Saudi arabia Country Commercial Guide
Learn about the market conditions, opportunities, regulations, and business conditions in saudi arabia, prepared by at U.S. Embassies worldwide by Commerce Department, State Department and other U.S. agencies’ professionals
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Oil Gas & Petrochemicals
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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 across the upstream, midstream, and downstream segments.  In 2022, Aramco’s average hydrocarbon production was 13.6 mmbpd, including 11.5 mmbpd of crude oil. Saudi Aramco boasts that it produces the lowest-carbon barrel of oil in the industry and has committed to achieve net-zero emissions by 2050, outstripping the government’s 2060 net-zero target. by 2060,. Saudi Arabia continues invest in areas such as cleaner conventional engines, carbon capture, utilization and storage (CCUS), hydrogen, and renewables.

Saudi Arabia Key Highlights 

In 2022, Aramco posted a record-breaking net income with SAR 604.0 billion ($161.1 bn), allowing the company to strengthen its balance sheet and embark on an ambitious capital spending program. Aramco’s Board of Directors declared a cash dividend of SAR 73.0 billion ($19.5 bn) for the fourth quarter of 2022.  With oil prices in decline, Aramco had a net income of $30.1 billion in Q2 2023, a 38 percent drop over the second quarter of 2022.

Furthermore, in February 2022, Aramco sold a 49 percent stake in its gas pipeline network (Aramco Gas Pipelines Company) for $15.5 billion to a consortium of investors led by BlackRock Real Assets and Hassana Investment Company in a leaseback arrangement. In 2021, Aramco sold a 49 percent stake in its Aramco Oil Pipelines Company, for $12.4 billion to an investor consortium that included EIG and Mubadala.

In March 2023, Aramco CEO Amin Nasser announced that Aramco is setting a capital expenditure goal of $45-$55 billion in FY2023, the largest capital spending plan in the history of the company, to support an increase in oil production to 13 million barrels per day by 2027. The 2022 Annual Financial Report listed a total capital expenditure of $37.6 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 perspective is that in order to maintain its position as the world’s largest crude oil exporter, it is imperative to concentrate the bulk of its spending on 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).  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 June 2023, Saudi Arabia announced it would voluntarily cut oil production in July by one million bpd to support global prices, and these cuts were subsequently extended through the end of 2023.

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 aimed at positioning Saudi Arabia  as  a leading provider of drilling rigs. The project is one of NOV’s largest investments for rig manufacturing outside the U.S.

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.

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.  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.  SABIC operates a wide range of industrial plants and facilities in Jubail, including a $175 million large-scale CO2 utilization plant that includes 25 kilometers (15 miles) of pipelines through its manufacturing affiliate, Jubail United Petrochemical Company (United). Aramco is integrating its refining and chemicals facilities and investing in large-scale liquids-to chemicals projects.

In August 2022, Aramco signed an equity purchase agreement to acquire Valvoline Inc.’s global products business (Valvoline Global Products) for $2.65 billion as part of its strategy to yield synergies for Aramco’s line of premium-branded lubricant products and to optimize its global base oils production capabilities.

Furthermore, in December 2022, Aramco and TotalEnergies agreed to jointly invest in a large new petrochemical complex in Saudi Arabia that will enable the existing SATORP refinery to increase its liquids-to-chemicals strategy.

Opportunities

Despite the world’s attention to climate change, 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. 

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).  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. 

Saudi Arabia is also pursuing several Carbon Capture Utilization and Storage projects as part of its Saudi Green Initiative.  This commitment is particularly salient in the eastern province where most of the country’s oil and gas industry resides.  In November 2022, Aramco signed a joint development agreement with SLB and Linde to establish a carbon capture and storage hub in Jubail in the east coast of Saudi Arabia. The facility will be able to store up 9 million tons of carbon dioxide a year by 2027. In operation since 2015, the Kingdom’s CCUS project, the Uthmaniyah Gas-Oil Separation Plant, owned by Saudi Aramco (Aramco), is located 100 km (62 miles) west of Dhahran at the Ghawar oil field. 

Lastly, Aramco is also investing in R&D efforts to support greener technologies.  In late 2022, Aramco established a $1.5 billion Sustainability Fund to invest in technology needed to support a stable and inclusive energy transition

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.  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
  • IKTVA Forum
  • ADIPEC
  • MEOS

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