As the world’s biggest producer and exporter of crude oil, with the ability to produce up to 12.5 million barrels a day (b/d) of oil if required, it is no surprise that Saudi Arabia is the most prolific developer of oil and gas projects in the region.

The kingdom is home to several super-giant oil fields, offshore and onshore, as well as the world’s sixth-largest gas reserves. It also has a domestic oil refining capacity of 2.1 million b/d, with another 1.2 million b/d expected by 2017.

In addition to its upstream and downstream operations, the kingdom is the world’s 13th-largest exporter of petrochemicals.

Saudi Arabia has not only been the biggest oil and gas projects market in the Middle East and North Africa (Mena) region, awarding an estimated $61bn-worth of EPC contracts in the period 2008-12, but it is also the most consistent, delivering $14bn-20bn of oil and gas projects every year since 2006, except 2008.

The kingdom’s national energy company, Saudi Aramco, is by far the biggest sponsor of oil and gas projects in the region, awarding $29bn of major EPC contracts in 2006-11, as well as a further $35bn through its downstream joint ventures.

Giant EPC market

Since 2008, Aramco has spent $46bn on EPC contractors. This figure does not include any construction management awards, which would push the total well past the $50bn mark.

The past five years has witnessed a change in strategy for Aramco, as well as for other major players in the kingdom’s hydrocarbons industry, such as Saudi Basic Industries Corporation (Sabic). This has resulted in several major investments in gas projects and huge capital expenditure in petrochemicals schemes, as well as significantly adding to domestic oil refining capacity.

The paradigm shift can be traced back to Riyadh’s industrial diversification vision, which was initiated in order to increase job opportunities across Saudi Arabia. This change has ushered in a new era of projects that have attracted the world’s major EPC contractors, with South Korean firms emerging as the new dominant force.

EPC contractors from Saudi Arabia have enjoyed an extremely fruitful period in Saudi Arabia over the past five years and, despite many industry experts predicting the contrary, have shown extraordinary resilience in maintaining their initial success.

Upstream developments in Saudi Arabia

The upstream sector has been dominated by gas projects in recent years, with both non-associated and associated schemes being initiated and subsequently fast-tracked by Aramco. The kingdom uses all of its gas production domestically and the resource is vital for driving the local economy.

Saudi Arabia’s first non-associated gas development was the offshore Karan oil field, which was awarded in early 2009 and cost about $4bn to execute. Karan provides Saudi with 1.5 billion standard cubic feet a day (scf/d) of gas. The scheme is now complete and production is being ramped up.

Karan was followed in 2011 by the $5bn-plus Wasit Gas Development project. The scheme involved the development of the offshore non-associated Arabiyah and Hasbah gas fields, with processing facilities being constructed at Wasit. Despite delays of up to 12 months due to the high sulphur content of the gas, the project will deliver a massive 2.5 billion scf/d when fully operational.

Around the same time as Wasit, Aramco awarded a $3bn natural gas liquids (NGL) project at its Shaybah oil field in the Empty Quarter. The Shaybah NGL project will separate about 228,000 b/d of NGL from crude oil produced at the field.

Although gas is the priority, there has been one major oil field development over the past five years. The $9bn Manifa offshore oil field project has started commissioning and is expected to bring 900,000 b/d of heavy crude oil onstream by 2015. It will also add 120 million scf/d of gas.

The Manifa field development was initiated with two criteria in mind: to ease the burden on the country’s mature operational fields and to supply heavy crude to new refining capacity planned for the kingdom.

Much of Manifa’s production will be processed at the $9.6bn Saudi Aramco Total Refining and Petrochemicals Company (Satorp) refinery, which is undergoing commissioning at Jubail in the Eastern Province. The facility is designed to process 400,000 b/d of heavy oil, reflecting future crude grades that will be produced in the kingdom.

The Yanbu Aramco Sinopec Refining Company (Yasref) is developing a near-identical project to Satorp on the Red Sea coast, which will bring 400,000 b/d of additional refining capacity onstream by 2015.

