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SAUDI ARABIA: PETROLEUM INDUSTRY REVIEW
Pierre Shammas*
ABSTRACT
A comprehensive review is provided of Saudi Arabia’s petroleum industry covering oil and gas
exploration and production, refining, oil and gas trade, marketing and Saudi overseas
investments. Profiles of key Saudi decision makers are provided.
A statistical appendix includes data from the start of oil production in Saudi Arabia in 1938.
Part I Geological potential

Part II The Saudi energy economy
Part III Production capacity
Part IV The oil refining sector
Part V Exports and logistics
Part VI Overseas petroleum industry investments
Part VII The decision makers
Part VIII Statistical Appendix; Reserves, Production, Exports, Prices 1950 to 1999.
PART I
GEOLOGICAL POTENTIAL
Saudi Arabia has a sustainable capacity to produce more than 10.5m b/d of oil. The
actual well head output is close to its OPEC quota of 7.438m b/d, which is effective
from April 1, 1999 to end-March 2000, and this includes Saudi Arabia’s half share of
oil production from the Divided Zone.
The kingdom’s proven oil reserves are still put at 261.2 bn barrels, an official
estimate made in late 1994, despite major oil deposits found in the past five years. The
national oil company, Saudi Aramco, is placing emphasis on natural gas in its current
exploration programme launched in 1994. It has exceeded the aim of adding 5 TCF of
proven non-associated gas reserves every year. Saudi Arabia’s proven gas reserves
stand at 210 TCF, including about 77 TCF of non-associated gas.
With an area of 2.24m sq. km, Saudi Arabia’s population is almost 19m. This is
* Pierre Shammas is President of the Arab Press Services (APS) Group

APS, PO Box 23896, Nicosia, Cyprus.
Fax: 3572 350265
Email: apsnews@spidernet.com.cy
Website: www.aps-energygroup.com
2 Saudi Arabia: Petroleum Industry Review
expected to double in less than 25 years. The country’s energy base is expanding
rapidly to cope with this increase, with demand for gas rising by 7% per annum and
electricity demand to jump from 26,600 MW now to almost 60,000 MW by 2020.
Major economic reforms announced recently are to encourage foreign investment in
the energy base and the other sectors.
Upstream projects include new installations and EOR systems for parts of the
Ghawar axis of oilfields, which have begun to decline due to a fall in reservoir
pressure. Production streams to be expanded are those for the lighter oils. More of the
fields producing heavy oil are being shut down. The Shaybah oilfield, a supergiant
which began test production in mid-1998, was officially inaugurated in March 1999.
Major gas fields found in recent years are being developed.
Saudi Aramco has a bold strategy for oil exports and a flexible pricing approach,
with Riyadh leading OPEC’s effort to keep oil prices defended. Saudi Aramco’s
overseas oil refining and retail assets, held in partnership with big players on both
sides of Suez, are increasing steadily. In the US Star Enterprise, a 50-50 venture
between Saudi Aramco and Texaco, has been merged with Shell and Texaco into a
huge downstream entity for North America.
The decision makers for hydrocarbons are headed by King Fahd Ibn Abdel Aziz
who, despite his health condition, continues to chair Saudi Aramco’s Supreme
Council. But the day-to-day ruler is Crown Prince Abdullah Ibn Abdel Aziz, his half-
brother, who chairs the new Supreme Economic Council and leads an impressive team
of pragmatists.
FRONTIERS YET TO BE DEFINED

Saudi Arabia, covering about four-fifths of the vast Arabian Peninsula, is one of the
countries with poorly defined borders. Its proven sedimentary terrain is believed to
exceed 2 million sq. km, excluding oil/gas rich territories where ownership is yet to be
settled with Saudi Arabia’s neighbours.
Rich structures extending into neighbouring countries have bee in dispute since the
Ottoman era. Sedimentation in these territories dates back to pre-Palaeozoic ages and
reservoirs are to be found in relatively younger source rocks.
With the exception of “final” demarcation agreements involving Abu Dhabi in
1973 and Oman in recent years, Saudi Arabia’s borders in the north-east, the northern
half of the Gulf waters, the south and south-west have remained partly undefined.
Claims relate to the first Saudi dynasty which, at times from the 1750s to the 1870s
(when it collapsed), used to control most of the Arabian Peninsula. The second Saudi
dynasty was founded early in this century on the basis of Wahhabism’s aim of re-
unifying the Muslim tribes, a concept belonging to an Islamic time zone.
Border disputes with Yemen involve territories more than 2,000 km long, including
areas rich in oil and gas. Riyadh has rejected Sanaa’s calls for international arbitration.
Claims have led to armed clashes – most notably on the Red Sea Island of Al
Duwayma. After the clash, in which three Yemeni soldiers were killed, Riyadh and
Sanaa signed an agreement to avoid the use of force to solve their territorial disputes.
The kingdom is leader of the Gulf Co-operation Council (GCC), an alliance created
in the early 1980s between Saudi Arabia and smaller neighbours: Bahrain, Kuwait,
Saudi Arabia: Petroleum Industry Review 3
Oman, Qatar and the UAE. The alliance was to develop gradually and lead to a form
of confederation. But Saudi Arabia still has territorial claims to settle with them, most
of which kept dormant and overshadowed by mutual interests judged more urgent.
Pending frontier settlements in the north-east include prime sedimentary terrain in
the “Divided Zone” with Kuwait. There are islands and offshore areas in the Gulf to
be settled between Saudi Arabia and each of Kuwait and Iran. There is an area to be
mutually demarcated between Saudi Arabia and Qatar. The offshore Abu Saafa
oilfield, a giant with 6 bn barrels of oil, lies in an area shared by Bahrain but yet to be
settled. In the north, west of Kuwait, there is a “neutral zone” with Iraq.
THE GEOLOGY
Saudi Arabia’s sedimentary terrain is of exceptional quality. There are huge oil
reserves contained in just nine fields, where recovery costs are the lowest in the world.
The main concentration of established oilfields lies in the north-eastern part of the
kingdom and in the offshore of the northern Gulf. The areas are dominated by a series
of generally north-south trending oil fairways. The most prominent of these lie along
the super-giant Ghawar structure, which consists of several oil reservoirs, by far the
largest in the world.
Oil in place in the Ghawar set of fields is said to exceed 300 bn barrels. Oil in place
in the other fields, including the offshore Safaniya and many different structures in the
kingdom is said to total a further 200-700 bn barrels. These make Saudi Arabia by far
the biggest oil reservoir in the world, with Saudi Aramco being among the world’s
most conservative companies in releasing reserves figures.
Ghawar, discovered in 1940, is more than 250 km long. The Ghawar trend splays
out as it passes offshore. And there is not a clearly defined lineation in the offshore
areas. A similar, parallel, north-south trend lies to the west of Ghawar and may extend
from Mazalij in the south as far as Burgan (Kuwait) in the north. Within Saudi Arabia,
the southern end of this trend includes Khurais, Qird, Abu Jifan and Farhah, which
may be part of a super-giant accumulation. It is tempting to extrapolate the more recent
discoveries south-east of Riyadh, in the centre of the kingdom, into yet another
northerly trending belt of fields representing the westernmost oil occurrences in the
country.
The bulk of the kingdom’s currently produced oil reserves occur in the limestones
of the Jurassic Arab A, B, C and D units, with substantial amounts in older Jurassic
limestone members, e.g. the Dhruma and Hanifa. The latter unit is also believed to be
the major source rock for most of the Jurassic oil in the region and it may have sourced
some of the younger reservoirs where the Hith anhydrite is absent or breached by
faulting.
In the offshore fields, the main reservoirs are Cretaceous in age and comprise both
sandstones and carbonates. In view of the strong development of the Hith or Gotnia
anhydrites in this area, it is likely that the oil is derived from Cretaceous sources which
have reached maturity in more deeply buried areas to the south-east.
Deep drilling on several of the large Jurassic oilfields has proved up reserves of gas
sometimes with condensate in Permian Khuff limestones and in pre-Khuff sandstones.
Deposits of free gas have been pursued since industries and utilities in Saudi Arabia,
which depend heavily on gas for power or feedstock, were deprived of supplies when
oil output was cut back and associated gas production fell during the 1980s. In the
more recent years, Khuff and pre-Khuff gas has been developed to feed the kingdom’s
Master Gas System, the biggest of its kind in the world.
NEW PALAEOZOIC SOURCING THEORIES &

CENTRAL ARABIAN PROSPECTS
Rich Palaeozoic reservoirs have been discovered in the centre south of Riyadh since
June 1989. They contain sweet oil as well as sweet gas and condensates. Some of the
oil is sulphur-free and can be used directly as a motor fuel. The Palaeozoic units are
older than the Khuff, mainly in a Permo-Carboniferous formation called Unaiza (Or
Unayzah). This has opened up yet another play, with Saudi Aramco geologists saying
the potential for large pre-Khuff light oil reserves may exist beneath the known
reservoirs. The new theory has aroused interest among geologists elsewhere in the
Arabian Peninsula and in nearby regions.
Geologists at Saudi Aramco had begun testing new petroleum sourcing theories,
including the Palaeozoic potentials, since the early 1980s when several interesting
developments occurred in Oman and Yemen. The discovery of deep formations,
mostly of the Palaeozoic age, beneath existing fields in Oman encouraged Aramco
executives to let geologists investigate the Palaeozoic in several parts of the kingdom.
Initial attempts made south and south-east of Riyadh during the early 1980s had a
negative outcome and the central region was declared barren. Geologists’ persistent
argument about Palaeozoic potentials were not only disregarded but such theories
were overtaken by negative events including a fall in oil prices.
It was only in late 1986, after Aramco received very precise, high-tech equipment,
that another survey of unexplored areas was encouraged. By then Hisham Nazer had
replaced Ahmad Zaki Yamani as oil minister, and several fields’ production capacity
had dropped as a result of extensive mothballing.
In effect the entire hydrocarbon sector was to be restructured, with emphasis on the
upstream. Eventually restructuring made Aramco’s upstream experts like Dr. Sadad
Al Husseini more prominent, with the latter becoming vice president for exploration
and production. Aramco was subsequently Saudised as a company wholly owned by
the state and became known as Saudi Aramco. Well equipped and authorised to
explore areas outside the former Aramco concessions, in early 1989 the company
embarked on a programme for the central region to test those new sourcing theories
once again. Within about 12 months the results were impressive enough to become the
subject of keen investigation by world geologists.
Four major fields were discovered before end-1990. The first field was Al Hawtah,
announced on June 7, 1989. The second was Dilam, discovered on October. 11, 1989.
Ragheeb was discovered on January 1, 1990. Naeem was announced on April 11,
1990. These and other discoveries made later in the central region were also referred
to as Najd fields. From then on, the programme proved to have an unprecedented
success ratio in oil well drilling anywhere in the world. It also confirmed the
geologists’ theory that central Saudi Arabia was the most accessible region to
investigate the Palaeozoic in the Middle East, with depths ranging from 7,900 to about
9,000 feet. The thickness of sedimentary sections is said to be more than three times
that of Palaeozoic layers found in Oman, to the south, and tend to increase northward.
The oil zone at Dilam, one of the northernmost wildcats, is more than 140 feet thick;
and the gas zone that contains 65° API condensate as well as sweet gas is said to be
much thicker. A further study of these horizons has had major implications on theories
related to hydrocarbon sourcing, migration, etc.
A number of equally interesting finds – all of sweet oil and gas – have been made
since then. One of the discoveries is Khuzami-1 well, spudded in April 1997, which
later tested 1,550 b/d of sweet oil and 1 MCF/day of gas, 120 km south of Riyadh and
30 km north of Al Hawtah. The earlier and later discoveries have all been developed
and the fields now are producing over 200,000 b/d of Arab Super Light oil.
THE OTHER REGIONS

Of the kingdom’s known sedimentary terrain, less than 60,000 sq. km lie under the
adjacent continental shelf, where water depths are less than 200 metres. The
westernmost part of the land area is occupied by outcrops of the Precambrian Arabian
Shield to the West, of which lies a narrow continental shelf in the Red Sea.
The Shield is non-prospective for hydrocarbons. But the Red Sea shelf is virtually
unexplored and is believed to be prospective. One gas and condensate discovery was
made at Barqan in Miocene sands near the mouth of the Gulf of Aqaba. Only a limited
number of wells have been drilled south of Barqan on the Red Sea shelf.
East of the Arabian Shield outcrops, the sedimentary section thickens eastwards
towards the Gulf and into the Rub’ Al Khali basin. To the north-east, strata dip and
thicken towards the Iraqi border but the northern and north-eastern parts of Saudi
Arabia are still relatively unexplored. The sedimentary section in the far north-west
may be too thin to be prospective. One small oil discovery has been made at Hamza
in Jordan some 20 km from the Saudi border.
Deeper on the Saudi side of that frontier, however, important reservoirs were
discovered by Saudi Aramco in the past seven years. At first, a relatively large
gas/condensate reserve was discovered in November 1992 at Midyan, on the Red Sea
coast about 150 km west of Tabuk and 550 km north of Yanbu’. The reservoir is a 129-
metre thick Tertiary Miocene limestone at a depth of 2,212-2,343 metres. The
discovery well tested 45 MCF/day of sweet gas and 1,300 b/d of 55° API condensates.
A second limestone reservoir of the same age was fund later and tested 55 MCF/day of
sweet gas and 1,900 b/d of 58° API condensates. A third well, Midyan-3, confirmed an
important oil reservoir underneath the gas structure at a depth of 2,351-2,377 metres. I
March 1993 it tested 2,300 b/d of 39° API oil with 0.8% sulphur and 19 MCF/day of
gas. Further drilling in the area led to small discoveries in similar formations.
To the south-east of the kingdom, in the Rub’ Al Khali basin, several quite shallow
stratigraphic wells have been drilled. But with wells spaced at 100-200 km apart, the
region must be considered to be virtually unexplored. South of the border with Abu
Dhabi several fields have been discovered in tectonic and stratigraphic settings similar
to those of Abu Dhabi. Reservoir ages range from Jurassic Tuwaiq to Cretaceous
Mishrif with the major accumulation at Shaybah occurring in reefal facies of the
Shuaiba formation. The origin of these fields is believed to be similar to that of the big
fields in Abu Dhabi, where large swells developed over salt pillows possibly triggered
by deeper basement faulting. With the exception of Shaybah which now stream, none
of the Saudi fields there has been developed. Discovered reserves at Shaybah are
estimated at 7 bn barrels of light/sweet oil. The one large gas discovery there has a
high sulphur content. Shaybah lies on the border and extends well into Abu Dhabi.
Under the 1973 border accord, it is said, the two states agreed that any field found on
the shared frontier would belong to the country in which its bigger part is located.
Riyadh then said that, since the Abu Dhabi part is smaller, Shaybah’s entire reservoir
belongs to Saudi Arabia. But when the field was officially inaugurated in March 1999,
a meeting there of GCC oil ministers was boycotted by their UAE counterpart – in an
apparent sign that ownership of Shaybah is yet to be settled.
In the south-west, small oil discoveries were made in the past seven years in the Al
Wajh region. The area has not proved to be of importance, however, and Saudi
Aramco moved its exploration team and equipment back to the Midyan zone.
Towards the southern end of the Red Sea, discoveries were made around Jizan –
one of the provinces disputed by Yemen. But Saudi Arabia belittled their importance.
One discovery was said to have flowed at 4,000 b/d, though Saudi Aramco declined
to confirm this. It said in late 1992 the oil flow was difficult to test because the casing
partially collapsed due to unstable salt dunes. One of the wells drilled to a depth of
2,370 metres was dry. The rig was in mid-1993 moved to the north for drilling in the
Qunfidah region. The Jeddah area is believed to be prospective.
SAUDIS EXCEED TARGET OF FINDING

