Overview

Saudi Arabia possesses approximately 17 percent of the world’s proven petroleum reserves and ranks as one the largest net exporters of petroleum.  Saudi Arabia has the second-largest proven oil reserves in the world.  Saudi Aramco, one of the world’s largest integrated energy and chemicals companies, operates along two major segments: Upstream and Downstream.  In 2020, Aramco’s average hydrocarbon production was 12.4 mmbpd, including 9.2 mmbpd of crude oil.  In comparison, Aramco’s average hydrocarbon production in the first half of 2021 was 11.6 mmbpd, of which 8.6mmbpd is attributed to crude oil production. As OPEC+ has slowly raised quotas, Saudi Arabia’s output has followed suit; as of June 2022, Saudi Arabia was producing 10.3mmbpd of crude oil.    Following the economic downturn and volatile oil prices seen in 2020, oil prices rebounded in 2021 and have continued to increase in 2022.  Saudi Arabia is reinvesting this windfall into its Vision 2030 economic diversification program.  In line with Saudi Arabia’s announcement at its Saudi Green Initiative forum last fall to achieve net-zero emissions by 2060, Aramco has committed to an ambitious target of net-zero emissions by 2050.

Saudi Arabia Key Highlights 

Despite the unprecedented challenges, Saudi Aramco has remained resilient throughout the pandemic.   In Q1 2022, Aramco achieved a record quarterly net income of $39.5 billion, an 82 percent increase from the $21.7 billion in Q1 2021, primarily driven by higher crude oil prices and volumes sold, as well as  overall improved downstream margins. Aramco continued to deliver a stable dividend in Q1, with $18.8 billion to be paid to shareholders in the second quarter. Aramco also continued  progress on its portfolio optimization program and closed a major lease and leaseback deal involving its gas pipeline network with a consortium of investors led by BlackRock Real Assets and Hassana Investment Company. This consortium acquired a 49 percent stake in a newly formed Aramco subsidiary known as Aramco Gas Pipelines Company, with Aramco receiving upfront proceeds of $15.5 billion.

Leading Sub-Sectors

Upstream

Saudi Aramco continues its major expansionary phase and channeling investments in its Upstream segment that include exploration, developing and producing crude oil, condensate, natural gas and NGL. Aramco’s view is that to maintain its position as the world’s largest crude oil exporter, the bulk of its spending will be in upstream activities. Aramco’s principal and flagship oilfields remain the world’s largest conventional onshore oil field (Ghawar) and the largest conventional offshore field (Safaniah).  The crude oil, condensate, and natural gas produced here is processed at its refining facilities for use or sent to its export terminals.  Aramco owns and operates the Abqaiq facility, which is its largest oil processing facility and the largest crude oil stabilization plant in the world.  In 2020, Aramco maintained its position as one of the world’s leading producers of crude oil and condensate with an average total daily hydrocarbon production of 12.4 mmbpd, including 9.2 mmbpd crude oil.

The recently awarded Jafurah contracts include subsurface and Engineering, Procurement and Construction (EPC) contracts worth $10 billion, with capital expenditure at Jafurah expected to reach $68 billion over the first 10 years of development.  Recognized as Saudi Arabia’s largest unconventional and non-associated gas field, Jafurah contains an estimated 200 trillion cubic feet of raw gas and whose production can be used as feedstock for petrochemical and metallic industries.

Key Joint Ventures (JVs):

Onshore Drilling:

• Saudi Aramco Nabors Drilling (SANAD) is a 50-50 JV established in 2017 between U.S.-based Nabors Drilling and Aramco to position Saudi Arabia as a leading provider of drilling rigs.
   
• Arabian Rig Manufacturing (ARM) is a 70/30 JV between U.S.-based NOV and Aramco established in 2018 also with the aim of  positioning Saudi Arabia  a leading provider of drilling rigs.

Offshore Drilling:

• Aramco Rowan Offshore Drilling Company (ARO) is a 50-50 JV between Aramco and Valaris to ensure Saudi Aramco drilling data redundancy and backup replication. 
   
