Despite many high-profile critics, who have questioned the sustainability of Saudi Arabia’s oil production, the kingdom will continue to play a pivotal role in meeting the world’s energy needs.

“In terms of enhancing access to energy, [Saudi Arabia’s] oil reserves of about 260 billion barrels represent roughly a fifth of the world’s proven reserves,” said Khalid al-Falih, Saudi Aramco’s president and chief executive, in September at the World Energy Congress in Canada. “At our current output rate, these reserves are enough for more than 80 years of production.”

Gradual decrease in oil production

“Sometimes people focus on the detail and miss the point,” says Sadad al-Husseini, former head of exploration and production for Saudi Aramco. “I think Al-Falih means oil is still abundant in the kingdom. What would actually happen is that as the oil starts to run out, production would decrease in line with that. Aramco is not going to produce 8 million barrels of oil a day for 80 years then just stop the next day. What will happen is production will decrease gradually over time and the oil would then last for say 150 years.”

As the world’s largest oil producer Saudi Arabia is the leading member of the oil producers group Opec. Al-Husseini says it is a role the kingdom’s government takes extremely seriously and it provides a vital service to the global energy market.

The sector also is the mainstay of the kingdom’s economy; crude oil accounts for 90 per cent of Saudi Arabia’s exports and 75 per cent of government revenues.

“Being the kingpin of Opec has made Saudi Arabia and thus Aramco very responsible,” says Al-Husseini. “Other smaller producers [in Opec] can afford to be irresponsible and rely on the bigger producers to take care of it. Saudi Aramco needs to be reliable and able to deliver and if you look at the various crises over the past few decades, it has always coped with global demand and made sure the market is supplied.”

What will happen is production will decrease gradually over time and the oil would then last for say 150 years

Sadad al-Husseini, formerly with Saudi Aramco

Delivering 8 million barrels-a-day (b/d) of oil as well as keeping an extra 4.5 million b/d in reserve capacity is expensive. Aramco has spent more than $60bn over the past five years increasing its hydrocarbon capacity and Al-Falih announced earlier this year that it plans to spend about $60bn more in the next five. A further $60bn will go on refining and petrochemical projects.

The road to becoming the world’s leading oil producer started when an affiliate of what is now the international oil company Chevron first started exploration in 1933. Saudi Aramco has been wholly owned by Saudi Arabia since 1980. The company employs more than 55,000 people – 48,000 of whom are Saudi nationals – and has its headquarters at Dhahran in the Eastern Province of the kingdom. Aramco is responsible for 99 per cent of Saudi Arabia’s oil and gas and its production figures for 2009 were 2.9 billion barrels of oil, 3.2 trillion cubic feet (cf) of gas and 410 million barrels of natural gas liquids (NGL).

Aramco’s crude oil reserves of 260 billion barrels have not changed significantly over the past five years – a slight rise of 300 million barrels.

Average production dropped by 1 million b/d between 2008 and 2009. The reasons behind the drop are decreased global demand and production targets introduced by the oil cartel Opec in 2008 in an effort to sustain higher oil prices. Despite lower production, Aramco’s crude oil capacity has risen to 12 million b/d.

The kingdom’s reserves of both associated and non-associated gas has increased since 2005, partly due to Aramco fast-tracking gas field projects due to a domestic shortage. Reserves have grown from 239.5 trillion cf in 2005 to 275.2 trillion cf in 2009.

Saudi Aramco expanding oil production capacity

The maintenance and development of new and existing oil and gas fields is Aramco’s number one priority for the years ahead. The company has now completed its $100bn development programme to increase the kingdom’s production capacity to 12.5 million b/d of crude oil and 8.7 billion cubic feet a day (cf/d) of gas.

Saudi Arabia has both the largest onshore and offshore oil fields in the world. Discovered in 1948, the Ghawar field is the world’s largest oil field and has more than 70 billion barrels of remaining reserves of Arabian Light crude oil. The field has a capacity of 5 million b/d, which is just 700,000 b/d less than the total capacities of Kuwait and the UAE combined.

The 1.2 million b/d Safaniya field is the largest offshore oil field in the world and was discovered in 1951. Another huge offshore field, the Manifa, is currently undergoing a $9.28bn development by Aramco that will eventually add an additional 900,000 b/d of oil as well as 120 million cf/d of sour gas and 50,000 b/d of condensate. Aramco plans to produce 500,000 b/d of oil from Manifa from June 2013 with the total capacity of 900,000 b/d of oil by 2024. The nearby Khursaniyah Gas Plant has been upgraded to handle the gas produced from Manifa.

In July 2009, Aramco completed its largest-ever production increase when the Khurais development started production. The multi-billion dollar project added 1.2 million b/d of oil capacity as well as 315 million cf/d of sour gas for the Shedgum Gas Plant and 70,000 b/d of NGL for the Yanbu Gas Plant at the Khurais, Abu Jifan and Mazalij fields in the kingdom.

The onshore Shaybah has been producing oil since 1998 and has a current capacity of around 500,000 b/d. Aramco has commissioned a gas-oil separation plant at the field which will add an additional 250,000 b/d of NGL to the capacity.

Decrease in global oil demand

A big challenge facing Aramco is that as global demand for oil falls so does the amount of associated gas produced from its oil fields. Crucially, this is used to fuel power plants and further the kingdom’s industrial diversification. The company has therefore also prioritised the development of its non-associated gas fields.

The offshore Karan gas field will be the first non-associated gas project to be developed by Aramco. The 1.8 billion cf/d capacity field is costing $3.3bn to develop and is due to come onstream in mid-2013.

The $6bn Wasit Gas Development project has been fast-tracked by Aramco and will produce 2.5 billion cf/d of sulphur-rich gas from the offshore Arabiyah and Hasbah fields.

As well as developing the two fields, central processing facilities will be constructed at Wasit on Saudi Arabia’s Gulf coast and will be able to handle 1.7 billion cf/d of gas and 4,800 tonnes a day (t/d) of sulphur. Both fields are expected to start production in 2014.

Saudi Aramco: Setting standards for national oil companies

After its humble beginning 77 years ago, Saudi Aramco has arguably set the standard as to how a national oil company should be run. More than any other NOC in the region it has taken on the responsibilities of a state-owned entity without losing the commercial edge it had when under the control of an IOC. 

 “Credit must go to the foreign companies who initially brought in the expertise to develop the kingdom’s oil fields,” says Al-Husseini. “Credit must also go to the Saudi Aramco management and Saudi Arabian government for the way they have pushed that work forward for the benefit of the people of Saudi Arabia.”

The resurgence of Iraq will pose a challenge to Saudi Arabia’s dominance within Opec in the coming years. But Saudi Aramco’s continued investment in research and development will ensure it maintains a distinct advantage in the 12-member group.