will see global oil demand increase by about a quarter over the next 25 years, with crude oil expected to make up roughly one-third of all energy consumption. However, Saudi Arabia faces stiff competition to retain its leading market share. Russia produced an average of 10.98m bpd in 2015, a post-Soviet era high, while Iran had already surpassed pre-sanctions levels to reach 2m bpd in May 2016, though this fell by 20% in the first three weeks of June.

US shale production is also poised to grow sharply, from around 4m bpd currently to 8m by the 2030s, according to the “BP Energy Outlook” report for 2016. In its “Medium-Term Oil Market Report 2016”, released in February 2016, the IEA said that while US shale oil output continues to fall, rebalancing of supply and demand in the oil market should begin in 2017.

However, it added, “While oil prices should start to rise gradually once the market begins rebalancing, the availability of resources that can be easily and quickly tapped will limit the scope of rallies – at least in the near term.” The report predicts that 4.1m bpd will be added to global supply between 2015 and 2021, well below the 11m bpd added between 2009 and 2015.

Saudi Aramco

The state-owned energy giant Saudi Aramco remains the most important company in the Kingdom and one of the largest in the world, and is tasked with exploiting the country’s vast hydrocarbons wealth. Recently, there have been some important changes taking places at the company, both in terms of its leadership structure and an eventual IPO of part of the company.

Saudi Aramco started out as California Arabian Standard Oil Company, a subsidiary of Standard Oil of California. In 1938 the firm made its first significant oil discovery in the Kingdom, at the Dammam No. 7 well in Dhahran, known as the Prosperity Well. In 1944 the company changed its name to Arabian American Oil (Aramco), and over time the Kingdom acquired a larger share of the organisation, buying 25% in 1973, raising that to 60% a year later and fully nationalising the company in 1980.

In 2015 Saudi Aramco’s production averaged 10.2m bpd of crude oil, up from 9.5m bpd in 2014, according to the company’s 2015 annual report, which was released in June 2016. At the same time, Saudi Aramco exported 2.6bn barrels of oil in 2015 – roughly one in every eight barrels of the world’s oil supply, according to its own estimates. Saudi Aramco also processed 11.6bn standard cu feet per day (scfd) of raw gas in 2015, an increase of 3% compared to the previous year.

New Objectives

Saudi Aramco had been under the leadership of Ali Al Naimi, a highly respected Saudi oil expert, since 1984. Al Naimi was also made minister of petroleum and mineral resources in 2010. However, in April 2015 King Salman bin Abdulaziz Al Saud decided to split Saudi Aramco from the ministry, replacing Al Naimi as chairman of the board of directors at Saudi Aramco with Khalid Al Falih, a former CEO of Saudi Aramco who now heads the Ministry of Energy, Industry and Mineral Resources, which replaced the Ministry of Petroleum and Mineral resources in June 2016. This reorganisation was seen by many as a move towards streamlining production and decision-making.

A Supreme Council of 10 members – five from Saudi Aramco’s board and five from outside the organisation – has been set up to oversee the company. The council includes the ministers of oil, finance and the economy, along with the governor of the central bank. However, it is too soon to say whether this reorganisation will have a big impact on the running of the company, or on the path that Saudi Aramco is likely to take in the near future.

In its latest annual review, the company said that it will continue to focus on innovation and new technologies in exploration and reservoir management, in order to both discover new fields and increase recovery in producing fields. In 2015 a total of five oil and gas fields were discovered: three were oil, namely, the offshore field of Faskar in the Arabian Gulf; Janab, located east of the Ghawar field; and Maqam, in the eastern part of the Rub Al Khali (Empty Quarter). The other two discoveries – Edmee, located west of Haradh and Murooj in the Rub Al Khali – were non-associated gas. This brought the total number of Saudi Aramco fields to 134. The company has also expressed a desire to play a leading role in diversification. Both goals point to its focus on utilising the abundant natural resources of the Kingdom, as well as helping to foster synergy with downstream operations.