5 TCF/YEAR OF FREE GAS
From 1994, Saudi Aramco has put emphasis on non-associated gas in its exploration.
Oil Minister Ali Naimi told a gas conference in Yanbu’ in October 1997 that the aim
was to add 5 TCF to the proven reserves every year. But Saudi Aramco has exceeded
this target, having discovered 30 TCF of recoverable non-associated gas since 1995.
In 1998 alone, Saudi Aramco discovered over 7.9 TCF of recoverable gas. Last year
Saudi Arabia was the only country to have found more gas than it produced, with the
world discoveries of 40.5 TCF having replaced only 67% of gas produced in 1998.
Now the recoverable Saudi reserves stand at 210 TCF, including more than 77 TCF
of non-associated gas which account for almost 37% of the total. Saudi Arabia has
over 261.2 bn barrels of proven oil reserves, 26% of the world’s a conservative figure
based on an estimate made in late 1994.
To encourage Saudi Aramco’s exploration for the development of non-associated
gas fields, the price of gas to local industries, power plants and refineries was raised
from $0.50 to $0.75/million BTU on January 1, 1998.
Local demand for gas has been rising by more than 7% per annum. The annual
growth rate for 1999 and the subsequent years is expected to exceed 8%. The number
of industries on the waiting list to receive gas feedstocks remains far beyond Saudi
Aramco’s capacity.
Saudi Aramco’s marketed gas production in 1998 reached about 46 BCM, up 1.5%
from the 1997 figure of 45.34 BCM. There was a big jump in 1997, as marketed
production in 1996 was 41.3 BCM, compared to 30.5 BCM in 1990 and 25.2 BCM in
1986. Naimi says: “If gas demand grows even at the conservative rate of 8% a year,
we will require about 7 BCF/day by 2007”.
Saudi Aramco’s exploration focus for gas has been on low-risk, high-volume
prospects mainly in the Khuff reservoir deep beneath the Ghawar region. Smaller gas
fields, such as Midyan which was found in 1992 in the north-west close to Tabuk, also
figure prominently and will be developed for use in nearby markets. Naimi says
development of “pocket fields in scattered areas will bring gas – and new economic
opportunities – to customers not yet served”. Saudi Aramco has been exploring for oil
and gas in the north-west, mainly between Turaif and Jalamid.
In the Ghawar area, Saudi Aramco has discovered several gas/condensate fields
since late 1994. A total of 25 rigs have been active for exploration and development
of non-associated gas in Ghawar’s deep Khuff reservoir. It has contracted drilling
companies such as Pool Arabia, Santa Fe, ADC and Egyptian Drilling. There is also
emphasis on the Jawf gas field, on the flanks of Ghawar, where the gas is richer than
that from Khuff and has a higher field of ethane and methane.
Independent sources believe non-associated gas reserves discovered so far in the
Najd fields, in the centre south of Riyadh, could exceed 14 TCF. The first major gas
discovery there was made in October 1989 at Dilam, 75 km south of Riyadh, as a drill
stem test at a depth of 7,900 feet yielded about 50 MCF/day of sweet gas with over
90% hydrocarbons and no trace of hydrogen sulfide. The field also tested 65o API
condensates.
The Master Gas System: Gas plays a key role in Saudi Arabia’s industrialisation,
thanks to Saudi Aramco’s Master Gas System (MGS) which was completed in 1981.
Owned and operated by Saudi Aramco, the MGS made the kingdom self-sufficient in
gas feedstocks for industry and fuel for electricity. It also made Saudi Aramco the
world’s biggest exporter of gas liquids (LPGs & NGLs). But it had serious problems
in the 1980s due to a fall in oil production.
Work on the MGS began in 1975, when the Riyadh government asked then US-
owned Aramco to build and operate it as an integrated system. The company was to
recover associated gas produced at the oilfields, process it and supply the gas in dry
and liquid forms for both local and export ventures. Locally, the gas was to feed the
two main industrial zones of the kingdom, Jubail on the Gulf and Yanbu’ on the Red
Sea. The system was built in two phases. The largest of its kind in the world, the MGS
now consists of the following:
About 65 gas/oil separation plants (GOSPs) – and some gas compression plants
– in the various fields, notably including Ghawar, Safaniyah, Khurais, Zuluf, etc.
and the Najd fields.
Pipelines gathering the associated gas for treatment with capacity of 6,000
MCF/day. (The MGS’s capacity was originally set at 5,500 MCF/day. This was
scaled down in 1978 to 3,500 MCF/day. Due to increased local demand and
occasional shortages to gas feedstocks in the 1980s, it was decided that the
gathering capacity should reach 6,000 MCF/day – with big discoveries of non-
associated gas at Ghawar having come as added encouragement).
Three gas processing plants at the Berri, Shedgum and Uthmaniyah oilfields.
These plants separate from the gas the methane content which is supplied to the
power stations, the refineries and the fertiliser, methanol and metal ventures at
the industrial zones. These plants are being debottlenecked and expanded. There
will be two additional gas processing plants, one (the fourth) at Hawiyah to be
on steam in late 2001 and one (the 5th) at Haradh to be on stream before 2005.
With a total investment of about $7.5 bn, these and a further expansion of the
first three plants should by 2005 have the capacity to process up to 9,000
MCF/day. The two new plants will be processing 2,840 MCF/day of non-
associated gas. The other plants are being adapted so they can also process non-
associated gas.
The East-West NGL pipeline which supplies gas liquids from Shedgum to
Yanbu’.
Two gas fractionation plants at Juaymah and Yanbu’. The fractionators separate
ethane, propane, butane and natural gasoline (NGL) from the gas. Ethane is
supplied to the ethylene plants, from Juaymah to Jubail and from the Yanbu’ unit
to a nearly ethylene complex. The LPGs and NGLs are mostly exported, with
local demand for butane having risen due to an expansion of the MTBE sector
and demand for propane is to rise rapidly for flexible new crackers being built in
the Eastern Province. The Juaymah and Yanbu’ plants are being expanded.
Although the system may gather more than 6,000 MCF/day of raw gas, it recent
years it could only process about 4,500 BCF/day. To improve and expand the system
and increase NGL yields, the $7.5 bn investment was necessary. It was justified thanks
to a 50% rise in the price of plant gas to $0.75/m BTU from the beginning of 1998.
The first MGS phase began operations in 1982, after tests in late 1981. It was then
totally dependent on associated gas linked to oil production in a limited number of
fields in the Eastern Province. That caused problems because of a fall in oil
production. A further decline in oil production during the subsequent years caused
power cuts and a shortage of ethane to ethylene plants. This and other problems
compelled Aramco to supplement the system’s gas-feed with Khuff non-associated
gas reserves found at Ghawar and cap gas found at Abqaiq in 1984-85. Both were
developed by 1986. The latter element featured the Khuff and Cap Gas Project,
completed in December 1986. It consisted of 27 wells and 450,000 feet of flow lines,
enabling the MGS to supply 200 MCF/day of additional gas in early 1987.
Phase 2 of the MGS came on stream in late 1984, boosting the supply of associated
gas from other oilfields. But gas supply shortages remained because in 1985 Saudi
Arabia’s oil production at times fell to 2.5m b/d. It was not until non-associated gas
supplies were added that the MGS was able to meet local requirements as well as feed
fractionation plants for LPG/NGL export.
By 1991 Saudi Aramco has added more than 2,00 MCF/day of non-associated gas
gathering capacity to the system, mostly from the Khuff beneath Ghawar. It had
installed facilities to produce 450 MCF/day from the Abqaiq gas cap to meet peak
demand, and 60 MCF/day from the Qatif storage reservoir for emergency. But even
with these additions, the system’s overall capacity remained limited for two reasons.
Gas gathering units were not in place at all the producing oilfields and Saudi Aramco
had to flare or reinject substantial quantities of gas. The three processing plants were
not able to treat all the collected gas, which included non-associated gas. In 1991, the
capacity of the three plants was as follows: 1,600-1,700 MCF/day at Shedgum; about
1,600-1,700 MCF/day at Uthmaniyah; and 500-600 MCF/day at Berri.
The net result was limited availability of dry gas (mainly methane as fuel gas) and
ethane (feedstock for ethylene). In 1991, for example, when total oil production
stood at 8.3m b/d, output of fuel gas and ethane was only 2,500 MCF/day and 330
MCF/day, respectively. Gas associated with 1.3m b/d, out of a total oil output of
8.3m b/d, was either flared or reinjected. Then Saudi Aramco decided to expand
processing capacities at the three plants. It also decided to expand the fractionator at
Juaymah.
OIL EXPLORATION
In 1995, Saudi Aramco resumed exploration in central areas 150 km north of Riyadh.
The company was hoping to find high quality oil reserves similar to those discovered
south of Riyadh. But the outcome was not encouraging and Saudi Aramco has since
moved to other areas. In the south of Riyadh, where it has found a number of fields
with high quality oil and gas since 1989, Saudi Aramco is producing over 200,000 b/d
of Arab Super Light crude oil, but the fields have problems with sand encroachment.
Saudi Aramco believes the fields south of Riyadh are not part of one super-giant
structure. With reserves somewhat similar in quality, each of the fields is separate and
has its own characteristics.
Saudi Aramco has carried out 3D seismic surveys over areas totally more than
10,000 sq. km and has drilled hundreds of exploration and development wells since
1990. Its use of horizontal drilling has been extensive. It has managed to add oil
reserves in excess of the oil it has produced since then. Generally, a well takes four to
five months to drill. The company employs more than 150 new techniques it has
developed to reduce operational costs, improve safety and boost productivity of the
wells.
INVITING FOREIGN E&P OPERATORS

Foreign oil companies have been invited to propose new ideas for investment in
exploration and production of non-associated gas and related IPPs, petrochemical
ventures, etc. The invitation was made by Crown Prince and acting ruler Prince
Abdullah Ibn Abdel Aziz during a world tour last year, including a landmark visit to
the US in late September 1998.
Crude oil prices, which fell to unacceptable levels and proved once again the
vulnerability of the Saudi economy to the oil market, had to be defended through a
more credible OPEC/non-OPEC pact on production cuts. Prince Abdullah’s
consultations on this with the US and world leaders was appropriate, as an OPEC/non-
OPEC pact on defending a fair midfield price level for oil was to be based on a serious
Saudi-Iranian commitment.
Diversification of the Saudi economy, a must, required massive investment and the
focus was to be on natural gas. Consultations on this with world business leaders was
necessary, especially during Prince Abdullah’s visits to the US, Europe and the Far
East. The outcome of Saudi Aramco’s exploration programme since 1994 has proved
without doubt that the kingdom had very big reserves of non-associated gas to be
found.
As Saudi-Japanese negotiations over the offshore concession of Japan’s Arabian
Oil Co. (AOC) in the Divided Zone in 1998 were dragging on with no clear results, it
was also decided that the top leadership in Riyadh should listen to any suggestions on
this matter to be made by the world’s biggest oil companies. But the government
should in no way suggest or hint to such companies that Riyadh was ready to offer
AOC’s concession to them when this expires in February 2000.
Thus Prince Abdullah headed a delegation on his tour and invited the CEOs of the
biggest US oil companies to a meeting in Washington on September 26, 1998. He told
them Saudi Arabia was ready to listen to any proposal for investment to boost and
diversify the economy. Present at the meeting were Foreign Minister Prince Saud Al
Faisal, Oil Minister Ali Nami and other top officials.
During and after that meeting, when the American CEOs asked whether oil E&P
was open, Naimi was emphatic in saying the upstream oil sector was reserved to Saudi
Aramco. Anything else might be open for partnership if and when the government
takes relevant decisions. The Saudi side later hinted Riyadh might allow gas E&P
investments if these were to be part of integrated projects including related
downstream ventures such as IPPs.
Prince Abdullah invited the CEOs to visit Saudi Arabia and meet with him. They
were also asked to meet with Prince Saud and other senior officials. Subsequently, the
CEOs of European and other major oil companies were invited to visit Saudi Arabia
and make proposals.
From December 1998 and through the following months in 1999, the Western
CEOs visited Saudi Arabia and met with Princes Abdullah and Saud and other
officials. Each of them has made specific proposals – and nearly all also proposed to
take up AOC’s concession if this was not to be renewed.
In May 1999, Prince Abdullah ordered the formation of a technical committee of
experts from Saudi Aramco to evaluate all proposals made by the foreign
companies. The committee was asked to make recommendation on each proposal
and submit the recommendations to another ad hoc committee supervised by Prince
Saud.
In June, King Fahd (then on long vacation in Spain) decreed a cabinet change and,
among other things, retained Naimi as oil minister for another four-year term. In early
July 1999, the council of ministers asked the Aramco committee to come up with a
positive assessment of the proposals. Prince Abdullah ordered experts from the
ministries of oil, finance, industry/electricity, trade and foreign affairs to be included
in the technical committee – along with experts from the Saudi Arabian Monetary
Agency (the central bank).
In August, an inter-ministerial committee under Prince Saud’s chairmanship was
formed to study the evaluations of the technical committee. Prince Saud was also to
chair a Higher Committee to evaluate the work of both the technical committee and
the inter-ministerial committee. The Higher Committee was to submit to the Council
of Ministers by October a report on all the foreign companies/ proposals and the Saudi
recommendations.
PART II
THE SAUDI ENERGY ECONOMY
The energy base of Saudi Arabia is expanding rapidly. Its economy will grow thanks
to a combination of sound planning, based on an accelerated pace of reforms
announced just recently, and a positive political strategy balancing the kingdom’s
current and long-term requirements.
A key aspect of the political strategy is the current oil price defence pact between
OPEC and some non-OPEC states, based on a deep Saudi-Iranian commitment, which
is effective from April 1, 1999 to end-March 2000. The Saudis want this pact extended
at least for another year by an OPEC summit which is to be held in Caracas in March
2000.
With an area of 2.24m sq. km, Saudi Arabia has a population of almost 19m, and
it is growing at a rate of 4% per annum. The population will double in less than 25
years. This will occur in parallel with a major expansion of the industrial base in both
the oil/gas and non-petroleum sectors, creating a big surge in domestic energy
consumption.
If the energy production base is not expanded adequately in the meantime, it will
have negative implications for the economy. Already per capita income in Saudi
Arabia has fallen from $19,000 in the first half of the 1980s to about $7,000. Each
$1/barrel rise or fall in the oil price means a $2.7 bn rise or fall in Saudi Arabia’s
annual income. So the current oil price defence pact is a top strategic priority for the
kingdom.
Saudi planners are concerned rapidly rising demand for gas may outstrip
production capacity if adequate emphasis is not placed on gas exploration and
development. Riyadh has said it has no intention to export gas in LNG form or by
pipeline. Instead it will concentrate on securing long-term supplies to local
industries, thereby boosting the position of gas as a major source of Saudi energy,
and foreign companies might be involved in integrated gas E&P and downstream
ventures.
Oil has long been the main source of Saudi energy. It used to be sold at highly
subsidised rates to industrial and domestic users. After US and IMF warnings in the
early 1990s, combined with economic difficulties following the Gulf war, Riyadh has
raised prices of energy in recent years.
THE DYNAMICS OF LOCAL CONSUMPTION

Patterns of energy consumption in Saudi Arabia, like the other oil-rich monarchies of
the Gulf, are unique in the world. Despite domestic fuel price rises in 1995 and 1999,
energy waste continues to be widespread.
A step towards rationalisation came with price rises introduced with the 1995
budget. The budget envisaged SR15 bn ($4 bn) in new income from utilities and
services to be generated by a rise in domestic oil and utility prices and service fees.
Retail prices of gasoline and diesel were doubled. The income was transferred to the
finance ministry. But the price rises were aimed to curb the growth of domestic use
rather than generate income. The government also raised visa fees for expatriates,
lowered funding for education by 20%, raised duties on tobacco. The price of water
supplies rose by up to 13-fold depending on the consumer category.
For the 1999 budget, announced last December, Riyadh raised the power tariffs.
The monthly power allowances of the princes were reduced. In May 1999, it raised
retail gasoline prices by 50% to 24 cents/litre. Airport departure taxes were imposed
in June. Riyadh doubled the cost of an employment visa for expatriates and
discontinued health insurance for them. Now, thanks to oil prices which have more
than doubled since March 1999, the budget deficit is expected to be $4 bn compared
to a forecast $12 bn.
The 1995 and 1999 measures had immediate impacts. The 1995 increase in
gasoline prices alone reportedly yielded about $1 bn/year in extra revenues since then.
Gasoil demand was so high in 1994 that it had to be imported. But in 1995 Saudi
Aramco was able to resume exports on a small scale. The drop in gasoil demand was
sustained through 1996. Diesel consumption also dropped sharply, and the drop was
seen as a long-term trend. This was because the farming community, which ranked
among the biggest users of diesel, was simultaneously hit by a cut in agricultural
subsidies. The 1999 gasoline price hike is to boost state income by $2 bn.
The growth rate of oil consumption has declined. In 1994, refined product demand
was estimated at almost 900,000 b/d, a growth of 8% from 1993. Now it is said to be
less than 750,000 b/d, with gasoline demand averaging about 500,000 b/d. In addition,
local utilities burn 250,000 b/d of crude. So total oil consumption is around 1m b/d,
down from 1.2m b/d in 1994.
Gas consumption is rising fast. Since the early 1980s, when the Master Gas System
became operational, bas has become a major source of energy in the kingdom.
Demand for gas since the early 1990s – mainly from industrial users such as power
stations, desalination plants, petrochemical complexes, etc. – has been growing at a
rate of over 7% per annum. But from 1999 it will rise by 8-9% per annum. At the 15th
World Petroleum Congress in Beijing on October 15, 1997, Oil Minister Ali Naimi
said: “It is our intention to make this natural resource (gas) the engine of industrial
growth in the kingdom... If gas demand grows even at the conservative rate of 8% a
year, we will require about 7 BCF/day by 2007”.
The number of industries on the waiting list to receive gas feedstocks is far beyond
Saudi Aramco’s production capacity. To generate revenues and speed up the pace of
gas exploration, the price of gas sold to the industries of SABIC and Saudi Aramco’s
export refineries was raised from $0.50 to $0.75/million BTU on January 1, 1998. The
retail price of LPG for home use rose 7% from September 18, 1999, to SR15 ($4) per
11-kilo cylinder. The price of a 23-kilo cylinder rose form SR 28 ($7.50) to SR 29
($7.70).
Despite higher costs to consumers and other disincentives, there is a long way to go
before Saudi domestic prices and consumption become rationalised, i.e. begin to
represent the real market price of energy and utilities. The measures imposed so far
have been limited and cautious in order to avoid social unrest. The raise in electricity
fees, as in the case of water, only affected the large consumers, mostly the industries.
THE POWER SECTOR

In March 1997, Industry and Electricity Minister Hashem Yamani aid $117 bn would
be required for power generation alone over a 25-year period. He said power demand
was rising from 19,573 MW in 1995 to 59,267 MW in 2020 and that generating
capacity was to rise from 19,662 MW in 1995 to 69,520 MW in 220. His ministry’s
plan projects that the Saudi population will be 38.3m by 2020, more than double the
present figure of almost 19m, and will comprise 7m households.
The ministry says the 10,500 MW in reserve capacity by 2020 would be needed.
This would be equivalent to 17% of peak generating capacity. A capacity of 1,500-
2,00 MW per annum would have to be added to meet that target. But the ministry’s
plan assumes an annual power consumption growth rate of 4.5%, which is very
conservative as other quarters project 6%.
RESTRUCTURING & PRIVATISATION

With Minister Yamani as a driving force since he came to the cabinet in 1995, the
sector is being restructured. The government is merging the ten regional power
companies into a single entity under a plan to be finalised before end-1999. The new
entity will be called Saudi Electricity Co. (SEC), to be owned 85% by the government.
The state’s share will be sold to the public gradually and SEC is to be financially self-
supporting. Its profitability will be increasing as power tariffs will rise steadily in the
coming years.
A tariffs structure now consists of 11 price levels for the different types of
consumers. At the lowest level, for major bulk users of power like the industries, the
new tariff is 12 Halalas per kWh. At the top tier, for consumers using more than
10,000 kWh per month, the tariff is rising from 20 to 38 Halalas/kWh. The tariffs will
be reviewed in late 2000.
With a paid up capital of $6.4 bn, SEC will be responsible throughout the kingdom
for power generation, transmission and distribution. An independent regulatory body
will be established in late 2000. This is to set the tariffs in periodic reviews in co-
ordination with SEC. From 2001 onwards, tariffs will be rising to levels which should
lure local and foreign companies to invest in planned expansions through
independent power producing ventures (IPPs). A number of major IPPs will have
been established by 2002. These should include major oil companies which would
develop natural gas on a large scale and build gas-fired IPPs (see Gas market Trends).
There will be no power monopoly in Saudi Arabia as SEC will promote the
establishment of IPPs. The Saudi legal system will be amended, as from 2000, to
encourage IPPs.
The state-controlled Saudi power companies consist of four major combines, with
one for each of the main provinces, and six smaller entities for the other regions. The
big four are: Saudi Consolidated Electric Co. (Sceco) for the Eastern Region, Sceco
for the Central Region, Sceco for the Western Region, Sceco for the Northern Region,
and Sceco for the Southern Region. They were formed in the mid-1970s by a
consolidation of about 100 independent companies most of which were then operating
at a loss. The government covered their losses and bore the cost of their merger into
four entities, with the costs converted into equity for the state which eventually
accounted for the bulk of their capital. The companies continued to run at a loss in the
subsequent years. Now they have accumulated debts worth a total of SR 25 bn (almost
$6.7 bn).
In forming SEC and merging into it the four main and six smaller utilities, the
government is to write off the debts. In this way, SEC would begin operations on
secure financial grounds. It will also be offered soft loans from the state funding
agency which are interest-free and only bear a service fee.
OPPOSITION
Within each of the four Scecos, however, the management and some of its clients are
quite powerful. They have been resisting the planned merger and have pledged to
expand their capacity to meet local demand in the future. They have expressed their
opposition to the idea of granting foreign companies the right to build IPPs.
Each of the four companies has regarded its area as a “concession”. When they
were founded, their shareholders had received assurances from the government that
they will face no competition in their areas. Although there were no written
guarantees, the oral assurances were considered to be as good as a contract. Thus, each
of them has operated somewhat like the nine power utilities in Japan before the
deregulation of that market, although the latter used to make huge profit.
One case in point is the oil-fired Shuaiba electric project in the west, conceived in
1990 to be an IPP. The project was to be built on BOO basis with foreign interests
involved. However, as this was within the “concession” of the Sceco for the Western
Region (EWR), the project was stalled. EWR managed to get key government officials
and the main local banks to put obstacles before the BOO promoters. Although the
ministry of industry and electricity favoured the IPP approach, it had to accept a
parallel proposal for EWR to have the Shuaiba plant built for its own account on a
turnkey basis. As EWR was not profitable, in view of heavily subsidised tariffs, the
banks refused to finance its project.
EWR then resorted to a very complex Islamic financing approach which most
banks were reluctant to consider. Finally EWR got Al Rajhi Banking & Investment
Corp., close to the conservative faction of Crown Prince Abdullah, to finance the
plant. ABB Asea Brown Boveri of Zurich agreed to build the plant under a turnkey
contract worth $835m and denominated in Saudi rivals. ABB will own the plant and
mortgage it to Al Rajhi. It will sell it to Al Rajhi, at $835m worth of SRs, when the
project has been completed. Al Rajhi then will sell the plant to EWR at an already
agreed price, which includes the bank’s fees as well as the plant’s cost. EWR will pay
in installments over 13 years, with a three-year grace period.
The Utilities Co. (Uco) was formed in 1998 to provide power to the Jubail and
Yanbu’ industrial zones. It is to invest $2 bn in power plants and other facilities to be
built in the two zones, including a 130 MW plant at Yanbu’. This is a limited liability
company owned equally by the Royal Commission for Jubail and Yanbu’, Saudi
Aramco, the Public Investment Fund (PIF) and the Saudi Arabian Basic Industries
Corp. (SABIC).
JOINT GCC POWER GRID