• International Maritime Industries (IMI) is a JV established in 2017 between Lamprell, Aramco, national shipping carrier Bahri, and Hyundai Heavy Industries to establish and operate a maritime yard in Saudi Arabia.

Notably, in the first quarter of 2022, Aramco’s upstream performance and average total hydrocarbon production was 13.0 million barrels of oil equivalent per day. Aramco maintained its exceptional track record as a global energy supplier, achieving 99.9 percent reliability in its deliveries. Aramco also made progress towards completing the Hawiyah and Haradh compression projects, scheduled to come on-line by the end of 2022, adding about 1.3 billion standard cubic feet per day (bscfd) of raw gas. In addition, progress continues to be made with the Hawiyah Gas Plant expansion, part of the Haradh Gas increment program, which is expected to be completed in 2023. Aramco’s mega Manifa field project named Upstream Project of the year continues to demonstrate Aramco’s leadership position in driving operational excellence at the same time relaying its commitment to environmental protection standards.

Downstream

Aramco has an integrated global downstream business, primarily consisting of refining and petrochemical manufacturing, supply and trading, distribution and power generation.  Other activities such as base oils, lubricant, and retail operations also fall under this category.  Aramco’s flagship downstream project is Sadara, which was established in 2011 as a joint venture with Dow and known to be the world’s largest integrated chemicals project.  Aramco’s downstream investments diversify its revenue by integrating its oil and gas operations to optimize value across the hydrocarbon chain, supporting crude oil and gas demand and facilitating the placement of its crude oil.

Aramco also has an integrated petrochemicals business within its downstream segment, intended to enable it to capture incremental margins in the hydrocarbon value chain.  Aramco’s chemicals business spans from production of basic chemicals such as aromatics, olefins and polyolefins to more complex products such as polyols, isocyanates and synthetic rubber.  Aramco continues to grow its chemicals business with new investments.  In June 2020, Aramco completed the acquisition of a 70 percent stake in Saudi Basic Industries Corporation (SABIC) in a deal worth $69.1 billion. This is a major development that strengthens Aramco’s downstream growth and strategy.  SABIC is a globally diversified chemicals company with manufacturing facilities in the U.S., Europe, Middle East and Asia Pacific.  With the acquisition of SABIC, Aramco will now be among the preeminent producers of petrochemicals in the world. In 2021, Aramco focused on further integrating SABIC into its operations by delineating SABIC’s role to focus on petrochemicals and Aramco on fuel products.  These changes position SABIC as the chemicals arm of Aramco, which is in line with its long-term strategy.

Aramco also continued to make progress in its downstream expansion during the first quarter in 2022, expanding its global presence in Asia and Europe with plans to acquire a 30 percent stake in a 210,000 barrels per day refinery in Gdansk, Poland, along with sole ownership of an associated wholesale business.  Other agreements include a 50 percent stake in a Polish jet fuel marketing joint venture with BP in addition to participating in the development of a major integrated refinery and petrochemical complex in China.

Opportunities

Despite the world’s attention to climate change in 2020-2021, Aramco is still bullish on the traditional oil and gas segments and is expected to proceed with investing billions of dollars in the sector to continue to meet demand over the next decade for high-quality oil and gas industry related technologies, particularly in the non-metallics arena.  For instance, as corrosion is a significant problem for industries around the world, Aramco views nonmetallic solutions – such as the development of advanced plastics – as a strategic way to not only provide a solution for corrosion, expand the life cycle of investments, reduce its carbon footprint but also as a way to increase demand for its products.  To date, Aramco has identified four key areas that could benefit from non-metallic materials: automotive; recycling; building and construction; and packaging.  Within the oil & gas sector, nonmetallic applications include onshore and offshore piping, tanks, vessels, cooling towers, valves, pumps, as well as secondary offshore structures.  Aramco is also deploying the use of nonmetallic materials across many of its operations, including 2,400 km in onshore applications, and use in some 80 conventional gas wells.