Investing Upstream

Despite low oil prices, unlike some of its Gulf neighbours, Saudi Arabia has not reduced spending on exploration or expansion of upstream or downstream petrochemical operations. At a conference in January 2016, Al Falih told a panel that Saudi Aramco was continuing to invest in raising its oil and gas production capacity. “Our investments in capacity of oil and gas have not slowed down. We have been able to do a lot of cuts in spending by simply driving down costs,” he said.

Saudi Aramco announced in its 2015 report that its exploration programme had discovered eight new fields in 2014 – the highest number in the company’s history – five of which were gas fields (Abu Ali, Faras, Amjad, Badi and Faris), two oilfields (Sadawi and Naqa) and one mixed oil and gas field (Qadqad). These finds could significantly expand the supply of oil and gas available for domestic consumption and export, as and when the Kingdom taps into them. At present, eight oilfields in the north-east account for more than half of the country’s reserves. These include the giant Ghawar field, which has estimated reserves of 75bn barrels.

Efforts have recently been undertaken to increase production capacity. Saudi Aramco has been working on two major projects at its Shaybah oilfield, raising production capacity by 250,000 bpd and bringing total production capacity of the field to 1m bpd of Arabian Extra Light crude as of 2016.


According to Saudi Aramco, which controls all oil reserves in the Kingdom, crude oil and condensate reserves totalled 261.1bn barrels in 2015, slightly lower than OPEC’s estimate of 266.6bn barrels for 2014, the organisation’s most up-to-date figures at time of press. Proven natural gas reserves stood at 297.6trn scf, according to Saudi Aramco’s 2015 annual report. These figures represent an all-time high for the company.

According to BP’s “Statistical Review of World Energy 2016”, Saudi Arabia has 15.7% of proven global oil reserves, second only to Venezuela, with 17.7%, and ahead of Iran (9.3%), Iraq (8.4%), Kuwait (6%), Russia (6%) and the UAE (5.8%). Taken together, this points to a positive long-term future, even if low oil prices are leading to some short-term belt tightening and re-evaluation of priorities.


There is a growing realisation in the Kingdom that there is a wealth of untapped downstream potential in the petrochemicals industry. Speaking at the Gulf Petrochemicals and Chemicals Association Forum in Dubai in November 2015, Abdullatif Al Othman, former governor of the Saudi Arabian General Investment Authority, said the Kingdom had already identified downstream hydrocarbons as a key engine for growth, with $150bn in potential investments. “Our aim is to double jobs, double investments and double economic growth over the next 10 years,” he said. He added that the new downstream industry could add more than 200,000 direct industrial jobs over the next 10 years, and many more indirect jobs.

However, as industry activity scales up input costs are likely to rise. “The impact of increased feedstock costs in the petrochemicals sector will be substantial,” Patrick van Daele, president and CEO of Shell Companies in Saudi Arabia, told OBG. “It is a reality that is here to stay, so you have to find ways to absorb this and remain competitive.”

As outlined in the National Transformation Programme, approved in 2016 (see Economy chapter), the Kingdom has a refining capacity of 2.9m bpd, with a target of 3.3m bpd by 2020. In 2014 Saudi Aramco Total Refining and Petrochemical Company, a joint venture between Saudi Aramco and France’s Total, located in Jubail, went into operation. Currently capable of converting 400,000 bpd of Arabian Heavy crude into low-sulphur petrol, diesel and jet fuel, there are plans to increase its production to 440,000 bpd. “The refinery has been a great success. We are considering expanding by 10% because we are already producing more than the nominal capacity,” Philippe Sauquet, head of the refining and chemicals division at Total, told media in February 2016.

In January 2016 King Salman and China’s President Xi Jinping inaugurated Yanbu Aramco Sinopec Refining Company Refinery (YASREF) in Yanbu Province. YASREF, in which Saudi Aramco holds a 62.5% share and China’s Sinopec a 37.5% interest, has a refining capacity of 400,000 bpd and came on-stream in 2014, shipping its first 300,000 barrels of diesel in January 2015. Meanwhile, Saudi Aramco’s Jazan refinery is expected to be completed in 2018. It will have a capacity of 400,000 bpd of crude oil for the production of petrol, benzene, low-sulphur diesel and paraxylene.