Saudi Arabia and the other five GCC states are to link their power networks in a
project which could result in savings of up to $3.5 bn per annum during the next
decade. A Riyadh-based GCC inter-connection body is to be set up this year and the
project, in three phases, should be completed by end-2004.
The project was approved during the 19th GCC summit conference held in Abu
Dhabi on December 7-9, 1998. The six GCC power and water ministers met in Riyadh
on March 13, 1999, and agreed on the first phase. The three phases would cost about
$2.8 bn – down from an earlier estimate of $3.3 bn – less than what the six states
would be saving every year in the next decade. The first phase, to link Bahrain,
Kuwait, Qatar and Saudi Arabia, by 2001/2, will cost $1.1 bn and the four states would
cover 35% of this with the rest to be borrowed. The first phase will enable the four
states to save almost $1 bn per annum by 2007. The second phase will link the grids
of the UAE and Oman through a short connection at Al Ain, near the Omani border,
before 2001. The third phase will link the UAE-Oman line with that of the other four
states by 2004.
Each state will be given a load capacity option and an allocation to buy power. The
central body will do the buying and selling on behalf of the six national networks and
will handle the payments for them. It will charge a service fee, which will be its
income to cover the operations, administrative expenses and capital costs. Saudi
Arabia would have a load option of 1,800 Mw, compared with 1,200 MW for Kuwait,
900 MW for the UAE, 750 MW for Qatar, 600 MW for Bahrain and 400 MW for
Oman.
THE ECONOMIC BASE

In late August 1999, King Fahd (then still vacationing in Spain), ordered the
establishment of a Supreme Economic Council (SEC) under the chairmanship of
Crown Prince Abdullah. King Fahd appointed his powerful full-brother, Prince Sultan
(2nd deputy premier, defence/aviation minister & inspector general), as deputy
chairman. The other SEC members are the ministers of finance/economy, oil,
industry/electricity, trade, PTT, public works/housing, planning, labour/social affairs,
three state ministers, SAMA’s governor, and 10 leading Saudi businessmen
representing the private sector.
The SEC, formed in early September, will study the country’s economy, annual
budgets, the current and future five-year plans, economic reform requirements such as
privatisations and partial market deregulations, projects to diversify the economy, and
monetary and fiscal policies. It will have some executive powers, but only in getting
its decisions to be approved and issued by the Council of Ministers. It will issue
regular reports to the Council of Ministers on the state of the economy.
In a major policy statement, Prince Abdullah on October 19 announced that the
investment laws will be amended and obstacles will be swept away. Foreign
ownership of real estate will be allowed, tax rates on foreign companies will be cut and
the pace of privatisations will be accelerated. (Currently foreign companies can only
own property through a Saudi sponsor. Current taxes on foreign companies reach 45%
after five-to-ten year grace. Until now privatisations have been extremely slow. The
government has been too slow in reforming an extensive welfare state and in removing
hurdles to private sector investment).
Prince Abdullah said: “The fiscal regime concerning foreign capital, which will be
instituted soon, will encourage foreign investment and...boost the capacity of the Saudi
economy and allow it to respond positively to the challenges of our time. This has
pushed us to revise the system of sponsorship...to make it more flexible, more
transparent, and to bring it in line with current needs. A law on foreign property
ownership would be in the same spirit... Privatisation is a strategic option to form a
solid economic foundation, based n strengthening the private sector role in a way to
diversify the sources of revenue”.
PART III
PRODUCTION CAPACITY
Saudi Aramco has almost 3.4 b/d of spare oil production capacity. When the actual
output of Saudi Arabia is below 7.4m b/d (which includes the kingdom’s share of
production in the Divided Zone.) This zone, shared equally by Saudi Arabia and
Kuwait, has two oil producing concessionaires with a combined capacity of 600,000
b/d equally divided into onshore offshore streams.
The oil refining system of Saudi Aramco within the kingdom can process more than
1.6m b/d of crude oils. Its overseas oil refining and distribution assets are considerable
and will be expanding steadily.
THE EXPORT MIX IS LIGHTER

All of Saudi Aramco’s projects programmed since early 1990 to expand fields; oil
production capacities have been completed. Fields rich in light/sweet oils have been
developed, so that the mix of export crudes now is more light than it used to be in 1997/98
and much lighter than in the early 1990s. Capacities at fields producing heavy/sour crudes
have been mostly mothballed. The export of sour crudes has decreased considerably since
early 1994 causing a shortage of such grades on the world market to worsen.
Now a spare capacity of over 3m b/d gives Saudi Aramco ample flexibility. To
compare, its sustainable capacity in July 1992 stood at 8.7m b/d and in 1988 was less
than 8m b/d. The current crude oil production and installed capacities by grades break
down as follows:
4.4m b/d of Arabian Light (34° API) – down from 5.4m b/d in 1997 – with a
sustainable capacity of 5.5m b/d compared to 4.8m b/d in mid-1992.
1.4 m b/d of Arabian Extra Light (38° API) – up from 1.1m b/d in 1997 – with
a sustainable capacity having reached 1.6m b/d compared to 0.8m b/d in 1992.
AEL production and capacity increased with the coming on stream of Shaybah
in early 1999.
0.8m b/d of Arabian Medium (31° API) – down from 1.1m b/d in 1997 – with a
0.4m b/d of Arabian Heavy (27° API) – down from 0.5m b/d in 1997 – with a
0.2m b/d of Arab Super Light (50° API), produced from the Najd fields south of
Riyadh since late 1994.
0.27m b/d of heavy/sour crudes being exported from Saudi Arabia’s 50% share
of Divided Zone onshore and offshore production.
In late 1994, Saudi Aramco began producing Arab Super Light (ASL) from the
Najd’s Hawtah trend of fields, in the central area south of Riyadh, which are rich in
44-52° API oils. Some of the area’s crudes are sulphur-free.
PRODUCTION & EXPANSION COSTS

Historically, the cost of producing oil in Saudi Arabia has been the lowest in the world.
In the 1950s, the net well-head cost of production was less than 7 US cents/ barrel. In
early 1990, the net well-head cost of production from 14 operating fields, with the
Ghawar axis of fields taken as one unit, was estimated to average between 50 and 63
cents/barrel. This was calculated on the basis of production then ranging from 5.38m
b/d, Saudi Arabia’s OPEC quota for the first half of 1990, to 7.2m b/d. At present, the
average of wellhead costs is a little over $1/barrel (up from about 95 cents/barrel in
1997), and experts predict higher costs in the coming years in view of declining
reservoir pressure in some of the Ghawar fields. The wellhead cost in the Najd fields
is relatively high, in view of technical problems encountered there in the past four
years.
The estimates until early 1990 were used as a base in calculating the minimum per-
unit capital cost of additional capacity for Saudi Aramco’s expansion programme.
APS sources indicated at the time that, at additional capacity above 7.2 million b/d,
production costs would be considerably higher.
Total costs up to the loading of the crudes for export, including Saudi Aramco’s
administrative costs, piping and terminalling, are now said to average about $2/barrel
(as in 1997), compared to almost $2.50/barrel in 1993. Costs were reduced as a result
of reorganisation and cost-cutting measures since Saudi Aramco’s absorption of
Samarec in the past six years. Until 1987, total costs used to be over $2.50/barrel, due
to high wages for US staff and various social programmes.
It would be possible to cut total unit costs to less than $1.00/barrel, the level
estimated in the case of Iraq in early 1990, but the final outcome of further cost-cutting
measures could be “lower quality personnel and inefficiency across the board”, as one
Saudi Aramco official puts it.
MAINTENANCE COSTS
However, these costs exclude field maintenance and other items, such as mothballing
and de-mothballing costs in the fields, and the maintenance of GOSPs, pipelines,
storage tanks, terminals, etc.
The maintenance element is important, as Saudi Aramco adopts the approach of the
US oil majors which is thorough and expensive. There have been varied estimates of
Saudi Aramco’s field maintenance costs, with one study group having claimed this
exceeds $1.5 bn per annum and Aramco experts saying this figure is exaggerated.
NEW CAPACITY COSTS

In early 1990, after Saudi Aramco’s programme was announced, it was estimated that
the cost of expanding the capacity of its developed oil fields in the north-east would
be about $15 bn.
This meant the cost for an additional 3.5m b/d capacity, over the 7.2m b/d
mentioned above, would be $500m for every 117,000 b/d unit including
infrastructures. But there were much higher estimates of Saudi Aramco’s programme
costs subsequently, with the figure of $25 bn often mentioned.
THE NAJD EXPERIENCE

APS sources had forecast in early 1990 that net well-head costs at the Najd fields
would come to less than 50 cents/barrel, if their reservoir pressure was high as experts
had indicated . (Net well-head production costs estimated for additional capacity
among OPEC’s Middle East members then were ranging from 23 cents in Iraq to
$2.80/barrel in Algeria). But now the net well-head cost at the Najd fields is said to
exceed $1.50/barrel.
The Najd reservoirs have proved to have lower pressure than first thought. Since 1994,
production has been affected by the encroachment of sand into the wells. Underground
pumps installed at the fields have clogged up with sand, with the blockage occurring
roughly every three months. To prevent production from falling below 200,000 b/d, Saudi
Aramco has been hooking up several new fields discovered since 1994.
It was first mentioned that development of the Najd fields would cost less than
$500m for each 200,000 b/d production unit. Actual costs until the Najd fields were
developed to a capacity of 200,000 b/d, reached by end-1994, came to more than
$550m. But this was way below estimates made in 1990 by US upstream experts.
Assuming an ultimate production capacity of 2m b/d in the Najd area would be

possible during the next decade, the total cost could be $6.5-7 bn of current US dollars.
This is still lower than the cost of developing new capacity in Saudi Arabia’s north-
eastern fields. But the return on investment could be less positive than in the latter
case, as rising world supply of condensates has caused prices of very sweet crudes to
decline.
In the coming years, the premium on light/sweet crudes over heavy/sour grades
could be lower than at present. This is because of an increase in non-OPEC fields
producing light/sweet oil and a steady rise in condensate production associated with
new gas and LNG export streams. Now the premium averages less than $1.00/barrel
at times, compared to $4/barrel obtained in the early 1990s. There could be a reversal
of this trend in the longer run, when non-OPEC fields producing light/sweet oils begin
to deplete, which would justify expanding the Najd fields’ capacity on a large scale.
EXPANSION BACKGROUND
In the 1970s, the then US-controlled Aramco was to expand its oil production capacity
to 20m b/d by the late 1990s. Several factors combined to limit its capacity from more
than 11m b/d in the early 1980s to 7.5m b/d in late 1989. After it was taken over by
the state, becoming Saudi Aramco in 1988, the idea was to attain a sustainable
capacity of 10m b/d by 2000 but the actual projects were not to be planned before
1990. In September 1990, after Iraq invaded Kuwait and oil exports from these two
countries were totally suspended, Saudi Aramco advanced its target date for this to
end-1995. The objective, 10m b/d, was reached in June 1995 with the completion of
Saudi Aramco’s programme. The company already had the potential to produce up to
10m b/d in late 1994.
The total costs of upgrade and expansion programmes for Saudi Aramco, the
Petromin/Samarec refineries (now absorbed by Saudi Aramco), SABIC and base and
lube oil projects were in late 1991 estimated at about $34-50 bn. But actual costs came
to much less than that. Some projects were scaled down, and others were cancelled in
response to falling oil prices.
Saudi Aramco’s programme offered big opportunities to companies operating in
the energy services and construction sectors, with US firms being the main winners.
The focus was on bringing back on stream shut-in facilities, rapid construction of
additional GOSPs, and massive water-injection facilities to maintain reservoir
pressures. New water treatment facilities included tankage, filtration, chemical
treatment, pumps, piping, metering and controls. Saudi Aramco’s plan called for
drilling 226 development wells and recompleting 108 more. Capital costs for E&P
were $2-4 bn/year in 1992-1994. It was estimated that spending for E&P,
maintenance and support would range from $2.6 bn to $4.3 bn per annum in 1992-
1995.
The main Saudi Aramco upstream contracts had been awarded by late 1991. Their
cost was estimated at $3.5 bn. The following were the main projects:
Northern Area: Fluor Daniel – $1 Bn

This five-year project was to upgrade the Safaniyah, Marjan and Berri offshore fields
and the onshore Zuluf field. It involved the addition of two gas/oil separation plants
(GOSPs) to the facilities, improvement of gas compression plant and a central
utilities unit at Marjan (a field first developed in the early 1980s but mothballed
before its entry into production). Fluor Daniel was to add gas compression facilities
and a central utilities at Zuluf. But in 1993, Saudi Aramco decided to partly mothball
some fields producing heavy and medium crudes. The move later led to a major
reduction in the export of heavy and medium grades, affecting many of Saudi
Aramco’s clients.
Southern Area: Ralph Parsons – $2 Bn:

This five-year project, for the Hawiyah structure, one of the Ghawar fields, called for
one new 300,000 b/d GOSP and for expanding the capacity of two existing GOSPs, a
new 1.35m b/d seawater injection plant for Ghawar, and an extension to the seawater
treatment plant at Qurrayah. By July 1992, completion of the water injection pipeline
increased Ghawar’s production, with a new 150,000 b/d GOSP added to Ghawar in the
Farzan area.
Saudi Aramco in February 1992 gave a $150m contract to a JV of Bechtel and
Athens-based Consolidated Contractors International Co. (CCC) to build a new
300,000 b/d GOSP and expand by 300,000 b/d to 1.2m b/d two other GOSPs at
Hawiyah. Two contracts were awarded later in 1992 to update the control systems for
a crude processing plant at Abqaig – a field near the northern part of the Ghawar axis
– and the gas plant at Uthmaniyah, of the Ghawar fields. The proposed adding of the
Farzan GOSP to the 300,000 b/d GOSP already in the programme at Udayliyah, a
Ghawar field, suggested another 520,000 b/d in new Ghawar capacity once the project
was to be completed. There was little doubt, however, that the Ghawar fields were
beginning to mature and required new drilling and injection technologies to maintain
production in the next decade 1990s. Now reservoir pressure at some of the Ghawar
fields is in decline and they need EOR systems.
The Najd Fields: John Brown – $500M:

The contract to develop the Hawtah trend in the Najd called for one GOSP and one
blending station, with the construction of a pipeline to link the new production system
to Petroline (the east-west pipeline). This project was expanded and speeded up as
more fields were found in the area by mid-1993. So the production capacity was
targeted in 1994 to reach 200,000 b/d in early 1995, which was realised.
Saudi Aramco began giving contracts for the Hawtah development with the April
1992 award to ABB Lummus Crest (a US unit of the Swedish-Swiss firm Asea Brown
Boveri) of a job to build a $150m GOSP in Hawtah. A second contract was awarded
in mid-1992 to the UK unit of Stone and Webster for a $110m crude oil stabilisation
plant at the field.
To Maintain Potential: Lummus Crest – $500M:

This contract focused on ongoing infrastructural support for Marjan, Berri and
Safaniyah. It predated the expansion and was responding to the needs of various fields.
Lummus’s responsibilities in this phase were to build kit-form modular platforms
for the offshore expansion in the northern area. Lummus was also to deal with
ongoing problems of corrosion in the underwater pipelines.
THE GULF CRISIS

Iraq’s invasion of Kuwait on August 2, 1990 meant about 5m b/d of oil production was
cut from the market. It prompted Riyadh to increase Saudi output at top speed. Also
prompted by Washington, US companies provided Saudi Aramco with technical
assistance and equipment at a speed matching the US military build-up in the Eastern
Province. This enabled Saudi Aramco to raise oil production to more than 8m b/d in
October 1990, by which time world oil prices had risen sharply.
Much of the increase in production capacity was accomplished from late 1990
through a de-mothballing of existing facilities: the recommissioning of 146 oil wells
and 12 mothballed GOSPs in the Ghawar, Harmaliyah and Khurais fields, together
with all associated gas gathering and wet crude handling facilities. These facilities
added more than 1m b/d of Arabian Extra Light, Arabian Light and Medium crude oils
to meet world demand.
SAUDI ARABIA – THE OIL & GAS FIELDS

Other efforts to increase oil production during the Gulf crisis included opening up
GOSPs in the Safaniyah, Zuluf, Marjan, Khursaniyah, Qatif and Abu Hadriyah fields,
which had previously been bypassed. Work also involved the drilling of 82 new oil
wells and a new 72 km pipeline to connect 42 wells to GOSPs in these fields. When
the Gulf war broke out in January 1991, Saudi production was averaging about 8.7m
b/d and world crude oil prices were falling.
Capacity additions enabled Saudi Aramco to produce over 9.1m b/d in late August
1991, with another 185,000 b/d coming from the Saudi share of the Divided Zone. This
helped restore market stability after an aborted Soviet coup and a September OPEC
meeting. Later production fell to 8m b/d in line with Saudi Arabia’s OPEC quota. But
the share of lighter crudes in Saudi exports at times reached almost 7m b/d. The total
output now is averaging about 7.47m b/d, including Saudi Arabia’s share from the
Divided Zone.
THE OIL & GAS FIELDS

There are over 80 oil and gas fields in Saudi Arabia, mostly undeveloped. Many of
them are onshore with Jurassic reservoirs. Of the developed fields, 12 provide the bulk
of Saudi Aramco’s oil and gas production and contain most of the kingdom’s
hydrocarbon reserves. There are less than 1,450 wells producing oil and gas. This is
the lowest number in the world relative to the size of the kingdom’s production, the
largest in the world, compared to more than 1,500 wells in Algeria which accounts for
less than 10% of the Saudi Arabia’s capacity.
Oil produced from may 1939, when the first field Dammam went on stream, ha snot
reached 70 bn barrels. In 1998 Saudi Aramco discovered 3.1 bn barrels, allowing it to
replace the oil which it produced during the year.
The following are profiles of the main producing fields and fields yet to produce.
Main Saudi Field Expansions & Costs*

