A major theme of the last 12 months' oil and gas press has been that of Saudi Arabia's titanic struggle to hold its market share against the onslaught of the huge U.S. supply increases from shale gas. This has projected the U.S. to top dog of global oil production, a status unthinkable even five years ago, albeit probably for the short term.
Saudi Arabia's challenges were then augmented by the West's improving relations with Iran, its regional challenger, and now its expected return to the market in 2016. This has been interwoven with a royal succession and a new dose of terrorism attacks at a time when the Government is still wary of recurring echoes of the Arab Spring of 2011 and of the major cyberattack on Saudi Aramco in 2012.
A year is a long time in the oil and gas industry. August 2014 saw Saudi Aramco announce that it was to spend US$40 billion a year for the next 10 years in capital programmes. The year ended with the Saudis projecting a US$40 billion budget deficit in 2015 and then this month came the announcement of US$27 billion of bond issues by the end of the year to bolster the finances, and that after a string of project cancellations and postponements.
However, the Saudi Arabian oil and gas industry remains in the eye of the storm and still offers a growth opportunity for companies seeking to rebalance their activities from higher production cost regions. In a month in which Baker Hughes has declared that the global rig count for July 2015 stood at 2,167 from the 3,608 figure for July 2014, Saudi Aramco has challenged its supply chain to increase the rig count in the country by 30% from the current 120 rigs in operation. This demonstrates Saudi Aramco's determination to at least hold its 12 million barrels per day production capacity for many years to come, and that it has no intention to lose market share to U.S. shale or Iranian crude.
The long-term view also looks positive with eight new discoveries in 2014 – the largest in the Kingdom's history – comprising the Abu Ali, Amjad, Badi and Faris gas fields, the Sadawi and Naqa oil fields, and the Qadqad oil and gas field, bringing the total discovered fields in country to 129. It remains to be seen what these finds will mean in augmenting the existing oil reserves of 261 billion barrels and 295 trillion cubic feet of gas reserves. For deepwater specialists the Red Sea remains the ultimate prize but the low oil price has already seen a drawing in of short-term ambitions for the offshore West.
There can be no such loss of momentum in resolving the Kingdom's gas supply challenges but the Wasit, Midyan and Fadhili gas plant projects will add a much welcome 5 billion standard cubic feet per day supply of gas. The Saudis have also announced their ambitions to roll out an unconventional gas programme focused on the greater Ghawar area.
Major development programmes for oilfield will be focused on the Shaybah field in the South where production will be increased by 250,000 bpd and Dammam where the field which kicked off the country's oil bonaza in 1938, mothballed in the 1980s, will be redeveloped.
The Kingdom is also continuing to build on its recently won status as downstream superpower with major refinery and petrochemical projects at Jubai, Yanbu and Petro-Rabigh to be joined with ambitious plans at Jizan in the southwest. Aramco's downstream projects have spawned long term joint venture partnerships with Total, Sinopec and Dow.
The Saudis have also announced their ambitions to diversify their generating mix and there are plans to build 16 nuclear power plants over the next 20 years at a cost of US$80 billion with the first due to be online in 2022, producing 17 GWe of power, by 2040, along with 40GWe of solar power. This will result in an increasing role for Saudi Electricity Company as a target client for many supply chain companies.
The Kingdom remains the "King of Technology" in regional terms with a strong commitment to its own research and development activities, including its SmartWater low saline EOR technology. This is demonstrated by its international research and technology centres and offices in Houston, Detroit, Boston, Delft and Aberdeen. This has now established Aramco as the Middle East "portal" for advanced technology and knowledge companies seeking to penetrate the region.
The rapidly growing and young population in KSA ensures that political stability is a primary consideration and this is reflected in one of the toughest in-country value frameworks in the region. Local investment, technology transfer and indigenous employment are all highly scrutinised in licensing applications via the Saudi Arabian General Investment Authority (SAGIA). However, the timescales needed to obtain SAGIA approvals have been subject to a positive sea change of late with fast-tracked decisions coming through in less than one week for relevant applications.
Hugh Fraser commented: "A major client recently challenged to get its SAGIA approval within one month of submission. To their great surprise (and ours!) we were able to phone back with positive news five days later!
"In my view, Saudi Arabia continues to offer a wide spectrum of opportunities for our clients, especially over the next 12 months, in this low oil price environment. We have worked hard over the last six months to ramp our Saudi capabilities including our alliance arrangements with Al Shamlany Law Firm in Riyadh and the appointment of Tony Khoury to our Middle East team, a U.S. lawyer with over three years' experience of working inside the Kingdom, including 12 months at SAGIA. We feel this offers invaluable experience and expertise for our clients."
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