Gas Production

Saudi Arabia does not currently export natural gas, but the resource forms a key part of the Kingdom’s energy usage. As such, Saudi Aramco is heavily focused on boosting capacity to meet the growing domestic electricity demands of residents and businesses.

“There may also be opportunities for other players in the market – particularly for companies like ours, with great strengths in gas,” Alexander Mante, the general manager for business relations and corporate development at Shell in Saudi Arabia and Bahrain, told OBG.

According to BP’s “Statistical Review of World Energy 2016” Saudi Arabia has 294trn scf of natural gas reserves, around 4.5% of the global total, behind only Iran (18.2%), Russia (17.3%), Qatar (13.1%), Turkmenistan (9.4%) and the US (5.6%). Saudi Arabia’s stated reserves have grown steadily over the last two decades, increasing from 194.2trn scf at the end of 1994 to 240.1trn scf in 2004 and 297.6trn scf by the end of 2015. In its 2015 annual report, Saudi Aramco stated that it plans to nearly double the supply of natural gas in the coming decade to more than 20bn scf per day.

Significant progress has been made in recent years to tap into the Kingdom’s reserves. Gas production grew by 4% in 2015, hitting 3.8trn scf. With a reserve-to-production ratio of 78.2 – indicating the number of years the remaining reserves would last at the current rate of production – it is clear that gas will continue to play a key role in the Kingdom’s energy mix for the foreseeable future and could be further utilised as a resource as more heavy industry and manufacturing comes on-line.

Al Falih, and now also the Saudi Aramco 2015 report, have stated that Saudi Aramco intends to make clean gas 70% of the utilities fuel mix, which would be one of the highest rates in the world.

Added Capacity

Most of the Kingdom’s gas production remains in the form of associated gas from oilfields, but there is also a push to develop non-associated fields. According to the 2014 Saudi Aramco annual report, the company is aiming for 5bn scfd of new non-associated gas processing capacity by 2019. The Wasit Gas Plant, one of the Kingdom’s largest non-associated gas plants, came on-line in October 2015. At full capacity, Wasit will process 2.5bn scfd of non-associated gas from offshore fields. It includes a fractionation module able to process 240,000 bpd of natural gas liquids.

Work on the Midyan Gas Plant, in the Kingdom’s north-west, began in 2013 and was 86% complete as of June 2016. The facility is scheduled to be fully operational by the end of the year. Midyan has a capacity of 75m scf per day of non-associated gas and 4500 bpd of condensate. The project also includes two pipelines extending 98 km from the plant to the Saudi Electricity Company (SEC) solar thermal power plant near Duba, which will add further generation capacity to the national grid.

In September 2015 it was reported that Saudi Aramco had awarded contracts worth some $4.7bn to Spanish company Técnicas Reunidas and UK-based Petrofac for the construction of the Fadhili Gas Plant. The plant, which is expected to come on-stream in 2019, will have a processing capacity of 2.5bn scfd of sour gas from the onshore Khursaniyah and offshore Hasbah fields.

Domestic Use

It is estimated that approximately 38% of Saudi Arabia’s combined oil and gas output currently goes towards domestic consumption. In fact, the US Energy Information Administration estimates that Saudi Arabia is the largest oil-consuming nation in the Middle East, consuming 2.9m bpd in 2013, almost double its consumption in 2000. This is due to both strong industrial growth and heavily subsidised energy prices.

Energy consumption in the Kingdom is expected to grow at a robust rate of 4.4% per year until 2035, according to the executive summary of the seventh session of the Riyadh Economic Forum, held in December 2015. This translates to demand of over 350m tonnes of oil equivalent per year.

The Kingdom has already made moves towards reining in domestic energy usage, notably by reducing subsidies on electricity and fuel in December 2015 (see analysis). As a result, the price of Octane-95 petrol increased by 50% overnight, from SR0.60 ($0.16) to SR0.90 ($0.24) per litre, while the price of 91-grade rose by more than 65% per litre. Gas prices also jumped, rising by 60%, from $0.75 to $1.25 per million British thermal units. Ethane prices, meanwhile, more than doubled. There were also price hikes for diesel, kerosene and electricity.