(Costs in million – Capacity in ‘000 b/d)
Name of Budgeted 1991/92 1995-2000 API %

Field Cost, US$ Capacity Capacity Gravity Sulphur
Ghawar fields** 2,340 4,700 4,900 30-34° 1.91-2.15
Manifa** 2,230 200 200 28° 2.97-3.66
Safaniya** 2,090 1,300 1,200 27° 2.93-2.96
Berri 1,500 700 1,150 32-34-39° 1-2.00
Qatif 1,000 100 200 33-34° 2.45-2.92
Najd fields 1,00 – 200 45+° 0.06
Zuluf** 575 500 500 32° 2.41
Marjan** 500 100 270 33° 2.42
Khursaniya** 235 75 100 33-36° 1.89
Khursaniya** 235 75 100 31° 2.63
Abu Hadriya 110 50 75 35° 1.65
Abqaiq 100 850 850 37° 1.32-2.80
Others** 2800 400 180 30-35° 1-15
Total by mid-1995 $14,975 9,100 10,050
Shaybah March 1999 $2,500 – 500 40-42° 0.7

Total Saudi Aramco $17,475 9,100 10,550
Saudi Share of D.Z.*** 185 300
Total Saudi Arabia 9,285 10,850
* The amounts of money mentioned in the table may not be exact and do not constitute the total costs
for upstream oil expansion projects; and they exclude investments in the Divided Zone. The cost of
Saudi infrastructural projects, such as expansion of gas processing plants, Petroline, storage and
terminals is excluded from this table. The budgeted figures have been mostly quoted from Saudi
Aramco announcements. Some of the figures have been higher than budgeted because they were
based on the amounts of contracts awarded as were reported in the press. Most of the officially
budgeted figures in the table were based on 1990 prices. It is conceivable that some of the contracts
awarded in 1991/92 have cost Saudi Aramco, or its five main project contractors more money than
planned.
** Capacities listed do not constitute the total oil production capacity built up by Saudi Aramco. The
Ghawar fields’ built-up capacity by 1995 had reached 5.4m b/d, but most of the heavy/sour crude
streams were mothballed as the company raised production from fields producing light and sweeter
grades. Manifa’s capacity reached 300,000 b/d but wells producing 100,000 b/d of heavy oil were
shut in, as in the case of other fields’ wells producing such grades. Safaniya’s capacity reached 1.5m
b/d, but much of this was later mothballed. Zuluf’s reached 700,000 b/d and a major part of this was
later mothballed. Built up capacities reached 570,000 b/d at Marjan, 150,000 b/d at Khursaniya, and
over 400,000 b/d at other fields. Saudi Aramco’s capacity mothballed is 1.6m b/d. With the exception
of Shaybah which went on stream in the second half of 1998 and was inaugurated in March 1999,
fields mentioned in the table are part of the first five-year phase of Saudi Aramco’s expansion. If
world demand for Saudi oil rises above current expectations, a second phase of field expansions
beyond 2000 might be tendered. If oil prices fall sharply in the event of Iraq’s full return to the
market, and if Riyadh cuts output in line with an OPEC quota, there could be no further expansions.
*** Capacity in the Divided Zone reached 600,000 b/d as onshore concessionaire Texaco raised its
potential from 270,000 to 300,000 b/d in mid-1999. The capacity of offshore concessionaire AOC
(Japan) is 300,000 b/d.
THE GHAWAR FIELDS

Discovered in 1948 by the then US-owned Aramco (Chevron, Texaco, Exxon &
Mobil), Ghawar is by far the largest axis of the fields in the world and is the main
producer of Arab Light in Saudi Arabia. It is 250 km long and 15 km wide. It contains
several fields, of which eight are major oil producers, and huge fields of natural gas in
a Khuff reservoir deep beneath the oil formations. Ghawar’s proven recoverable oil
reserves exceed 70 bn barrels. Oil in place is over 300 bn barrels.
It was Exxon which found the first Ghawar structure at Ain Dar in 1948, having
joined Aramco in 1947. It led to discovery and development of other fields by Exxon.
The bulk of Ghawar’s currently produced oil reserves occur in limestones of the
Jurassic Arab A, B, C and D units, mostly at a depth of 6,920 feet, with substantial
amounts in older Jurassic limestone members. Beneath them lie giant Khuff and pre-
Khuff gas formations.
The main oil producing Ghawar fields are, from north to south: Ain Dar, Shedgum,
Uthmaniyah, Farzan, Ghawar, Al Udayliyah, Hawiyah and Haradh. Their installed
capacity is 5.3m b/d, of which most of the heavier oil production streams have been
mothballed. It was said in early 1990, when total Saudi capacity was less than 8m b/d, these
fields still had the potential to produce 4m b/d, as some of the wells were filled with diesel
to keep them ready. In 1980, as Saudi Arabia’s output totalled 9.9m b/d, Ghawar at times
produced over 6.5m b/d; but the reserver was damaged as a result, and now some of the
older fields like Ain Dar have begun to decline and need EOR facilities. Haradh, in the
southern part of Ghawar, would also require extensive EOR facilities in the coming years.
The main boost to Arabian Light capacity has come from the 520,000 b/d expansion at
Hawiyah. A $2 bn, 1,440 MCF/d gas processing plant being built at Hawiyah, will be on
stream in late 2001 as the 4th in the Master Gas System (MGS). Hawiyah is rich in natural
gas and condensates. On July 21, 1994, the Hawiyah-200 exploratory well yielded 20.2
MCF/d of sweet gas and 3,286 b/d of condensates from an interval of 13,650-14,353 feet.
The well was spudded in January 1994 and was the first in a series of deep tests to explore
new gas reserves on the flanks of Ghawar. It encountered zones bearing extensive sour and
sweet gas deposits in a Khuff formation at 12,500 feet.
Deeper drilling through the Jurassic beneath other Ghawar oil structures had
already since the 1980s proved up large reserves of gas sometimes with condensates
in Permian Khuff limestones and pre-Khuff sandstones. These deposits had been
actively sought since industries and utilities in the Eastern Province, which depended
on associated gas for power or feedstock, had been deprived since oil production was
cut back and associated gas production was curtailed. Now Saudi Aramco is
developing Khuff and pre-Khuff gas reserves beneath Ghawar.
A 300,000 b/d GOSP expansion at Haradh was completed in late 1995. A second
300,000 b/d GOSP will raise the field’s capacity to 600,000 b/d by 2003 with some of
the heavy oil the Ghawar area to be shut in. A $2 bn, 1,400 MCF/d gas processing plant
at Haradh, the 5th, will raise capacity of the MGS to almost 9,000 MCF/day by 2005.
At Uthmaniyah, a major gas processing plant with a capacity of 1.6 BCF/day has
been expanded to 2,400 MCF/d. A 152 km underground gas pipeline, known as
UBTG-3, has been built to link Uthmaniyah’s gas plant to the plants of Juaymah and
Berri. Two new GOSPs at Uthmaniyah were built in late 1992.
The Ghawar fields are now producing well below capacity, with output being
Arabian Light. The other Ghawar fields producing this grade are Khurais, Harmaliya
and Abu Hadriya.
Gas production capacity at Ghawar has been expanded steadily, meanwhile, thanks
to Khuff reserves developed in the past 12 years. Gas production should rise close to
planned processing capacity of 9,000 MCF/d by 2005, with a major part to involve
non-associated gas.
With oil production costs at Ghawar being the lowest in Saudi Arabia, the average
cost of producing associated gas at the well-head is 20 cents/m BTU. Costs up to local
buyers’ receiving end exceed 65 cents/m BTU, with the price of gas being supplied to
Saudi-based industries having been raised from 50 cents to 75 cents/m BTU as from
the beginning of 1998. The well-head cost of producing non-associated gas is higher
than 20 cents/m BTU. But it compares favourably with production cost estimates for
Qatar’s North Field. Total costs of non-associated gas up to the buyers’ receiving end
are believed to average about 55 cents/m BTU.
Associated gas at Ghawar contains 51% methane, 18.5% ethane, 11.5% propane,
4.4% n-butane and isobutane, 1.6% pentane, 0.4% hexane, 0.2% heptane, 0.5%
nitrogen, 9.7% Carbon dioxide, 2.2% Hydrogen sulphide. Its calorific value is 1,300
BTU per cubic foot, compared with 1,270 in Qatar’s associated gas, 1,200 in Algeria,
and 1,130-1,134 in Egypt. The non-associated gas is richer in methane but poorer in
ethane and LPGs.
BERRI
Found in 1964 by Mobil, Berri is an onshore and offshore giant. It has over 10 bn
barrels of 32-34-39° API oil recoverable at relatively low cost. It field produces from
several formations of Upper and Mid-Jurassic age, lying mostly at a depth of 8,300
feet. The capacity has been raised from less than 700,000 b/d in 1990 to 1.15m b/d.
Berri crudes are blended with lighter grades mostly produced from Abqaiq and partly
from Qatif. The export blend is known as Arabian Extra Light, 38° API with about 1%
sulphur. Berri is the site of MGS’ third gas processing plat, the first two being at
Shedgum and Uthmaniyah, and its capacity is being raised to 1,400 MCF/d by 2000.
This is to have unit to recover 280 MCF/d of ethane and 70,000 b/d of propane-plus
and quantities of heavier NGLs by May 2002.
ABQAIQ
A super-giant found in 1940, Abqaiq has 17 bn barrels recoverable at relatively low
cost. The oils are reservoired in Upper and Mid-Jurassic formations at a depth of 6,690
feet in most cases. The field was expanded in 1994 to produce 850,000 b/d of 35-37°
API oils with 1.32-2.28% sulphur. This has added 165,000 b/d to the stream producing
Arabian Extra Light. Work on the field has included horizontal drilling. Abqaiq’s
crudes and those of Berri and Shaybah are mixed at new blending facilities built at
Abqaiq to produce the Arabian Extra Light grade. These facilities are linked by
pipeline to Shaybah field in the deep south.
KHURAIS:
Found in 1957 and on stream in 1970 after long development work, Khurais is about
70 km long with a structure trending north and north-west. It has three Upper/Mid-
Jurassic oil zones already tapped, producing 33° API oil from Arab D and Hanifa
carbonates, and 36° oil from the deeper Fadhili reservoir. The capacity is 100,000 b/d.
Oil reserves in place at Khurais are believed to exceed 20 bn barrels. But only about
7 bn barrels would be recoverable. The field’s full potential can be proven after work
on other structures related to this trend has been done. It was partly in view of such
considerations that Khurais was shut down as oil prices began to fall in 1985 and
Aramco output declined to less than 3m b/d.
HARMALIYA
Discovered in the 1950s, Harmaliya is producing 75,000 b/d. A GOSP built in the late
1970s is to be revamped to boost its production capacity to 175,000 b/d by 2000 or
shortly thereafter. Work on this structure will include a debottlenecking of the
facilities.
THE MAIN FIELDS PRODUCING HEAVIER CRUDES

Saudi Aramco’s capacity to produce Arabian Medium and Heavy crudes has been
limited to 1.2m b/d – 800,000 b/d for Medium and 400,000 b/d for Heavy – compared
to about 4.87m b/d of installed capacity for these grades by late 1993. About 1.6m b/d
of this installed capacity has been mothballed in the past six years, involving small
offshore fields shut in and many wells closed in the larger fields.
There will be a further mothballing of field capacities producing heavy crudes as
additional fields, including those in the Najd area south of Riyadh, come on stream.
SAFANIYAH
By far the largest offshore field in the world, Safaniyah was found in 1951 by Texaco
(which in 1937 was the first to join SoCal – now Chevron – in Saudi Arabia as a 50%
partner in Aramco). Texaco discovered and developed other offshore fields
containing heavy oil. Safaniyah has about 19 bn barrels of proven oil reserves
recoverable at relatively low cost. But the oil is heavy, 27° API with 2.93-2.96%
sulphur, and much of Safaniyah’s 1.5m b/d capacity has been mothballed. Like most
other offshore fields in the north-east, the oil is reservoired in Cretaceous sandstones
and carbonates mainly at a depth of 5,100 feet. (Texaco, once a crude-long major now
having become crude-short, sold 50% of its US East Coast system to Saudi Aramco
in 1988. The resultant JV Star Enterprise made Texaco “crude-sufficient”, at least in
superstructural terms, as it gained a virtually permanent access to 630,000 b/d of
Saudi crude oil).
In 1996, Saudi Aramco brought some of the mothballed desalting units and other
facilities at Safaniyah back into operation. They enabled the company to handle more
Arab Medium crude from the offshore Zuluf field. Reservoir pressure at Safaniyah,
however, is beginning to decline. Two rigs are working continuously there to prevent
a fall in production.
ZULUF
Another offshore giant discovered by Texaco in 1968, Zuluf has 8 bn barrels of proven
oil reserves in a Lower Cretaceous formation at a depth of 5,800 feet. Its capacity is
over 500,000 b/d, with another 200,000 b/d and two GOSPs mothballed. Saudi
Aramco has planned to raise the field’s capacity to 1.2m b/d. Of this a further 500,000-
700,000 b/d has been earmarked for closure. But related facilities to upgrade the
field’s production of heavy crudes to the Arabian Medium grade have been built.
MANIFA
An offshore giant discovered in 1957, Manifa has 11 bn barrels of proven reserves. It
was developed to produce 200,000 b/d of 28° API oil with 2.97-3.66% sulphur. Oils
come mainly from two reservoirs, a Lower Cretaceous containing very sour 26° grade,
and an Upper Jurassic having a 29° grade with 2.97% sulphur. The wells are 7,950 feet
deep.
MARJAN
An offshore giant discovered in 1967 by Chevron, Marjan extends well into Iranian
waters, where the field is known as Forouzan. Marjan forms an axis of fields off the
Saudi coast, all in Cretaceous-to-Upper Jurassic carbonates, which include Hamur,
Maharah, Lawhah, and Hasbah. Marjan, a producer of Arabian medium, now has a
working capacity of 270,000 b/d. About 320,000 b/d of its 570,000 b/d capacity
installed by late 1993 has been mothballed.
KHURSANIYA
An onshore field discovered in 1956, has 3.5 bn barrels of proven oil reserves in an
Upper Jurassic formation at a depth of 6,560 feet. The field’s installed capacity by
1994 reached 150,000 b/d of Arabian Medium (31° with 2.63% S), compared with
75,000 b/d in 1991 and 50,000 b/d in the late 1980s. But about 50,000 b/d of the new
capacity has been mothballed.
Abu Saafa, discovered in 1963, straddles Saudi and Bahraini territorial waters. It
has 6 bn barrels of proven oil reserves. The field, shared with Bahrain, was shut down
by Saudi Aramco in April 1987. It was reopened in recent years and all its production
was given to Bahrain.
Universal modular platforms are to be installed by late August 2000 at Safaniyah,
Zuluf, Marjan and Abu Saafa by Dubai-based J. Ray McDermott Middle East under a
contract signed in May 1999.
THE NAJD FIELDS
There are a number of producing fields I the Najd area south of Riyadh, all rich in
light/sweet oil, sweet gas and condensates of 60-65° API. Also called the Hawtah
Trend, they include Al Hawtah and structures discovered from June 1989. They are
producing 200,000 b/d of Arab Super Light (ASL), 50° API with 0.06% sulphur.
The Najd reservoirs have lower pressure than first thought. Since 1994, production
has been affected by the encroachment of sand into the wells. Underground pumps
installed at the fields have clogged up with sand, with the blockage occurring roughly
every three months. To prevent production from falling below 200,000 b/d, Saudi
Aramco has been hooking up new fields discovered since 1994. The fields need gas
reinjection facilities to maintain reservoir pressure. Most of the gas is being produced
from the Nuayyim field, where the crude has the highest gas-to-oil ratio among the
Najd structures. A 75,000 b/d GOSP at the field has been built, together with
underground pumps, to raise gas supplies for a modified EOR system at the Hawtah
centre.
Recoverable reserves of oil and condensates in the Najd area are estimated at 10 bn
barrels. Saudi Aramco experts still point to an earlier estimate that the Najd fields have
up to 20 bn barrels of liquids and major reserves of natural gas. The liquids and gas
are reservoired in Palaeozoic formations older than the Khuff, at depths ranging from
7,900 to more than 9,000 feet. Some of the reservoirs are more than 150 feet thick.
About 85-90% of the liquids and gas tested had no traces of hydrogen sulphide. Some
of the crudes are free of sulphur and have been tested as a motor fuel.
The main producing Najd fields are: Al Hawtah, 190 km south of Riyadh, on
stream since late 1994 with a capacity of 150,000 b/d, and its proven reserve of liquids
is said to exceed 1.5 bn barrels; Nuayyim, 25 km east of Hawtah, which came on
stream with a very limited capacity in January 1997, using facilities at Al Hawtah;
Hazmiyah, south of Hawtah; and Ghinah, whose liquid reserves are almost 1 bn
barrels. They and several other Najd field are linked to Petroline (the east-west
pipeline) by a 325-km pipeline for export to Ras Tanura in the Gulf or Yanbu’ on the
Red Sea. At present, the ASL is exported through Ras Tanura. The pipeline link has
been designed for other fields to be hooked up in the coming years.
SHAYBAH
A super-giant discovered in the early 1970s – with light/sweet oil in place estimated
at about 14 bn of which 7 bn barrels are recoverable, plus 25 TCF of gas – Shaybah
came on stream in mid-1998 for tests. Its capacity reached 500,000 b/d in early 1999
and it was inaugurated in March 1999. The field lies in the Rub’ Al Khali (Empty
Quarter) region on the border with Abu Dhabi. A final decision on developing it was
taken in early 1995. On June 25, 1995 Saudi Aramco awarded the project management
and FEED contract, worth SR300m, to Ralph M. Parsons Co. The field’s development
and related infrastructure have cost about $2.5 bn. The field has three GOSPs and a
640 km pipeline to Abqaiq’s gathering centre. Shaybah’s crude, 40-42° API with 0.7%
sulphur, is piped to Abqaiq for blending and has improved the quality of Arabian Extra
Light.
Oil at Shaybah occurs in reefal facies of the Shuaiba formation, with the reservoir
being 122m thick at a depth of 1,494m, the origin of which is similar to that of Abu
Dhabi’s large fields in swells developed over salt pillows triggered by deeper
basement faulting. Work on the field has included 3D seismic surveys and extensive
horizontal drilling. A 385 km access road from Dhahran to Shaybah was completed in
late November 1996.
THE DIVIDED ZONE