At the same time, Saudi Arabia is taking note of the increased interest and opportunities in the renewables segment and is investing heavily in technologies to produce hydrogen in environmentally friendly manners, including blue hydrogen (where the carbon dioxide is captured and stored) and green hydrogen (via electrolysis powered by renewable energy, fully eliminating harmful greenhouse gas emissions).  For example, the country has announced several initiatives focused on the environment, including the Saudi Green Initiative and the Middle East Green Initiative.  At the Saudi Green Initiative forum in October 2021, Crown Prince Mohammed bin Salman Al Saud announced the goal for the country to become net carbon neutral by 2060.  Saudi Arabia is targeting hydrogen production — both blue and green — of 2.9mn t/yr by 2030 and 4mn t/yr by 2035.  The country’s first green hydrogen plant is a joint venture between Saudi ACWA Power, Neom, and U.S.-based Air Products to build a green hydrogen-based ammonia production facility located at Neom.  The project will also feature technologies from additional suppliers, including U.S.-based Baker Hughes, which signed an agreement with Air Products to provide advanced hydrogen compression technologies for the Neom project.

With respect to Saudi Aramco, it too is investing in greener technologies.  For instance, it completed its first shipment of blue hydrogen to Japan in 2020.  Aramco also signed an initial agreement to build a new green hydrogen and ammonia plant with Hong Kong-based green hydrogen developer InterContinental Energy as it tries to bring private investment into the sector.

Additionally, Saudi Aramco continues to develop projects focused on its core competencies in the country and internationally. In September 2021, Aramco, Air Products, ACWA Power, and Air Products Qudra announced the signing and finalization of definitive agreements for the asset acquisition and project financing of the $12 billion air separation unit (ASU)/gasification/power joint venture (JV) in Jazan. The original joint venture for the Jazan refinery was formed in 2018.  Aramco also completed acquisition of a 70% stake in the Saudi Basic Industries Corporation (SABIC) in June 2020.  In November 2021, Aramco announced the development of the vast Jafurah unconventional gas field, the largest non-associated gas field in Saudi Arabia.  On the international front, Aramco remains committed to its 50/50 JV with Malaysia’s Petronas (PrefChem) even after plans to bring the plant online in August 2021 fell through. 

Localization Considerations

U.S. suppliers might also look for specific opportunities through Saudi Aramco’s localization program, known as In-Kingdom Total Value Add (IKTVA).  The IKTVA Program is an integral part of Saudi Aramco’s procurement process designed to drive domestic value creation and maximize long-term economic growth and diversification to support a rapidly changing Saudi economy. It is designed to drive increased investment, economic diversification, job creation, and workforce development within Saudi Arabia.  IKTVA is mandatory for Aramco Suppliers.  Per Aramco, the IKTVA program has contributed more than $100 billion to the national economy and has attracted more than 540 investments to Saudi Arabia from 35 countries. Aramco suppliers must report qualitative and quantitative information across eight major categories:

1. Revenue
2. Goods, Services, and Depreciation/Amortization
3. Saudi Payroll Related Costs
4. Saudi Training and Development
5. Saudi Supplier Development
6. Research and Development
7. Investments
8. Others.

From this data, Aramco calculates an IKTVA ratio that approximates the percent of Aramco’s spend with you that remains in Saudi Arabia or develops Saudi Arabia’s supply chain and capabilities.

IKTVA is assessed against the following factors:

1. Localized goods and services
2. Salaries paid to Saudis
3. Training and development of Saudis
4. Supplier development spending
5. Research & Development
6. Export Revenue Factor (%)
7. Company revenue: % iktva = [(A+B+C+D+R)/E]+X

For details, visit the Saudi Aramco website and search for IKTVA.  U.S. companies may also contact Aramco Services Company in Houston, TX to explore opportunities and to register as a vendor to Aramco. Details are available on the Aramco Americas website.

Resources

• Saudi Aramco:
• Aramco Services Company Houston
• Ministry of Investment
• MEED Business
• OPEC
• Bloomberg
• International Monetary Fund (IMF)

Events

• Offshore Technology Conference
• ADIPEC
• MEOS

For more information, contact Mohammed.Shujauddin@trade.gov