Highlighting Aramco’s commitment to more remote regions is the $7bn Jizan refinery, being built in the southwest of the kingdom. Under execution and expected to be fully operational by 2017, the 400,000-b/d complex will be the main driver of the local economy when completed.

The new refining capacity will provide essential products such as gasoline and diesel locally, and will also give Saudi Arabia an alternative source of petrochemicals feedstock to gas.

Petrochemicals

The kingdom’s petrochemicals industry has had a mixed five years. Some of the most ambitious chemicals projects currently under execution anywhere in the world are being built in Saudi Arabia, yet, at the same time, many producers have complained that a lack of feedstock has severely hindered potential expansion.

The $20bn Sadara Chemical Company project under construction at Jubail is the world’s largest single-phase petrochemicals complex. The scheme, a 50:50 joint venture with the US’ Dow Chemical, will produce about 8 million t/y of chemicals when completed and forms the bedrock of Aramco’s initial foray into the petrochemicals industry.

On the other coast, Aramco’s $5bn PetroRabigh phase 2 joint venture with Japan’s Sumitomo Chemical is on a far smaller scale to Sadara, but will still produce about 3 million t/y of products.

Sabic is also executing its ambitious $3.4bn elastomers project in Jubail with the US’ ExxonMobil. The product slate for the scheme is expected to directly feed fledgling industries, such as automotive and electronics, when completed in 2016.

Looking ahead, in the short to mid-term, Saudi Arabia has offered no indication that the massive spending across the whole hydrocarbons value chain is going to stop, although MEED Projects data suggests that the next two years will be a relatively quiet time for the kingdom. 

According to MEED Projects, there are more than $18.4bn-worth of schemes at the advanced study, design or main EPC contract tender phase. This figure is lower than in past years, and no large-scale gas fields, oil refineries or greenfield petrochemicals plants are planned between now and 2015.

The majority of the projects are medium sized by today’s standards, and most are concentrated on petrochemicals and oil field rehabilitation.

Among the larger schemes is the Ras Tanura refinery rehabilitation in the Eastern Province, which has a budget of about $3.5bn and will include petrochemicals production as well as cleaner gasoline and diesel from the kingdom’s largest oil refinery.

Satorp plans

Phase 2 of the Satorp refinery is also expected to be approved very shortly and should focus on petrochemicals production, with feedstock provided by the adjacent refinery.

The plans for Satorp closely mirror the long-term aspirations for Saudi Arabia’s refining and petrochemicals sectors.

MEED reported in August that the next phase of expansion would be focused on integrating the kingdom’s existing and future refineries with large petrochemicals complexes.

Three potential sites have been identified at Jizan, Yanbu and Ras Tanura. The potential scale of these future operations is enormous, with speculation growing that $50bn could be spent in Yanbu alone and another $10bn in both Jizan and Ras Tanura.

All of these plans are in their infancy and, as with all long-term projects, the scope could change dramatically in the future. The scale of the potential project activity in Yanbu also offers a tantalising hint at what could be the next great frontier for the region’s oil and gas production.

The Red Sea is currently undergoing extensive seismic surveys, the results of which have not yet been made public. However, some experts believe that if there are significant hydrocarbons contained under the Red Sea then Riyadh would prefer to use them to create jobs and domestic wealth opportunities rather than offer them up as exports.

Aramco has no plans to drastically increase oil production capacity above 12.5 million b/d, but intends to add 500,000 b/d of new capacity to ease the burden on existing mature fields.

The oil major is also carrying out extensive tests on its shale gas deposits in the north of the kingdom, near the Jordanian border. No results have been released into the public domain as yet, but Aramco has made clear that if viable recoverable reserves are made available then it will fast-track development in order to access the gas.

Saudi Arabia has spent the past five year years investing massively in its domestic operations and, as a result, EPC contractors have enjoyed a boom that has been absent elsewhere in the world.

The kingdom is expected to remain a major player in project spending in the short-to-mid term. However, if Riyadh decides to go ahead with its refinery integrations, and discovers huge reserves of hydrocarbons in the Red Sea, then future spending could dwarf the sums currently being invested.