The divided (formerly “neutral”) zone is shared equally by Kuwait and Saudi Arabia,
under a treaty signed on December 2, 1922 to settle a territorial dispute between the
two countries. The treaty was revised on July 7, 1965. The joint administration accord
was supplemented in 1969 by an agreement whereby the northern half was
administered by Kuwait and the southern part was administered by Saudi Arabia. An
undivided half interest in all resources was maintained over the entire area by each
state. A joint Kuwaiti-Saudi committee overseas exploitation of these resources.
Texaco, which has the onshore concession to 2010 in the northern half, shares its
area’s oil production equally with Kuwait. Saudi Arabia gets taxes and royalties on
Texaco’s share. Texaco’s oil production capacity reached 300,000 b/d in mid-1999. It
had risen gradually after the Gulf war from 100,000 b/d in 1991/92 to 120,000 b/d in
1995 and 270,000 b/d in late 1998 and the first half of 1999. This should rise to
420,000 b/d by 2005. Texaco operates three onshore oilfields: Wafra, South Fuwaris
and South Umm Gudair. The former US operator onshore, Getty Oil, was sold to
Texaco in 1984.
Arabian Oil Company (AOC) of Japan, which has the offshore concession to
February 2000 on the Saudi side and early 2003 on the Kuwaiti side, shares its oil
production equally with Saudi Arabia. Kuwait receives taxes and royalties on AOC’s
share. AOC’s oil production capacity is 300,000 b/d maintained since the 1980s. AOC
operates two producing offshore oilfields: Khafji and Hout. It also has a huge but
undeveloped gas field, Dorra, and a very small undeveloped structure called Lulu which
is on the median line with Iran’s water and forms an extension of Iran’s Esfaniar field.
AOC, in which Saudi Arabia and Kuwait have about 11% equity each, wants its
concession on the Saudi side extended before the February 2000 expiry date.
Negotiations with the Saudis are undertaken on AOC’s behalf by the Japanese Ministry
of International Trade and Industry (MITI). The talks have made no progress so far.
The negotiations have been going on since the late 1980s. During the Iraqi
occupational of Khafji town in early 1991, AOC kept its staff, including its Japanese
personnel, in the region and this was highly appreciated by both the Kuwaitis and Saudis.
In the following years, however, Saudi-Japanese talks went on and off without any
results. Successive Japanese prime ministers met with King Fahd and on all such
occasions King Fahd gave positive but elusive responses. Now with MITI having
offered about $4 bn in loans, the Saudi demands for an extension boil down to the
following:
A direct Japanese investment in the expansion of a Saudi mining railway,

estimated to cost about $2 bn. This would consist of a line to link Dammam to
Jubail, completion of an existing line between Dammam and Riyadh, and a
connection from Riyadh to the north-western town of Qurayyat on the border
with Jordan. This would greatly boost investment in Saudi Arabia’s mining
sector and improve the chances of new industrial cities to be built along the
railway lines.
Establishing an industrial zone in and around Khafji town, on the Saudi side of
the Divided Zone, for small industries that would utilising gas to be produced by
AOC.
A financial and fiscal system to encourage Japanese investments in Saudi Arabia

and Saudi investments in Japan.
To raise the volume of crude oil sales to Japan through 20/30-year contracts.
The Saudis complain that Japanese investment in the kingdom has not increased
since the 1970s and has remained limited to about $1.5 bn.
PART IV
THE OIL REFINING SECTOR
Most of Saudi Aramco’s seven oil refineries in the kingdom have been upgraded to
produce premium fuels. Some of them are being expanded. Their capacity at present
is over 1.6m b/d and could exceed 2.1m b/d by 2003. A further expansion would
depend on Saudi oil income not falling below the current level, and may bring the
capacity to 2.65m b/d by 2007 which would make Saudi Arabia the biggest export
refiner in the world.
Most of the refineries will produce unleaded gasoline and high quality gasoil by
2001. Imports of gasoline and gasoil have been reduced.
Domestic gasoline consumption has been rising rapidly in recent years, despite an
increase in oil prices in early 1995 and in May 1999. Annual gasoline consumption
averages over 230,000 b/d. Demand in recent months was reported at 500,000 b/d.
Gasoline demand is expected to rise by 14% in 2000, with this rate of growth having
prevailed since 1994. Consumption of diesel is growing by 5% per annum. Total oil
products consumption is averaging a little less than 750,000 b/d. Saudi Arabia
consumes another 250,000 b/d of crude oil, mostly used for electricity.
The Saudi Oil Refining Capacity (‘000 b/d)
Area Ownership 1999 2002/03

Ras Tanura Saudi Aramco 300 500
Rabigh Saudi Aramco 325 400
Yanbu’ Saudi Aramco 170 170
Riyadh Saudi Aramco 135 135
Jeddah Saudi Aramco 45 95
Khafji Arabian Oil Co. 30 30
Yanbu’ S. Aramco/Mobil 360 420
Jubail S. Aramco/Shell 310 350
Total 1,675 2,100
Oil products are distributed around 20 bulk storage plants and 14 jet fuelling
stations in various parts of the kingdom. Some tanker lorries have to travel thousands
of kilometres. To improve the infrastructure, Saudi Aramco has invested in a multi-
product pipeline between the Eastern Province, Riyadh and Qassim and a similar
pipeline to link Jeddah to both the Yanbu’ and Rabigh refineries.
THE RAS TANURA REFINERY

A major $1.2 bn upgrade of the Ras Tanura refinery was completed in late April 1999,
several months behind schedule. The refinery’s capacity was raised from 265,000 b/d
to 300,000 b/d. Its gasoline output now accounts for 32% of total production,
compared to 18% before the upgrade. The mogas is lead-free. Production of
diesel/gasoil has risen to 41% of the total output, up from 37%. Production of fuel oil
was cut by almost half to 66,000 b/d. The upgrade represented the first phase. For a
later phase, by 2003, Saudi Aramco is considering a 200,000 b/d facility to process
condensates. The final phase, now also under consideration, is to raise the refinery’s
capacity to 1m b/d by 2007. This would make Ras Tanura the largest refinery in the
world.
Ras Tanura is the oldest and biggest of the refineries. It came on stream in 1945,
with a capacity of 50,000 b/d. Several units were added in the following decades
raising its capacity to 530,000 b/d, but actual production never exceeded 510,000 b/d.
After a 1983 decision to modernise the plant, a new 265,000 b/d. After and 1983
decision to modernise the plant, a new 265,000 b/d crude oil distillation unit and a
20,000 b/d vacuum unit were installed to replace two ageing 90,000 b/d crude
distillation plants, two 15,00 b/d crude units and two 20,000 b/d vacuum units. A 300
tons/day sulphur plant was built with the capacity to process 10.1 MCF/day of acid
gas. In addition, existing facilities were upgraded.
Sulphur recovery units came on stream in May 1986, followed by a new 265,000
b/d distillation unit in October. The second distillation unit’s output included light and
heavy diesel (30%), fuel oil (30%), naphtha (20%) and kerosine (15%). In October-
November 1990, shortly after the Gulf crisis began, Ras Tanura stepped up its crude
throughout to 510,000 b/d. But in December 1990, a fire badly damaged one of the
distillation units, cutting the plant’s capacity to 265,000 b/d. In May 1991, two months
after the Gulf war ended, Saudi Aramco announced a massive upgrading project, in
two phases, with costs then estimated at $12 bn. But that plan was scaled down to the
first phase. The refinery has processed Arabian Light and Extra Light crudes.
Brown & Root of the US got a six-year management contract for the project in
August 1991. The work was divided into eight packages. The five main packages were
awarded in June 1994 to Japan’s JGC Corp., Stone & Webster Engineering Corp and
Bechtel. They had submitted bids for the projects totalling about $800m, down from
nearly $1 bn estimated since mid-1993. The other three packages were awarded to
local companies, for an offsite building, administrative buildings and laboratories; a
high-voltage distribution system; and an industrial wastewater treatment plant.
Now, the revamped units include a 60,000 b/d visbreaker and a 40,000 b/d
hydrocracker, both originally due for start-up in August 1998. Technical problems
caused the delay. Plans for two de-isomerisation units to produce unleaded gasoline,
one to be installed by 2001 and the second to be on stream later, were shelved in 1998.
Before the final phase, Saudi Aramco may get the second 265,000 b/d crude
distillation unit (destroyed by fire) rebuilt in the same way as the first phase. If
implemented by 2003/04, as some experts suggest, this should raise the refinery’s
crude oil processing capacity to 700,000 b/d, including the proposed 200,000 b/d
condensate splitter.
Saudi Aramco is proposing a xylene extraction and processing plant to be built by
private developers at Ras Tanura on a BOO basis, with the refinery to sell this venture
a stream from its catalytic reformer. The project, to cost $1 bn and thus judged
unattractive, would also involve a pipeline from the refinery to units to be built at
Jubail to process mixed xylenes into paraxylene (PX) or other petrochemicals. There
are proposals for a purified terephthalic acid (PTA) unit and other downstream plants
at Jubail to process the PX. But due to a glut on the market for aromatics, the response
is cool. Saudi Chevron Petrochemical Co., which operates a major aromatics complex
in Jubail is one of the companies approached. Others include BP Amoco, Mitsui and
Unichem.
THE RABIGH REFINERY

A major upgrade and expansion project was launched at Rabigh in 1996 with total
costs estimated at $1.8 bn. This was to bring Rabigh’s capacity from 325,000 to
450,000 b/d on completion by 2002. It was to include a 100,000 b/d hydro-cracker, a
55,000 b/d continuous catalytic reformer (CCR), a sulphur recovery unit, a naphtha
hydrotreater, a vacuum distillation unit, a visbreaker, and other units. The refinery’s
fuel oil production was to be cut drastically in favour of mid-distillates and lead-free
gasoline. Foster Wheeler was the project manager. But in 1998 the project was scaled
back to a limited version to cost $800, in view of falling oil prices, and this was
shelved in October 1998. The project might be revived if OPEC’s current oil price
defence efforts hold.
Saudi Aramco assumed full control of the Rabigh refinery in June 1995, ending a 50-
50 JV with Petrola of Greece. This gave Saudi Aramco freedom to go ahead with the
upgrade, as Petrola had been against the project for years. Saudi Aramco replaced the top
management of the refinery soon after taking over. (Petrola used to sell its share of the
output to the Mediterranean market as well as to refineries in Singapore and Australia).
The refinery, on the Red Sea coast, had been producing 200,000 b/d since the Gulf
crisis due to bottlenecks and its high yield of heavy products. From mid-1995, Saudi
Aramco raised the throughput to 280,000 b/d. To operate at full capacity, for example,
a crude oil pipeline from Yanbu’ would be required along with a third berth at Rabigh
port for additional exports. These are to be built as part of the new project.
The refinery is a simple hydroskimmer. At nominal capacity, it can produce over
160,000 b/d of heavy fuel oil, 77,000 b/d of poor quality gasoline, 47,000 b/d of
gasoil/diesel, 36,000 b/d of kerosine, 75,000 b/d of naphtha and a small quantity of
LPG. After debottlenecking work in 1998, the plant became able to run at almost
400,000 b/d. The refinery’s construction was completed in 1985. But it was
commissioned in January 1990 because of problems in finding markets for the fuel oil.
THE RIYADH REFINERY

A project to upgrade this 135,000 b/d refinery, put on hold after Samarec’s absorption
by Saudi Aramco in 1993, was revived in January 1997 when the company contracted
SNC Lavalin Int’l of Canada as project manager. The main contract was awarded in
August 1997 to McConnell Dowell of New Zealand and Petrocon of the US. They
were to build a new control system to replace the existing one. The contract was part
of a plan to integrate the control systems of the domestic refineries of Riyadh, Yanbu’
and Jeddah. The plant will have an isomerisation unit by 2001, together with a naphtha
desulphurisation unit and a distillate desulphurisation facility.
The refinery came on stream in 1975 with a capacity of 15,000 b/d. It was raised to
20,000 b/d in 1977. Work began in 1977 to raise the capacity to 135,000 b/d. This was
completed in 1981. The plant processes Khurais crude pumped through a 140 km
pipeline. During the Gulf crisis, in the fourth quarter of 1990, its throughput was raised
to 140,000 b/d.
THE YANBU’ REFINERY

Expansions and an upgrade at this refinery have been proposed since later 1989. Saudi
Aramco is yet to decide on the size of the project. It has already decided to have an
isomerisation facility built at the plant by 2001, so that it can produce unleaded
gasoline.
Built at a cost of $1.4 bn, the refinery was inaugurated on January 30, 1983, and
went on stream in July that year with a capacity of 105,000 b/d. Later this was
expanded to 170,000 b/d. Its capacity includes: 73,530 b/d of fuel oil for industrial and
marine use, 37,000 b/d of diesel, 24,000 b/d of premium gasoline, 8,150 b/d of regular
gasoline, 12,400 b/d of jet fuel and 2,100 b/d of LPG. The plant supplies the Western
Province.
THE JEDDAH REFINERY

Modernisation of this plant had been considered before Samarec put forward an $8 bn
proposal to upgrade and expand all the domestic refineries. In 1996, one of its 45,000
b/d crude distillation units was put out of action, cutting the refinery’s useable capacity
to 45,000 b/d. A contract was awarded in March 1994 to ACEC, the local unit of Stone
& Webster, to provide detailed designs for upgrading the plant’s FCC. In late October
1994, the Dammam-based Mohammed Al Moajil Group got the contract to upgrade
and recondition the FCC.
The Jeddah refinery is 75% owned by Saudi Aramco and the rest is owned by the
private sector. It came on stream in 1968 with capacity of 12,000 b/d. It was developed
initially by private businessmen grouped in the Saudi Arabian Refinery Co. (Sarco).
But before the plant was completed the Jeddah Oil Refinery Co. was created by royal
decree, with Petromin having a 75% stake and the rest held by Sarco. When it came
on stream, the refinery had units for crude distillation, desulphurisation of gasoline,
diesel and kerosine, vacuum distillation ad for asphalt manufacture. Its capacity was
expanded in 1978 to 99,500 b/d. In 1980, further upgrading raised this to 105,000 b/d.
In 1991-92, its FCC was modernised to increase gasoline production from 11,000 b/d
to 18,000 b/d – using the process of UOP which acted as project manager. The plant’s
electrical systems have been modernised and upgraded as well. But the plant’s
capacity has since slipped back to 95,000 b/d and to 45,000 b/d in 1996.
The refinery feeds an adjacent lube oil plant. But since its construction, the refinery
has been surrounded by a rapidly growing city and now it poses a serious
environmental problem. Saudi Aramco has considered proposals to close or relocate
both the refinery and the lube oil plant by 2000.
SAUDI ARAMCO MOBIL REFINERY (SAMREF)

A 50-50 joint venture with Mobil, Samref is an export refinery with a capacity of
360,000 b/d located at Yanbu’. It produces top quality gasoil/diesel and other
products. Its original design capacity was 250,000 b/d. Samref is upgrading and
expanding its units, to raise its capacity to 420,000 b/d at the cost of $150m. The
project will include a $40m propylene plant.
The refinery came on stream in mid-1984 and was inaugurated in September that
year. Originally a JV between Petromin and Mobil, called Pemref, the refinery came
under Saudi Aramco’s control in 1993 after the absorption of Samarec. The plant
initially operated at well below capacity because of problems in finding export
markets for Petromin’s 50% share of the output. It reached design capacity in 1989-
90.
The refinery was originally designed to produce 68,000 b/d of regular and premium
gasoline, 75,000 b/d of diesel and heating oil, 54,000 b/d of heavy fuel oil, 35,000 b/d
of jet fuel and 18,000 b/d of naphtha. An isomerisation unit was installed to raise the
octane content of its gasoline, under a two-year $50m contract awarded to JGC Corp.
This was completed in April 1990. JGC then won a $60m contract to build an MTBE
unit, the first to be installed at a refinery in the kingdom, and an alkylation feed
hydrotreater. The MTBE unit came on stream in 1992.
Some of the plant’s concrete facilities have had structural problems due to age. A
long-term repair and maintenance programme was worked out from 1993 for over
1,000 concrete structures. This followed an evaluation study by Teamwork Saudi
Arabia, with Taywood Engineering of Britain acting as consultant for a complex array
of structural repairs. In mid-March 1995, the refinery was shutdown for a
comprehensive six-week maintenance.
SAUDI ARAMCO SHELL REFINERY (SASREF)

A 50-50 JV of Saudi Aramco and Shell, located at Jubail, this is the second export
refinery in the kingdom. Sasref has a capacity of 310,000 b/d compared to a design
capacity of 250,000 b/d in the 1980s. It is being upgraded under a $200m plan to raise
middle distillate production, improve the cracking facilities and increase the plant’s
power generation by April 2000.
The refinery can turn heavy crudes into light oils. It has a 45,000 b/d hydrocracker,
and a benzene unit of some 5,000 b/d which supplies Jubail petrochemical plants. It
was originally designed to produce 94,000 b/d of gasoil, 94,000 b/d of naphtha, and
about 67,000 b/d of HSFO. It exports most of its output to the Indian sub-continent
and the Far East. The hydrocracker has been damaged by fire on three occasions: in
May 1991, which resulted in a shutdown of the unit for more than a month; a March
1993 fire caused by fuel lines fractured and spilled hot fuel onto an electric pump; and
in May 193 another fire broke out at the hydrocracker, prompting another shutdown.
Repairs were completed in November 1993.
THE LUBRICANTS SECTOR

As part of its industry-wide integration efforts since mid-1993, Saudi Aramco now
effectively controls the lubricants sector in the kingdom. In mid-1996, Saudi Aramco
took over Petromin’s 71% share in the Petromin Lubricating Oil Co. (Petrolube), with
Mobil still holding 29%, and a 70% stake in Petromin Lubricating Oil Refining Co.
(Luberef) with Mobil still holding 30%.
Set up in 1968, Petrolube has plants in Jeddah, Riyadh and Jubail producing more
than 6.5 million barrels/year of various lubricants for gasoline, diesel and some light
turbine engines, and more than 8 million tonnes/year of grease. The Jubail Lube Oil
Blending & Grease Manufacturing Co. is a wholly-owned Saudi Aramco subsidiary
located near Sasref.
Petrolube has turned its focus on overseas markets, exporting to 33 countries
including China, as well as meeting over 60% of Saudi needs. Luberef, set up in 1976,
has a lube oil plant at Jeddah and a new one in Yanbu’. Luberef in Jeddah has a
capacity of 3 million barrels/year. A number of private and foreign firms distribute
lubricants in Saudi Arabia.
PART V
EXPORTS & LOGISTICS
Saudi Arabia is exporting 5.57m b/d of crude oils, down from 6.45m b/d in late 1997,
and 900,000 b/d of oil products compared to 950,000 b/d I late 1997. In addition, it
exports almost 400,000 b/d of gas liquids (NGL/LPG) and condensates, up from
320,000 b/d in late 1997.
Saudi Arabia is the only oil producer in the world which has no physical constraints
on its short- or long-term export decisions. This is thanks to an awesome combination
of logistics it has built up in Saudi Arabia and in various parts of the world, backed by
huge petroleum reserves and more than 3.3m b/d in spare oil production capacity.
The biggest market for Saudi Arabia is the Asian/Pacific basin, taking more than
3.34m b/d of its crude oils, compared to 3.8m b/d in late 1997 and 2.7m b/d in 1995,
i.e., 60% of total crude oil exports. This basin accounts for 65% of its oil products
exports and most of its gas liquids. Its second biggest market is the US, accounting for
more than 1.4m b/d of crude oils – up from about 1.2m b/d in late 1997 and almost
1.3m b/d in 1995 – plus some quantities of oil products and LPG. Europe, which until
late 1997 used to be the second market for Saudi oil, accounts for about 700,000 b/d
of crudes (down from 1.3m b/d in late 1997 and 1.8m b/d in 1995). Africa, the Middle
East and other parts of the world account for about 130,000 b/d of crude oil exports.
Saudi Arabia consumes about 250,000 b/d of crude oil, used mostly by the power
plants, and about 750,000 b/d of oil products.
THE MARKET PERSPECTIVE

