The announcement that Saudi Aramco is to oversee the construction of 11 football stadiums across Saudi Arabia is further evidence of the rapidly expanding remit of the national oil company.
It comes at a time of growing speculation that Aramco is preparing to take over Riyadhs ambitious renewable energy programme, currently headed by the King Abdullah City for Renewable & Atomic Energy (KA-Care).
Both these initiatives lie outside Aramcos core business area and as such demonstrate the high regard in which the company is held by the political elite in the kingdom. Aramco is not only the governments main cash generator, but its influence is now also spreading into almost every key business sector in the country.
$1bn a day
Aramco makes an estimated $1bn a day from its vast oil exports, accounting for 51 per cent of Saudi Arabias GDP and 80 per cent of government revenues. Founded in 1933 and headquartered in Dhahran, the firm has been fully stated-owned for the past 34 years. Before the 1980s, Aramco was majority US-owned and only responsible for the production of crude in the Eastern Province. Since coming under the full control of Riyadh, it has transformed into the worlds largest integrated oil company, employing 57,000 workers, of which 48,000 are Saudi nationals.
The government decides what it wants to do and then turns to Aramco to implement those plans
Sadad al-Husseini, former Aramco executive
It was the early incarnation of Aramco that laid the foundations for this broadening role. As part of the concession agreement between the Saudi government of the late 1930s and Standard Oil of California, the fledgling company also had to commit to building schools and homes across the Eastern Province to educate and house workers.
Even in those early days, Aramco had to be much more than a mere oil producer, says Sadad al-Husseini, the oil majors former head of exploration and production. The tradition of Aramco offering its expertise and help to the people of Saudi Arabia goes back to that time.
A clear measure of Aramcos success in Riyadhs eyes is its vast, well-trained Saudi workforce, a direct legacy of those early education and vocational training programmes. The company has invested billions of dollars over the decades on training and has a commitment to nurturing local talent through education. This is why the government has put it at the very forefront of its plans to create a knowledge-based economy built on industry and manufacturing, as well as health and education.
Former highly qualified Aramco executives now run other important state entities such as Saudi Arabian General Investment Authority (Sagia), the investment promotion body, Saudi Arabian Mining Company (Maaden), the firm tasked with exploiting the kingdoms mineral wealth, and Saudi Electricity Company (SEC).
Aramcos reputation for successful project execution and delivery is the reason why the company has been asked to offer expertise and leadership to some of King Abdullah bin Abdulaziz al-Sauds blue-ribbon projects, such as the 11 football stadiums and the seminal King Abdullah University of Science & Technology (Kaust), which it completed in 2009.
These forays into new business areas are not always conducive to Aramcos operating model and in the case of the stadium-building programme, it is clearly a direct request from Riyadh. But in accepting these challenges as a means to reinvest into the kingdom, the company has earned and is reinforcing the complete trust of the ruling elite.
There is, however, a counter argument that says Saudi Arabia has several large firms already operating across the sectors that Aramco has moved into, such as petrochemicals production, power generation and construction. And perhaps Riyadh should be investing in and developing those companies instead of falling back on its stalwart oil company.
Their existence has not stopped Aramco from entering those markets and in the case of Jizan Economic City (JEC), the oil giant even took over the development of the entire industrial city to prevent its failure.
Jizan is a perfect illustration of Aramcos expanding remit. Close to the Yemen border and with no significant industrial base, the city was considered an odd choice for a $27bn development in the mid-2000s. But Riyadh believed the JEC project would bring prosperity through industrialisation to one of the kingdoms most impoverished and volatile areas.
After the global financial crisis of 2008-09, it was clear the level of investment expected for Jizan was not going to be realised. There were no plausible takers for the mooted $7bn independent refinery scheme and, aside from a solitary steel plant, the remaining industrial projects had stalled. There were even questions regarding the power station and port, both essential pieces of infrastructure if JEC was to have any chance of success.
In February 2010, Aramco decided to act. It took over the development of the $7bn refinery and then in early 2012, MEED reported that the company would also take ownership of all Jizans infrastructure needs. This was confirmed in early 2013, when Aramco said it would develop both the port facilities and the power station in an unprecedented move that would take its total investment to well over $15bn.
Initially, the oil major had been happy for the original developers of JEC Saudi Binladin Group and Malaysias MMC Corporation to carry out the work for the citys infrastructure and for SEC to build a power plant. It was only when it became apparent that this was not going to happen that Aramco stepped in.
Adapting facilities for its own needs as well as the greater good is also behind Aramcos recent entry into power production. Its strategy now is to build large power plants that can also provide for the local community.
Several of SECs power plant projects have been taken over by Aramco, most notably the 2,400MW facility it is now building at Jizan. About 500MW from the facility will be used for the refinery, but the rest will feed into the grid and be made available for other industries. One anchor industry planned for JEC is petrochemicals. Building chemicals facilities close to its refining operations is a strategy Aramco has been following for the best part of a decade.
However, in 2005, Aramco signed a deal with Japans Sumitomo Chemical for the dramatic overhaul of the oil majors refinery in Rabigh on the Red Sea coast into an integrated refining and petrochemicals complex, named PetroRabigh. This was followed in May 2007 with the announcement that Aramco was to form a partnership with the US Dow Chemical, which eventually evolved into the $20bn Sadara Chemical Company project at Jubail in the Eastern Province. This will be the largest single-phase petrochemicals complex ever built in the world when completed in 2016.
I remember that in 2005, it was almost impossible to get a fuel allocation [for petrochemicals production], especially if it was for an export-driven product such as polyolefins, says a chemicals industry source based in Saudi Arabia. There was some surprise [in the petrochemicals sector] when Aramco announced its plans, but when you look at it objectively, it was a logical step to take.
The product slate of Aramcos facilities reflects a desire to provide raw materials upon which to build new domestic manufacturing sectors such as automotive, renewable energy and plastics production. The firm has established industrial parks near Sadara and PetroRabigh in order to attract conversion industries.
Local job creation is arguably the key factor behind Riyadh encouraging Aramco to enter the petrochemicals industry, and it occurred at a time when Sabic was focusing on its international operations. The oil giants commitment to this issue and its contribution to the governments diversification drive is what has given Aramco its unparalleled status in the kingdom.
The company also set up the Aramco Entrepreneurship Centre (Waed), which offers non-collateralised loans or venture capital partnering to nurture local small-to-medium enterprises. Waed hopes to fund 250 new ventures by 2020 through the programme.
Aramco has journeyed from being just an upstream oil operator in the Eastern Province to a globally recognised energy powerhouse in a few short decades. What the firm wants now is for its legacy to be how it has used the export of natural resources to transform the economic and industrial landscape of Saudi Arabia.
Exactly how wide Aramcos remit will expand is unknown, but recent history suggests that whenever Riyadh needs to take a massive leap forward, it turns to the company it trusts more than any other. [Aramco] is a national institution and an extension of the government, says Al-Husseini. The government decides what it wants to do and then turns to Aramco to implement those plans.