Higher prices are expected to lead to more innovation by industrial players looking to keep costs down, as well as promote awareness among individual and corporate consumers about energy use and wastage. This has a strong economic rationale beyond just reducing government spending: every barrel of oil that is not used within the Kingdom can be exported and bring in additional revenue. As the national budget is heavily reliant on oil and gas revenue, there is a strong economic incentive to reduce domestic consumption of fossil fuels.

Research & Development

The significant resources being spent on research and development in the sector are delivering results. For instance, in 2014 Saudi Aramco was granted 99 patents in the US, with another 154 applications filed, up from 57 in 2013 and 58 in 2012.

Saudi Aramco has a total of 11 international research centres and technology offices around the world, with the focus on improving upstream exploration and extraction, downstream yields, and the development of improved fuels and engines, among other areas.

In addition, in January 2016 King Salman inaugurated the King Abdullah Petroleum Studies and Research Centre in Riyadh, a global non-profit research centre focused on oil, energy and the environment. The centre, along with institutes such as King Abdulaziz City for Science and Technology (KACST) in Riyadh, is leading the way in research and development in Saudi Arabia. Local centres of knowledge will be able to provide localised information and expertise that will help the Kingdom better utilise its natural resources.


There is a growing realisation in Saudi Arabia that renewables need to be an increasing part of the national energy mix. “The Kingdom’s energy consumption is increasing y-o-y. It is around 20% now, but by 2030 it will have increased heavily. We believe that there is a strategic path to focus on the solar energy field. The Kingdom has lots of sunlight,” said Hamid Al Megren, director of the Oxford Petrochemicals Research Centre at KACST.

Solar energy, and to a lesser extent wind, are obvious opportunities for the Kingdom, with sunlight and available land in plentiful supply. While solar energy has challenges such as overheating and sand to overcome, wind, according to industry experts, is an equally viable alternative.

According to the executive summary of the seventh session of the Riyadh Economic Forum, which was held in December 2015, in the next 10 years, Saudi Arabia could potentially produce 10-15 GW of renewable energy, with 60-80% coming from solar and wind. The report concluded that the cost of this production would range from $4bn to $12bn, with between $1bn and $2.9bn needed for the pilot phase, whereby up to 5 GW of renewable energy would be produced by 2020.

In cooperation with IBM, KACST has an ongoing project to integrate solar power into the energy-intensive process of water desalination. It is currently running at 30,000 cu metres per day. “What we need, the rest of the GCC also needs. We have the same conditions, so there are opportunities to export. The low oil prices will push the country more towards innovation,” said Al Megren.

In 2014 Saudi Aramco signed a memorandum of understanding with SEC to establish a joint venture related to wind and solar technologies. According to its 2015 annual report, the company is investigating the possibility of introducing 300 MW of solar photovoltaic and wind energy projects at 10 remote locations in the Kingdom, displacing some 3300 bpd of diesel power generation.

The organisation also plans to install a 3.3-MW wind turbine at its Turaif plant in the Northern Borders in an effort to reduce fuel consumption and build operational capabilities in preparation for additional wind turbines.

“Renewables will be a big industry in the next few years. We have to, it is not an option,” Ayman Al Hazmi, general manager of Wahaj, an affiliate of Sipchem, which is already producing ethylene vinyl acetate film for solar panels, told OBG. “Even if oil prices stay low, the Kingdom needs to develop alternatives to the oil used inside the country. It should be a strategic objective.”


The year 2016 has been a challenging one for the Kingdom, as the country looks to raise its capacity against a backdrop of lower global oil and gas prices. However, the demanding environment could spur both innovation and diversification of the energy supply, resulting in opportunities in segments outside of oil and associated gas. Hydrocarbons will continue to dominate going into 2017, with new capacity set to come on-line as Saudi Aramco keeps up with its spending plans.