Riyadh leads OPEC’s price defence strategy, a serious effort based on a carefully
brokered deal between Saudi Arabia and Iran, which is also observed by the non-
OPEC states of Mexico, Norway, Oman and Russia. An OPEC/non-OPEC price
defence agreement valid from April 1, 1999 to end-March 2000 is to be extended at
least for another year by a summit meeting to be held in Caracas in February or March
2000. The Saudi, Iranian and Mexican leaderships will be particularly active before
and during the summit to make sure oil prices will be defended on the basis of what
Riyadh regards as “a midfield level fair to both the oil producers and consumers”.
The focus of Riyadh’s efforts will be keeping global oil inventories to be reduced to
1996 levels. Once inventories fall to 1996 levels and oil prices move in steeper
backwardation, it would be extremely difficult for oil companies to rebuild stocks on a
large scale. The US market is the main factor and will continue to be so in the near future.
International crude oil price mocements after OPEC’s defence strategy

Brent Crude Oill, US$ per Barrel
1Q99 2Q99 3Q99 4Q99

11.26 15.46 20.64 24.06
25 Jan 2000 16 Feb 2000 29 Feb 2000 7 Mar 2000
27.15 28.15 29.00 31.85
29 Mar 2000 10 Apr 2000 28 Apr 2000
23.40 20.60 23.55
EXPORT PRICING & MARKETING

Saudi Arabia and the other main Middle East oil exporters still refuse to have any of
their crudes used as a marker for spot or forward trading. As a result, spot and forward
trading in Dubai crude, as a market for sour grades, is dwindling because production
of this grade is falling below 200,000 b/d in the coming years. Saudi Aramco, whose
pricing system is followed by most exporters in the Middle East, insists that the buyers
of its crudes are refiners and will under no conditions be resellers.
Saudi Aramco has a dynamic marketing unit, which applies formula pricing for crude
oil sales adjusted monthly to the following benchmarks and markets: (a) dated Brent for
Europe, (b) Dubai/Oman for the east of Suez, and (C) WTI for the US and the Bahamas.
Since 1994, it has reduced the export of heavy/sour crudes and raised the volume of
lighter grades in a move which has affected oil pricing worldwide. In the process, it has
maximised the benefits from the spot markets, with monthly price adjustments
occasionally matched by a slight increase or decrease in the supply of heavier grades.
The prices of WTI and Brent are set mainly be futures trading on NYMEX and IPE.
In addition, the forward market for Brent is strong. Traders can forecast Saudi
Aramco’s price adjustments months ahead, by monitoring the parameters which the
company uses. The prices of the markers can change daily relative to each other, as
the prices of refined oil products change in the bulk markets, and so does the price of
ocean freight. There is a further complication when WTI and Brent are used as
markers for pricing high sulphur crude oils (the sulphur contents of the residues).
Brent and WTI are low sulphur crudes and provide low sulphur residual fuel oils.
They can be sold as such or used as cat-cracker feedstocks. Allowance is made for the
sulphur contents of crudes in any pricing formula. Dubai is a sour crude and the only
market in the world for sour crudes, but its volume is shrinking due to a steady decline
in Dubai’s production.
When revising the parameters, information is available on stocks, freight rates,
forecasts of supply and demand, refinery margins, price forecasts and other market
information. Sometimes the information will give a reliable picture of the oil market
for the months ahead; other times the forecasts will be less reliable. The key decision
for Saudi Aramco to make each month is to set the formulae to maintain the sales
levels of Saudi crudes so that its desired production level is achieved. If the prices are
set too high, liftings could suffer. But if the price is set too low, there is unnecessary
loss of revenue and the possibility of putting downward pressure on the world crude
oil price level.
Saudi Aramco influences the world oil markets by adjusting the level of its
production and by changing the mix of light and heavy crudes produced in one month.
There is some control of stocks of crude oil afloat and in owned storage. The landed
prices of crude oil can be controlled to some extent by the use of tankers owned and
chartered by Saudi Aramco’s shipping unit, Vela International.
Saudi pricing should not be assessed in the context of world crude oil production.
So much of the world’s production is inelastic. Even with the Middle East crude oil
export level, some of it is inelastic. Thus the pricing of Saudi Arabia’s current 5.57m
b/d of crude oil exports is of big importance in the physical trade of crude oil
worldwide.
In export sales of oil products and gas liquids, taken over in 1993 from Samarec
(now an Aramco unit), Saudi Aramco usually asks for the highest premia possible over
spot prices. This is in line with the company’s aim to maximise revenues, having cut
operating costs sharply in recent years. From October 1, 1994, it has applied a new
“Contract Price” for LPG, which occasionally results in a margin of $10-20/tonnes
over current spot prices. It abandoned the “Petromin formula” of pegging LPG prices
to the BTU value of Arabian Light crude oil, a move which upset many of its term
clients.
The US is regarded as the most important market for Saudi crudes. This is mainly
for political reasons. The leadership I Riyadh always wants to see US dependence on
Saudi oil strong and increasing. For example Saudi Arabia was the number one crude
oil supplier to the US in the first half of 1999, with 1.47m b/d in the first quarter and
1.401m b/d in the second quarter. It was followed by Mexico (1.3m b/d in 1Q &
1.265m b/d in 2Q), Venezuela (1.166m b/d in 1Q & 1.2m b/d in 2Q), Canada (1.12m
b/d in 1Q & 1.1m b/d in 2Q). Iraq became the No. 5 crude oil supplier to the US in the
second quarter, with 745,000 b/d.
Saudi efforts for a strong market share in the US have included talks on the
proposed leasing of space in the American Strategic Petroleum Reserve (SPR).
Negotiations to that effect took place in February 1997 during a visit to the US of a
Saudi delegation headed by Prince Sultan. The idea was to store Saudi crude oils in
two or three of SPR’s caverns for commercial purposes.
Qualities of Arabian and Reference Crudes
Crude Oil °API % Residue>650°F % S in Residue

Arab Super Light * 50 15 0.2
Arab Berri 39 39 2.1
Arab Light 34 45 3.1
Arab Medium 31 50 3.9
Arab Heavy 27 54 4.3
Kuwait 31 45 2.5
Brent 37 37 0.6
WTI 40 31 0.6
Dubai 32 45 3.0
Oman 34 42 1.4
FORECASTING SAUDI FORMULAE

The prices of the Saudi crudes relative to each other are a reflection of their qualities:
the yield and sulphur content of the residue (residual fuel oil). When the price of HSFO
is high relative to that of crude, Arabian Heavy will be at a relatively small discount to
Brent or vice versa. The price of Arab Super Light follows the price of naphtha.
In January 1994 the price of HSFO was at a low for the year. Hence the discount
against Brent was $4.25/barrel and against WTI was $6/barrel. From January to
February 1994, fuel oil prices moved sharply. In Rotterdam, the price of 1% S fuel oil
in January 1994 was $11.6/barrel and that of 3.5% S fuel was $9.51/barrel, while in
New York the price of 1% S fuel was $15.28 and that of 3.5% S fuel was $17.57. But
in the following month, the Rotterdam price of 1% S fuel was $13.32 and that of 3.5%
S fuel was $12.21, while in New York the price of 1% S fuel was $10.70 and that of
3.5% S fuel was $11.30.
However, changes in the Saudi formulae at that particular time did not reflect the
fuel oil price changes. The discount on Arabian Heavy for Europe fell from $2.5 to
$2.1/barrel, while for the US the discount fell from $6 to $5.2/barrel. Subsequently,
the European residual fuel oil price remained steady; but there was a further fall in the
discount on Arabian Heavy. Just as a crude oil producer can use a retroactive price to
reflect market conditions accurately, so the Saudi pricing formulae can be adjusted to
keep the price equitable for term buyers. As a result of Saudi supply and price
adjustments, HSFO prices in NW Europe rose sharply from November 1994.
In 1994 almost all new oil coming on stream was light crude, and refineries
worldwide recorded the biggest addition to cracking capacity seen in a single year.
The price of HSFO reached record levels: $108/tonnes in November 1994 and
$112/tonnes in January 1995, numbers not seen since the Gulf war of early 1991.
The key forecast related to Saudi formula pricing is that of Saudi Aramco’s
production of high and low sulphur crudes. This leads to the forecast of price
differences between low and high sulphur residual fuel oils. The consensus forecast
now is that the sulphur premium will stay relatively low in the near future, as the mix
of Saudi crude oil exports has become lighter with lower sulphur content.
Saudi Aramco has since 1994 earned more form east of Suez markets than from its
US and Europe sales. Sometimes the difference comes to about $1/barrel. The same is
true in the case of Iran’s NIOC, Kuwait’s KPC and the other NOCs of the Middle East.
As a result, the price differential between spot Dubai and Dated Brent has narrowed
and at times Dubai’s spot price gets higher than that of Dated Brent.
Immediately after the Gulf war ended I late February 1991, Saudi Aramco opted to
hold term contracts to about 7m b/d out of total wellhead production of 8m b/d. That was
to allow for immediate production cuts as required by the market or by field maintenance
schedules. In early 1992 it changed the measure to minimise potential interruptions in
crude oil supplies to term customers, whose number had increased from 22 in 1989 to
about 50. It raised the volume of spot sales to about 500,000 b/d. As a result, when Saudi
Aramco brought daily output in line with the OPEC quota in 1993-94, the company
simply cut back on spot nominations and maintained all its term obligations.
In 1994 Saudi Aramco raised the volume of spot nominations to test various
markets for crude oils, a key factor for its monthly price and output adjustments. Other
changes affected the make-up of Saudi Aramco’s customers. For example, the
company increased its direct shipments to the Far East, and that had a profit-
maximising effect because the amount of oil resold east of Suez was reduced.
Saudi Aramco has since reduced the volume of medium and heavy crude exports in
favour of the lighter crudes, with Arab Super Light on stream and now averaging about
200,000 b/d. But the reduction of heavy grades’ exports to east of Suez markets was
less severe than in the case of its sales to west of Suez markets. As a result of such
shifts, spot nominations for Saudi Aramco crudes has fallen back.
More important, the company has eliminated the role of middlemen, mostly
involved in private Saudi oil firms by opening its own sales offices in all major
markets. At the beginning of 1997, Saudi Aramco took over the sale of 400,000 b/d of
crudes from BP and Shell, which the two majors used to market against a fee under
the famous Yamamah arms-for-oil deal. It has established direct relationships with oil
refiners and other end-users for crudes, oil products and gas liquids. Saudi Aramco’s
term clients for crude oil now exceed 50 and lift the bulk of the kingdom’s exports.
SALES TERMS
Apart from the price formulae, the main terms in crude oil sales contracts are the
following:
Saudi Aramco only allows well established companies to buy its crudes and requires
a commitment to lift a minimum volume for a year, or longer. During the term of the
contract, liftings by the client are to be made each month and not intermittently.
There are no price discounts, with payments due within thirty days of the bill of lading
date.
The crude should be processed by the buyer company in its own refinery. Refineries
must be in operation and capable of receiving Saudi crudes.
Saudi Aramco will not sell for third-party processing.
Buyers must undertake that the crude will not be resold.
The National Commercial Bank, the biggest commercial bank in Saudi Arabia, in
1999 arranged a $200m syndicated loan for Hyundai of South Korea to finance its
crude oil purchases form Saudi Aramco.
Saudi Aramco’s marketing executives are strict in their sales. Foreign observers
have sought to identify “special deals” as accounting for the discrepancy between what
the Saudis earn from export sales and what actually goes to the finance ministry in the
form of state oil receipts.
Exceptions are countertrade deals for example, whereby crude oil is supplied in
part-payment for orders made by the Saudi ministry of defence and aviation, such as
the Boeing deal, the Yamamah agreements for military aircraft, the ministry’s strategic
oil storage projects underground, etc.
FOCUS ON EAST OF SUEZ MARKETS

With the exception of OECD Pacific states, oil in east of Suez markets is not heavily
taxed. The benefits of relatively cheap crudes or oil products reaching these markets
are felt almost immediately by the consumers. This is unlike the situation in the OECD
region, where the governments tax away any major fall in oil prices, be that for
revenue or for environmental reasons.
However, Saudi Aramco’s long-term plan to expand its market shares east of Suez
is offset somewhat by the short-term pricing measures of its international sales unit.
Two of these measures have had negative effects on Saudi Aramco’s long-term
marketing objectives:
The pricing of LPG under the CP formula, based on what it calls “monthly spot
sales tenders” which Saudi Aramco has introduced since October 1, 1994, at
time has made its butane and propane prices higher than spot market prices. As
a result, several clients have cancelled their Saudi contracts or lowered liftings.
The CP approach has discouraged major trading companies which have long
promoted the use of LPG by power plants and the petrochemical industry in
Japan and other Asian countries. The use of LPG by Japan’s power plants has
fallen. Naphtha is competing strongly with LPG. Naphtha prices there collapsed
in late 1994 due to a severe economic crises in that region. The number of
propane-fuelled taxis in Japan has decreased steadily as drivers have returned to
gasoline engines, with market deregulation and excess capacity to produce
gasoline in Asian refineries having brought Japanese gasoline prices down

considerably since 1996.
In the long term Saudi Aramco, by far the world’s biggest exporter of LPG,
would lose market shares for butane and propane relative to other sources of
energy in the power sector and other sources of feedstock in industry. This is
particularly in the case of Asia, Saudi Aramco’s biggest market for LPG.
On the other hand, the availability of Saudi LPG for export in the coming
years will decline considerably. This is due mainly to a big rise in local demand
for LPG by new petrochemical ventures and other industries.
Saudi Aramco’s cuts in medium/heavy crude supplies, since mid-1992, have

badly affected some of its east and west of Suez clients, while the premia for
light/sweet crudes have fallen. The fall in premia has resulted from a rise in the
production of sweet grades from the North Sea and other areas as well as the
whitening of Saudi Aramco’s mix of crude exports.
Saudi Aramco’s clients now are short of sour grades. But while price
differentials between sweet and sour crudes have narrowed, Saudi Aramco has
been earning more from crudes sold in east of Suez markets than from western
sales.
Becoming part of the eastern economic framework will have major implications for
Saudi Aramco and other Middle East oil and gas exporters in the coming years, now
that economic recovery in Asia has begun. Oil demand east of Suez is expected to rise
considerably from 2001, when Asia’s economies would be growing rapidly once
again. Asia would become by far the biggest oil market in the world during the next
decade. A deep recession in Asia will have very negative effects on the Middle East.
The white end of the barrel, represented by gasoline-rich Brent and WTI, will remain
the marker for all crudes in the near future. Pricing on both sides of Suez will remain
based largely on Western market fundamentals in the next few years, unless a more
credible spot market for sweet and sour crudes is established in Asia. Both the east of
Suez fundamentals and the black end of the barrel (representing sour crudes, such as
the Arab Light/Heavy grades) are still largely ignored by Western futures markets. It is
in these Western markets that price discovery is concentrated, while OPEC states refuse
to allow their crude to trade on grounds that they need to control its destination.
The fundamentals of eastern markets will only be recognised after an oil price
shock has occurred. The shock will come from the black end of the barrel, perhaps
well after Iraqi oil has returned to the market.
THE SAUDI CRUDE SUPPLY PATTERN

Against this perspective, one has to weigh the implications of the changing pattern of
Saudi supplies under a plan approved by Saudi Aramco’s Supreme Council, which is
chaired by King Fahd:
A. Saudi Aramco’s installed oil production capacity should be maintained

indefinitely. Some of the fields producing medium and heavy crudes have been
mothballed, with Saudi Aramco able to de-mothball affected facilities within

three months.
B. The share of Arabian Light and sweeter crudes of actual production by Saudi
Aramco should rise from 76.3% in late 1993 to more than 80% from 2000.
Major Gulf Sour Crudes, Assay Data*
Crude Oil Gas Lt. Dist. M.D. 3000”

Crude Oil SG 60° F C1-C4 C5-185°C 185°+ Fuel Oil
Arabian Light 0.858 1 21 33 45
Iranian Light 0.857 2 21 30 47
Kuwait 0.870 2 19 20 59
Arabian Heavy 0.887 2 16 9 73
Iranian Heavy 0.871 2 20 22 56
* Yields are % weights; middle distillate is 185° C to 300” fuel oil. Fuel oils’ sulphur contents are: 3.2% in
the yield of Arabian Light, 2.4% in Iranian Light’s, 4% in Kuwait’s, 3.9% in Arabian Heavy’s and 2.5% in
Iranian Heavy’s. (North Sea Forties sweet crude has these distillation data: 0.842% SG 60° F, 3% C1 to C4,
23% light distillates, 40% middle distillates, and 34% 3000” fuel oil with 0.7% S).
The Arab Super Light (ASL) crude, now produced at the rate of 200,000 b/d from
the Najd fields (new Unayzah reservoir) south of Riyadh, is a very sweet grade which
Saudi Aramco is marketing in the east of Suez. ASL is 50° API with 0.06% sulphur.
Saudi Aramco has been moving quantities ASL to Ssangyong of South Korea, in
which the company has a major stake. The other two South Korean refiners, Hyundai
and Yukong, have been taking smaller volumes of ASL. Saudi Aramco is also selling
some ASL to Taiyo of Japan. Bigger quantities of ASL are being sold on spot basis.
SAUDI LPG PRICING – BACKGROUND

In the early 1980s, the state oil and mining organisation Petromin controlled the sector
of associated gas and the country’s Master Gas System (MGS), which came on stream
with a huge capacity to produce LPG and NGL for export. Petromin’s governor at the
time, Dr. Abdel Hady Taher, wanted to expand the share of LPG in both the power and
industrial sectors with emphasis on Japan – by far the largest market for Middle East
gas liquids.
The big Japanese trading and power companies advised Taher that, for LPG to have
a major long-term share of the energy business, prices of butane and propane must be
stable and must compete with the other sources of energy. Japan’s petrochemical
producers, dependent on naphtha for their feedstock, had the same view. Petromin
then adopted a pricing formula based on the market value of Arabian Light crude oil
in BTU terms, less a percentage that was to rise gradually.
In agreement with Japanese business leaders, Petromin established a long-term
schedule for the formula, including phased increases in the percentage below the
calorific value of Arabian Light. In return, a number of Japanese trading houses and
refiners signed purchase contracts with Petromin which were to be renewed every five
years. Some companies from Japan and other Asian countries signed annual contracts,
and so did a number of Western oil majors. The understanding was that Japan’s trading
giants, which were the suppliers to that country’s power and gas utilities and
petrochemical producers, would keep promoting LPG for as long as it was
competitive.
As a result, most of Petromin’s exports of LPG went to Japan. Later South Korea,
Taiwan and other Asian countries became term clients for Saudi LPG. Petromin was
the price setter for all butane and propane trades east of Suez, including LPG exports
from fellow GCC states, Indonesia and other Asian countries. This in turn was to
influence trades west of Suez, with Turkey and Brazil having become important
clients of Petromin along with the oil majors. But Taher was dismissed in late 1986
and from then on Petromin’s influence in Saudi Arabia declined.
Samarec, established in early 1989 as the operating arm of Petromin, kept that
pricing formula in force and went a step further by establishing a special price for LPG
supplied to Japanese and other petrochemical producers. The latter price was to
compete with naphtha. Soon, however, Samarec discovered that traders in Saudi LPG
on both sides of Suez were taking most of the benefits from the old Petromin formula
and several new companies emerged to trade in Saudi butane and propane. As a result,
Samarec in Saudi Arabia was criticised for having lost revenue opportunities to traders.
So Samarec adopted the “Saudi price” (SP), based on a combination of the
Petromin formula (i.e., the calorific value of Arabian Light) and the outcome of a
monthly tender for one LPG cargo of 22,500 tonnes. The latter element determined the
premium which term customers had to pay over the parity. But the SP still was below
subsequent spot market quotations and thus allowed term customers to make an extra
profit by reselling some of their cargoes on the spot market. At times, this profit came
to more than $50/tonnes C&P-Japan.
Saudi Aramco absorbed Samarec as from mid-1993 and was unhappy with the
latter’s pricing formula. But it could not change it abruptly because of contract
commitments to term lifters. In January 1994, the SP was as low as $93/tonnes for
propane and $93.50/tonnes for butane, allowing some terms clients to make a spot
trading profit of nearly $30/tonnes. Moreover, the large size of the cargo tendered
monthly meant that only few big traders could bid and competition was limited.
So, although the old Petromin formula had helped boost LPG market shares
considerably, the gap caused between the SP and the spot market meant a steady loss
of revenue opportunities.
THE NEW CP FORMULA

On October 1, 1994, after months of market study and warnings, Saudi Aramco
applied a new formula called “the contract price” (CP). This was to be a test for a
wider range of measures. Its immediate purpose was to maximise revenue by
eliminating intermediaries and cutting down on those factors which had affected Saudi
export prices negatively.
Saudi Aramco also introduced a new opt-out clause giving term customers the
option not to lift.
The CP is fixed monthly by an in-house committee formed of Saudi Aramco’s sales
and marketing experts. The formula is based on four elements: (1) market sentiment,
(2) spot market assessments, (3) the values of naphtha and crude oil, and (4) three
monthly spot sale tenders the results of which Saudi Aramco keeps confidential.
Under the opt-out clause, the term customers were given two days from is fixed
price announcement either to confirm acceptance and nominate their LPG liftings, or
to notify Saudi Aramco that they would not lift any volume.
However, in some months the CP becomes higher than the spot price. At times the
CP is up to $30/tonnes higher than the average fob price on the spot market. Several
companies have since cancelled their contracts, and several others have lowered their
liftings. The local users of LPG in Saudi Arabia, notably including SABIC and its
MTBE joint ventures, have suffered because Saudi Aramco has lowered to discount
on domestic LPG supplies considerably.
Saudi Aramco’s CP, which peaked at $330/tonnes for both propane and butane in
January 1997, compared to $205/tonnes for propane and $188/tonnes for butane in
January 1996, fell to $180/tonnes for propane and butane in January 1998. In January
1999, the price was $170/tonnes for propane and $180/tonnes for butane. In January
2000, the price was $256/tonnes for propane and $251/tonnes for butane.
After falling in the five subsequent months, the CP rose from $148 to $183/tonnes
in July 1999 and reached $290/tonnes in September. It fell again in October and
November, in line with falling oil prices.
LPG exports will decline from about 13.5m t/y now to less than 9.5 t/y in 2002. A
further fall in Saudi Aramco exports will be expected in the subsequent years.
This is because of rising local demand, mainly by industry. New ventures to
produce petrochemicals expected to go on stream in the coming years would require
up to 5.8m t/y of LPG, mainly propane. Local MTBE ventures, which have expanded,
require butane.
In 1995 and the previous years, Saudi Aramco’s LPG exports used to exceed 15m
t/y. Exports under term contracts averaged 14m t/y in 1996 and 1997.
THE SAUDI LOGISTICS

Saudi Aramco now has an integrated overseas system for the shipping, storage and
supply of crude oils, refined petroleum products and gas liquids. In terms of tonnage,
its shipping subsidiary Vela has the world’s biggest fleet of tankers which carry or
store crudes, oil products and gas liquids.
In addition, the private-controlled NSCSA has one of the world’s largest fleets of
tankers for petrochemicals and has five new super-tankers built in Japan to carry
crudes or oil products which were delivered in 1996 and early 1997. Three of the
tankers are leased to Vela.
STORAGE FACILITIES
Saudi Aramco has extensive oil storage facilities both in the kingdom and overseas.
Together with VLCCs and ULCCs chartered by Vela occasionally for floating stocks,
its network now has the capability of storing up to 100m barrels of oil worldwide.
The network includes leased overland storage facilities in Europe, the US, the
Caribbean and the Asian/Pacific basin. It also includes facilities purchased, or bought
into, by Saudi Aramco, as well as facilities for oil products and gas liquids leased by
one of its divisions which used to be known as Samarec.
In 1993 its wholly-owned subsidiary, Aramco Overseas, acquired a 34.35% stake
at the Maatschap crude oil terminal and storage facilities in Rotterdam from Texaco.
The facilities can store 17m barrels of crude oil.
In the Mediterranean, Saudi Aramco leases crude oil storage facilities at Sidi Kerir, the
terminal of the Sumed pipeline from the Gulf of Suez to the Mediterranean. Saudi Arabia
is a major shareholder in Sumed, whose pipeline capacity has been expanded to 2.4m b/d.
Saudi Aramco has facilities in the US through Star Enterprise, which has merged with
Shell and Texaco to form one of the biggest downstream entities in North America.
Saudi Aramco has its own storage facilities in South Korea, where it is a partner of
Ssangyong Oil Refining Co. It has a 40% share in Petron, the main refining, distribution
and storage company in the Philippines, which it acquired in early 1994. Similar
facilities are to be acquired in China, where it is negotiating refining partnerships.
Vela Marine International, Saudi Aramco’s shipping subsidiary, currently carries
almost 50% of Saudi Arabia’s oil exports. Its fleet includes 27 wholly-owned tankers
with a total capacity of almost 7 million dwt, including ships for oil products. It also
has tankers chartered on demand.
With the last of new tanker orders made since 1990 delivered in March 1995,
Vela’s oil fleet now consists of: four ULCCs, 19 VLCCs and four products carriers.
Of these, the 18 new VLCCs have a total capacity of more than 4.3m dwt, able to carry
up to 30m barrels of crude oil.
There will be additional orders for ULCCs and VLCCs, as Vela’s goal is to carry
70% of Saudi crude oil exports by 2000. Vela has on time charter several LPG tankers,
on use since Samarec started in the late 1990s to sell propane and butane on CIF basis.
Vela was established in 1984 with four tankers acquired from Norbec. It bought
another four vessels in 1990, giving it four ULCCs and four VLCCs. It began its three-
phase tanker expansion programme in December 1990, when it started tendering for
the construction of 18 VLCCs – nine with the capacity of 300,000 dwt each, and
another nine of 280,000 dwt each.
Orders for 15 of these were placed from February 1991, with shipyards in Japan,
Denmark and South Korea involved. The first two of these tankers were delivered in
1993. Most of the others were delivered in 1994, with the rest during the first quarter
of 1995.
From April 1997, Vela has managed all these ships from its new high-tech building
in Dubai. Previously, six of its new VLCCs were managed by Acomarit of the UK
under a contract signed in May 1993. Another six were managed by Northern Marine
Management, also of the UK, under a similar contract signed in May 1993. Vela’s
vessels have high safety standards.
Saudi Aramco has justified Vela’s investment on two grounds: (a) the new
expansion is vital to the company’s vertical integration overseas, which requires both
a high degree of flexibility and a high degree of central control at the same time – since
Saudi Aramco is by far the biggest oil producing and exporting company in the world;
and (b) although tanker rates are low at present, the market is expected to tighten in
the next decade.
The oil shipping business would become highly profitable, with most of Vela’s
tankers to operate for more than 20 years.
The vessels have single hulls, ordered before the new 1992 International maritime
Organisation (IMO) requirement for sturdier double-hull construction. The IMO
ruling states that all tanker orders from July 1993 must have double hulls or an
equivalent IMO-approved design.
Under its 1990 Oil Pollution Act, the US requires double-hull vessels calling at its ports.
Both the IMO and US laws apply to existing vessels, but have been phased in with
deadlines extending into the next decade. So Vela has some time to adjust to the new rules.
Before its absorption, in April 1992, Samarec had chartered for a period of three
years three LPG carriers from Norway’s Bergesen, raising to 18 the number of vessels
under its charter. The three vessels operated out of Yanbu’ and Ras Tanura. The other
15 vessels have been carrying clean and heavy products, with four used to carry crude
oil from Yanbu’ to Jeddah and one serving as a floating storage depot for Jeddah for
trans-shipment of fuel oil to bunkering agents.
The National Shipping Company (NSCSA), owned 71% by private shareholders
and 29% by the state, is the second biggest shipper of petrochemicals in the world. It
has 26 petrochemical tankers and general cargo ships.
On January 1, 1994, NSCSA ordered five new double-hull tankers of 300,000 dwt
each from MHI of Japan, with each vessel able to carry 2.1m barrels of crude oil or oil
products. It has borrowed $350m to finance the order, said to be worth over $500m,
and the tankers are now in operation. It has also ordered two oil products carriers at a
cost of about $300m. These vessels were to be leased on long-term basis and Vela was
one of the potential clients. NSCSA has branch offices on both sides of Suez and
alliances with some of the world’s major shippers. It has expanded links to Northern
Europe and the Mediterranean, having made changes in its North American-Middle
East links and introduced a direct line from Singapore to the Gulf. The five VLCCs
have boosted the company’s aggregate VLCC capacity to 10.5 million barrels.
National Chemical Carriers (NCC), owned 80% by NSCSA and 20% by Saudi
Arabian Basic Industries (SABIC), was set up in May 1990 to transport chemicals
produced by SABIC’s ventures (mostly JVs with foreign companies). It then
purchased nine tankers totalling 280,000 dwt from Storli Group of Norway, which has
since handled their operations. It had on charter two ships, the 41,148 dwt ‘Al Farabi’
and the 42,825 dwt ‘Uqba Ibn Nafie’, owned jointly by the Kuwait-based United Arab
Shipping Co.
In early 1991, NCC ordered two 30,000 dwt ships worth $35m from Tomoe
Shipping Co. of Singapore. In January 1992, it placed an order for three 37,000 dwt
carriers at a total cost of $225m from Kvaerner of Norway. The last of these vessels
was delivered in late 1996. NCC services cover 150 ports in the Gulf, the
Mediterranean, Europe, North and South America, Asia and Australia, with Storli
involved in their management. Its fleet at present consists of 14 vessels and NCC is
the world’s second largest chemicals carrier.
Al Bakry Navigation Co., a private Saudi firm, has ordered from a South Korean
shipyard two new tankers each with a capacity of 45,000 dwt to carry chemicals. Due
for delivery during the first quarter of 2000, the two ships will be used mainly by
SABIC and Al Bakry’s other regional customers. Al Bakry has options on two similar
vessels as part of its regional expansion programme aimed at the growing chemicals,
oil and gas transportation business.
Al Bakry also has two 36-metre utility boats built in from South Korea and
delivered in the first quarter of 1999. They are being used by Saudi Aramco. A sister
company, Al Bakry Energy International, has built its first mooring boat at the Jeddah
Dry Dock and this is being used by Al Bakry Navigation. It has a ten-year licence,
granted by the Saudi government, to build marine craft.
LOCAL LOGISTICS
Within Saudi Arabia, pipelines and terminal installations can theoretically handle up
to 14m b/d of crude oil and petroleum products as well as 650,000 b/d of gas liquids.
This is the biggest combination of energy export capacities in the world, with Ras
Tanura being the world’s largest offshore loading terminal. Saudi Aramco’s base at
Dhahran, built by the US Aramco since the 1940s to become an American-type of
settlement or town, is virtually a state within a state. It has the world’s largest fleet of
trucks. It runs a huge network of oil and gas pipelines, enabling it to export up to 10m
b/d of crudes and products from the Gulf, or about 5m b/d from Yanbu’ terminal on
the Red Sea.
The 1,2000 km east-west pipeline, called Petroline, pumps crude oil to Yanbu’ and
a parallel line pumps gas liquids to the same Red Sea industrial zone. The Najd fields
south of Riyadh are linked to Petroline but their output is exported from Ras Tanura.
Petroline also supplies five of the country’s seven oil refineries.
Petroline was expanded from 1.85m b/d in 1987 to 4.8m b/d in 1993 with the
addition of a new 56-inch pipeline running parallel to the first 48-inch line. Actual
carriage to the Red Sea never totalled more than 2.5m b/d, in view of customers’
dissatisfaction with higher costs out of Yanbu’.
Saudi ports are being privatised. Private companies now can take out 10-year leases
to operate, maintain and manage some of the Saudi ports and repair yards.
PART VI
OVERSEAS PETROLEUM INDUSTRY INVESTEMENTS
The state-owned Saudi Aramco has partnerships in overseas oil refining and retailing
ventures which have a total capacity of 1.678 million b/d. Of these, refining capacities
of 923,000 b/d are in the US and Greece. The other 755,000 b/d are in South Korea,
the Philippines and China. Refining projects in Asia where Saudi Aramco may invest
could involve another 940,000 b/d.
Private Saudi businessmen have built up an impressive overseas presence from the
upstream end to refining and distribution. They have links to key members of the royal
family, and are widening their presence overseas. Corral Petroleum of the Amoudi
family owns Preem Petroleum of Sweden which has moved to Morocco and other
markets. Nimir Petroleum of the Bin Mahfouz family has ventures from Sakhalin in
Russia to Venezuela. Delta International, a smaller but agile company, is involved in
Azerbaijan and Afghanistan.
THE MARKET PERSPECTIVE

Market confidence in OPEC’s price defence strategy is strong. Saudi Arabia and the
other major oil exporters – including non-OPEC Mexico, Oman, Norway and Russia
– want to see this strategy extended at least for another year beyond end-March 2000.
As a result, crude oil prices have remained firm in recent months and are expected to
exceed the 1997 average. World demand for oil in the year 2000 will be 2.5m b/d
higher than in 1999 and inventories, a weakening buffer between supply and prices,
are likely to fall to 1996 levels in 2000.
Algeria, Iran and other OPEC members want the OPEC summits to adopt a longer
term strategy for price defence. There are proposals for OPEC summits to be held
annually for the next five years, to make sure world oil inventories remain low enough
to keep the value of petroleum at a reasonable level.
The price of crude oil will continue to be subject to much uncertainty. OPEC’s cuts
in 1999 were successful in firming the price of crude oil and at least some members of
OPEC now consider that they can control production to keep crude oil prices firm.
Saudi Aramco’s International Division, created in 1991, is in charge of the
company’s overseas investments. It handles all matters from oil sales to transportation
and storage, monitoring market developments and new investment opportunities,
pursuing negotiations with potential partners and acquiring logistics in key locations.
The division has been monitoring consolidation among the majors in the oil
industry, which began in 1996 with the European downstream merger of BP and Mobil.
Then came the US downstream merger agreement in 1997 between Shell and Texaco
for one venture and between Shell and Star Enterprise (50-50 Texaco & Saudi Aramco)
for another venture. The trend accelerated in 1998 when BP took over Amoco and then
Arco, with Exxon and Mobil now negotiating a merger since late 1998.
MOTIVA ENTERPRISES
Saudi Aramco’s main market share investment is in the US, Riyadh’s principal ally,
where Star Enterprise’s merger with Shell, done in the first half of 1998, created the
biggest downstream venture in the south and east of the American market. The
venture, Motiva Enterprises based on Houston, has a refining capacity of 823,000 b/d
and over 14,500 retail stations, together with storage and terminal facilities. Motiva’s
assets were bigger. As required by the Federal Trade Commission (FTC), the company
had to sell of a refinery, numerous retail stations and some oil pipeline and terminal
facilities before the merger was approved.
Motiva is owned 35% by Shell, 32.5% by Texaco and 32.5% Saudi Refining, a US
unit of Saudi Aramco. Saudi Aramco’s President and CEO Abdullah Jum’ah became
Motiva’s chairman in mid-1998 and Wilson Berry, formerly president of Texaco’s
refining and marketing, was made the company’s CEO.
A merger between Shell and Texaco created the biggest downstream venture in the
centre and west of the US called Equilon Enterprises and owned 56% by Shell. Shell’s
president and CEO became head of Equilon, which also had to sell off refineries and
other assets before this merger was approved by the FTC. Now Equilon’s refining
capacity is less than 800,000 b/d.
Units of Motiva and Equilon, Equiva Trading and Equiva Services, are now
providing the two main entities with vital operational support. They and Motiva have
strengthened Saudi Aramco’s position as the biggest crude oil exporter to the US, with
supplies in the first half of 1999 having averaged almost 1.44m b/d. In April 1999
Texaco’s CEO Peter Bijur said he expected Motiva to save $800m in annual earnings
from 2000, thanks to the merger. The merger has led to a strategic alliance between
Shell and Saudi Aramco for downstream investments in India and other markets.
Within Saudi Arabia, Shell is SABIC’s partner in the kingdom’s biggest
petrochemical venture and Saudi Aramco’s partner in the biggest export refinery.
Saudi Aramco and Texaco have been 50-50 partners in Star Enterprises since that
was formed in 1988 and became the sixth largest gasoline retailer in the US. Star
operated in 26 states in the south and east, and in the district of Columbia. Star was
Saudi Aramco’s first major foreign joint venture. The partnership began in June 1988
when Saudi Aramco made a cash purchase from Texaco of a half share in three
refineries with a total capacity of 605,000 b/d at Convent, Louisiana (230,000 b/d),
Delaware City (140,000 b/d), and Port Arthur, Texas (235,000 b/d). Star then got
around 10,000 branded distribution outlets and 1,500 service stations. The assets of
Star were in early 1998 valued at more than $4.4 bn, compared to $2.5 bn when the
partnership deal was signed in late 1988.
THE SSANGYONG PARTNERSHIP

Saudi Aramco’s first move into East Asia was made in 1991, when it bought 35% in
the Ssangyong Oil Refining Co. of South Korea for $400m. In the subsequent years,
Ssangyong implemented a $1 bn expansion programme and now its refining capacity
at Onsan is $25,000 b/d. Its oil storage facilities were expanded. Investment by Saudi
Aramco had helped finance a new 200,000 b/d crude distillation unit at the refinery
which started operations in 1995. Ssangyong commissioned a 40,000 b/d cracker at the
refinery in mid-1997.
Ssangyong, the most profitable oil refiner in South Korea, has long held a strong
marketing position particularly in lubricants and fuels. It has weathered South Korea’s
severe economic crisis, a crisis which hit most of East Asia in the past two years.
Ssangyong posted a net profit of 271 bn won ($224m) in 1998, up by 188% from 1997.
SK Group, the biggest refiner in South Korea, had a net profit of 116 bn won ($82m)
which was 10% higher than in 1997. In 1996, intensified competition caused the
combined profits of the then five South Korean refiners to fall by nearly one-third;
only Ssangyong managed to show a rise of $6m in net profit to $155m. Now there are
four refining companies in South Korea.
Saudi Aramco has blocked attempts by SK Group to take over Ssangyong Oil. SK
first offered to acquire a 28.4% stake in the refinery held by Ssangyong Cement. Saudi
Aramco has blocked the sale and refused to buy this stake itself. Instead, a fund led by
Paribas and including South Korean banks in mid-1999 agreed to buy the 28.4%
equity, then said to be worth about $687-859m. Saudi Aramco supplies about 95% of
Ssangyong’s crude oil needs. But normally the Saudi company does not exercise
management rights in Ssangyong Oil, the third largest refiner in a market for 1.9m b/d.
Next to SK Group, LG Caltex is the second biggest refiner with a 32% share of the
South Korean market. The fourth refining company Hyundai Oil, which in 1988
absorbed Hanwha Energy and raised its share of the market to 20%, sold a 50% equity
to Abu Dhabi’s IPIC for $500m in late October 1999. The South Korean oil market
now is deregulated.
THE PETRON VENTURE

In March 1994 Saudi Aramco acquired a 40% stake in Petron, the downstream unit of
the Philippines National Oil Co. (PNOC), for $532m in cash. Another 40% is held by
PNOC and the remaining 20% by more than 220,000 individual and corporate
investors, including Petron employees, purchased in a September 1994 stock offering.
Petron’’ assets were then worth about $1.5 bn, including a 165,000 b/d refinery at
Bataan in the north-west Philippines, over 1,000 retail outlets, storage facilities and
terminals. The refinery has been expanded to 180,000 b/d.
In mid-1999, Saudi Aramco and Petron made their crude oil supply contract more
flexible so that the latter can buy as little as 63% of its needs from the Saudi company,
compared to 90% previously. The new contract, valid for three years, will help Petron
compete in the Philippines’ newly deregulated market. Petron retains the right to swap
some Saudi crudes for other crudes to meet certain market demands.
Petron leads the Philippines oil business, with a market share of 40% involving
1,005 retail outlets which account for half of all Philippine sites. It is strong in mid-
distillates and fuel oil, having the biggest share of the locally important diesel market.
It supplies about half of the oil requirements of the industrial sector and is the main
fuel supplier to the power plants. Its international clients include airline firms like
Saudi, Kuwait Airways and Gulf Air. Petron has consistently been ranked first in the
Philippine’s to 1,000 corporations list made by the Manila’s Securities and Exchange
Commission.
Following full deregulation in mid-1998, however, Petron is losing market share
from more than 42% in 1997. Since mid-1998, about 50 new companies have entered
the Philippine fuel distribution business and have gained a combined market share of
more than 6% at the expense of Petron, Shell and Caltex. These companies are taking
advantage of cheap imports from the region to undercut the three refiners. Petron has
also faced a fierce battle for consumer loyalty following the recent emergence of
convenience stores and tie ups with local food outlets.
In the first half of 1999, due to the rise in crude oil prices, Petron’s profit fell 17%
to 1.9 bn pesos ($49.5m). Sales dropped 27% to 22.7 bn pesos, reflecting a squeeze in
market share. In 1998, Petron had a net profit of 3.7 bn pesos ($96m), compared to a
loss of $16.6m in 1997.
In October 1999, there were protests after Petron, Shell and Caltex raised fuel
prices for the sixth time in seven months. The country’s President Joseph Estrada was
under increasing pressure to reintroduce fuel price controls, which were removed in
1998. Parliament has since asked the refiners not to raise prices any further, and has
considered lowering the price of rice sold by the state to offset fuel price increases.
Saudi Aramco’s men on the Petron board include: its CEO Abdullah Jum’ah, Ali
A. Al Ajmi, Abdel Aziz F. Al Khayyal, Motassim A. Al Maashouq and Saad R.
Shaifan. The company’s nominees to the Management Committee of Petron are Al
Ajmi as president and Al Maashouq as vice president for corporate planning. Al
Khayyal is Saudi Aramco’s vice president for employee relations and training.
In February 1998, Petron’s board of directors decided to postpone a $2 bn
expansion plan, which was to include a new 200,000 b/d refinery in Bataan, a naphtha
cracker to produce ethylene, a new regional terminal and additional storage facilities.
They were originally set to be completed in 2000/01. The refinery was to have a
pioneer status, which meant Petron was to get tax and tariff exemptions. Partners in
the new projects were to include Ssangyong of South Korea.
CHINA
Saudi Aramco has equity in the refinering business in China, which is to become a major
market for the company. Chinese oil imports are expected to rise to more than 50m t/y by
2000 from 22m in 1996. During a visit to the kingdom by Chinese President Jiang Zemin
on November 1, 199, the two governments signed several co-operation agreements
including a contract raising Saudi Aramco’s crude oil sales to Beijing and a deal on a joint
oil refinery to be built in China. Saudi Arabia is China’s biggest trading partner in the
Middle East and North Africa, and two-way trade in 1998 amounted to $1.7 bn.
Beijing considers Saudi Arabia an ideal source for oil imports, in view of supply
security considerations, among other things. China needs more refineries or it will
have to continue importing oil products. Saudi Aramco is studying this market, with
refining ventures discussed since the early 1990s. It is the only OPEC NOC to have
invested in Chinese refining.
In 1995 Saudi Aramco bought a 45% interest in a small refinery at Thalin in north-
east China. In early 1998, Saudi Aramco, Exxon and Fujian Petrochemical Co. signed
an agreement to conduct a feasibility study for expansion of a 80,000 b/d refinery at
Fujian in south-east China. The plan is to raise its capacity to 240,000 b/d and have a
related 600,000 t/y ethylene cracker built there. This will be a JV between the three.
Saudi Aramco has for years been seeking a 50% stake in the 170,000 b/d Moaming
refinery in Guangdom province on the coast, which is to be expanded to 270,000 b/d
by 2000. Saudi Aramco has had protracted talks with Beijing for a new 200,000 b/d
refinery to be built at Quingdao, in Shandong province, with its South Korean partner
Ssangyong to be involved. The State Planning Commission approved the $2 bn project
in 1994. Aramco was to have 45% in the JV, with Ssangyoung to hold 15% and the
rest to be held by Sinochem and the Quingdao municipality. Saudi Aramco has also
had discussions for a refinery to be built at Koingto, in eastern China, and crude oil
supply for a 100,000 b/d refinery in Dalian as a JV between TotalFina of France and
the Chinese government.
INDIA
Saudi Aramco and Shell concluded a strategic alliance deal in late 1997 for
downstream investments in the Indian market. But so far there have been no
concrete results. Saudi Aramco in 1998 pulled out of a major oil refining project
promoted by Hindustan Petroleum Corp. Saudi Aramco has also been negotiating a
JV for a new LPG terminal, storage depot and distribution facilities on the Indian
west coast.
India is a fast growing market for LPG in the world, with about 1.3m people on the
waiting list for LPG in the Mumbai (Bombay) area alone. Saudi Aramco is the biggest
producer and exporter of LPG in the world.
JAPAN
Saudi Aramco has been trying to enter the Japanese downstream sector for many years
with no success. A proposed $10 bn partnership with a Japanese/Caltex consortium,
for a 450,000 b/d refining system in Japan, was cancelled in November 1993, partly
due to prohibitive costs of land.
No Saudi move into Japan is likely in the near future as this market is not attractive.
Its downstream sector is going through a major consolidation, sparked by last year’s
merger of Nippon Oil and Mitsubishi Oil which created NMOC and a subsequent
merger of Exxon and Mobil units.
THE EUROPEAN MARKET

In expanding its downstream presence overseas, Saudi Aramco has not made much
headway in Europe. Its first step there came on April 6, 1995, when it signed an
agreement to buy a 50% stake in Motor Oil Hellas (MOH) of Greece and its
marketing arm Avin Oil SA, under a $430m deal with the Vardinoyannis family.
The deal covers (1) a 100,000 b/d refinery at Corinth, southern Greece; (2) a
network of about 700 service stations in Greece, with refined products to be
marketed elsewhere in Europe as well; (3) a crude oil supply arrangement for some
80,000 b/d, which represented a four-fold increase in an existing Saudi term
contract; and (4) a stake for Saudi Aramco in MOH’s storage of around 3m barrels
and its international sales of automotive, jet and bunker fuels. The sale was delayed
by a Vardinoyannis family dispute which was settled in August 1995. The final deal
was signed on March 14, 1996, in London. The Saudi side of MOH’’ management
was undertaken by Aramco’’ Dutch unit called Aramco Overseas Co. In September
1997, Saudi Aramco cancelled plans to buy 27.5% in Petroleos de Portugal
(Petrogal).
THE PRIVATE PLACEMENTS:

Private Saudi businesses have built up an impressive overseas presence, ranging from
the upstream end to oil refining and distribution. They are mostly linked to key
members of the Saudi Royal family. Their acquisitions abroad are seen as a backdoor
way for Saudi oil and refined products to acquire shares in markets where Saudi
Aramco has hitherto not developed a presence, such as South America, Central Asia
and Russia.
Saudi businessmen are generally cautious in their approach and deals with foreign
partners are reached without publicity. The main private operators involved in
overseas upstream and downstream activities are the following:
NIMIR PETROLEUM CO. LTD (NPC)

This is incorporated in Bermuda, and currently is involved in oil or related projects in
Azerbaijan, Colombia, Indonesia, Oman, Kazakhstan, Russia, Tunisia, Venezuela and
Yemen. Established in August 1991, it has rapidly built up branches – registered in
Bermuda, the Cayman Islands, Cyprus, Russia and the US – to carry out its activities.
The owners of Nimir are the Bin Mahfouz family, a respected and extremely well
connected family in Saudi Arabia, which originated from Hadhramaut in Yemen. It
has an array of businesses inside and outside the kingdom. This Jeddah-based family
used to be referred to as the banker of the Saudi royals, because it used to control the
National Commercial Bank (NCB), the largest bank in Saudi Arabia. But in May 1999
the state acquired 50% of NCB, removing from control the bank’s chairman and CEO
Khalid Bin Mahfouz.
Nimir, meaning “tiger” in Arabic, was founded by Abdel Rahman and Sultan Bin
Mahfouz. Khalid Bin Mahfouz is said to be overseeing the operatings of Nimir. The
President and Chief Executive Officer of Nimir Petroleum Co. is Dr. Abdullah
Mohammed Basodan, who was previously in Saudi Aramco’s planning department
and an advisor to the oil ministry. Basodan is also a member of the board of Capital
Investment Holdings of Bahrain, a company controlled and chaired by Khalid Bin
Mahfouz. Saudi Defence Minister Prince Sultan Ibn Abdel Aziz and his younger full-
brother Prince Salman who is emir of Riyadh are believed to have interests in Nimir.
“Service companies” in NPC include Nimir Petroleum Co. Europe Ltd. (NPCEL),
Nimir Petroleum Co. USA Inc (NPC USA), and Nimir Energy Services Ltd. (NESL),
registered in Bermuda, is regarded as an “independent” contractor company which
identifies business opportunities compatible with NPC’s strategic orientations.
NPCEL operates out of Paris. Its main task is to analyse new ventures and make
recommendations to top management. NPC USA Inc. operates out of Dallas. Its job is
to manage procurement and shipment of materials to NPC operations on Sakhalin
Island and in Colombia. It provides administrative and human resource services to
Petrosakh Joint Stock Co., registered in Russia. NESL provides a range of specialised
oil industry services under contract to NPC, including project management and
support for technical, financial, accounting, legal, information technology, risk
management, and administrative needs. NESL, established in 1991, is incorporated in
Bermuda. It operates out of London. Nimir’s activities overseas cover:
Yemen. Nimir’s first move overseas was in September 1991 when it reached a
production sharing agreement (PSA) with Yemen’s oil ministry to develop West
Ayad (Block 4) in Shabwa province. NPC won that concession after bearing out
more than a dozen international companies interested in the block, for a reported
price of $500m – though the actual amount paid was less than that. NPC later got
Arco to handle technical operations. In March 1992, Nimir signed PSAs for Al
Furt (Block 33), Qamar Gulf (Block 16) and South Sanau (Block 29). Block 16
is in Al Mahrah province bordering Oman and covers an 8,544 sq km area.
Blocks 33 and 29 are in Hadhramaut and cover 7,500 sq km and 12,634 sq km.
NPC also funded a partial modernisation of Aden’s 170,000 b/d oil refinery. It
leased a gas-oil separation plant in order to begin production at Shabwa in time
for a target set by Sanaa, and invited foreign engineering firms to repair the
production facility at East Ayad, which had been installed by Technoexport of
the former Soviet Union. Since 1994 Nimir has done extensive exploration
drilling in Yemen, onshore and offshore.
Russia. NPC entered Russia in October 1992 when Nimir Petroleum Petrosakh
Ltd. (NPPL) acquired from Petrosakh Ltd. a 50% share in a Russian JV company
which had operations I the Okruzhnoye field, in the Pogranichi Basin of
Sakhalin island. Thus Petrosakh Joint Stock Co. (PJSC) was formed. PJSC
commissioned its 5,000 b/d refinery on the island in April 1994. The output of
the refinery is fuel oil (36%), gasoline (35%), diesel (20%) and kerosine (9%).
In May 1995, NPPL raised its stake in PJSC to 95%. In 1996 new development
and exploration wells were drilled and building work was completed on a marine
terminal. PJSC activities involve oil gathering and separation, oil production,
dehydration, gas compression and gas injection. It has built a tank farm for crude
and refined products. It also has an arctic camp to support year-round operations.
Exports are sent through the Okruzhnoye terminal during the summer and via the
Korsakov port in the winter. Products for consumption on the island are
transported via road and rail. PJSC also does seismic and geological surveys to
explore for new oilfields. PJSC meets 25% of the island’s consumption needs
and employs about 95% of its staff of some 500 people from among the Sakhalin
islanders. Nimir has invested $100m in Sakhalin.
Azerbaijan. Nimir has stake in the Azerbaijan International Oil Consortium

(AIOC), consisting of a 50% share in a JV with Delta Oil Co. of Saudi Arabia,
called Delta Nimir Khazar Ltd (DNKL). DNKL, established in 1994, has a
1.65% interest in AIOC. DNKL is also a member of the North Absheron
Operating Co. (NAOC) consortium, formed to develop the Ashrafi and Dan
Ulduzu fields in the North Absheron ridge. In March 1997, the parliament of
Azerbaijan approved the contract on Ashrafi and Dan Ulduzu fields. The
contract had bee signed in December 1996 by Azeri state oil company SOCAR
and Amoco, Unocal, Itochu and DNKL. The shares are: Amoco (30%), Unocal
(25.5%), SOCAR (20%), Itochu (20%) and DNKL (4.5%). Nimir has expressed
interest in joining the development of Garabagli and Kursangia onshore fields in
Azerbaijan, located in the lower Kura Basin.
Colombia. Nimir entered Colombia in November 1995 by purchasing all Hocol

and Homcol shares from Shell. In May 1996, it began production of gas at the
Montanuelo field. Hocol has a 36% share in the Oleducto Alto Magdalene
pipeline which carries crude oil produced in the Upper Magdalena fields, and a
21% share I Oleoducto de Colombia (ODC) which transports Upper Magdalena
oil as well as Central Llanos oil from Vasconia to the Covenas terminal. Its oil
production exceeds 20,000 b/d. In addition, Hocol administers the 480 km ODC,
which lies underground and includes sub-surface river crossings. About 35% of
Hocol-produced crude oil is sent through the ODC for export, while 65% is
shipped via pipeline to Ecopetrol’s Barrancabermeja refinery. Hocol-operated

sites in Colombia are located in the Upper Magdalena Valley. Hocol also holds
interests in fields operated by Kelt and Braspetro in the Central Llanos. It is
exploring potential new reserves at the edge of the Andes. It is conducting
seismic surveys of the Patalo area as well, with more exploration of the Upper
Magdalena Valley planned.
Oman. Nimir was awarded Block 3 in Oman in January 1997. Under the deal, it
was to invest $50.5m over an eight-year period. The block spans an area of
15,000 sq km in north-east Oman.
Tunisia. On May 5, 1997, Nimir and Petronas Carigali, Malaysia’s NOC, got
rights to explore the 7th November concession in a gulf of Gabes area jointly
administered by Libya and Tunisia. The rights were awarded by Libya/Tunisia
Joint Oil. The block spans a 3,000 square km area. The 7th November field is
estimated to have 260-300m barrels of recoverable reserves. Nimir and Petronas
had to invest $30m over a five-year period, i.e. within the $40m limit beyond
which the US may impose sanctions under its embargo on Libya. They were to
drill up to five wells.
Venezuela. Nimir made its entry into Venezuela on June 3, 1997, through a
partnership with Pennzoil (Pepco). On that date a Pennzoil-led group won the
$46m contract to operate the B2X-68/79 field. The shareholding in the group is
as follows: Pennzoil (60%), Nimir (20%), Ehcopek SA (10%) and Cartera de
Inversiones Venezolanas CA (10%). The field is in eastern Lake Maracaibo.
B2X-68/79 covers 10,000 acres. It has 39 active wells producing about 2,500
b/d. The minimum investment required during the first three years on B2X-68/79
was $12m.
Kazakhstan. In June 1997, Nimir signed a 25-year deal to develop Kazakhstan’s

North Buzachi field which, according to the company, has 1.5 bn barrels of oil
in place and recoverable reserves of 500m barrels of 20° API crude. Nimir was
to invest $103.5m over a five-year-period, with $30m in the first three years and
$73.5m in the remaining two years. It was to drill three wells, applying steam
injection or horizontal drilling, and start production by end-1997. It had a
production target of 80,000 b/d. North Buzachi lies next to the giant Kalakmas
field on the main export route to Russia.
Nimir has negotiated a new 150,000 b/d refinery project in East Java as JV with
P.T. Gigaraya International of Indonesia and Mitsui of Japan. This is proposed to
incorporate advanced processes such as atmospheric residue desulphurisation and
residue catalytic cracking. It was to get crude oil from Saudi Arabia. NPC has also
held talks on downstream ventures in Ukraine and Moldova. In 1993 it was among
firms negotiating with Elf Aquitaine of France on a new refinery at Leuna in eastern
Germany. Nimir joined Shell in block 10 in Romania in 1992 but pulled out later that
year after disappointing results. It left Malta in 1996 for similar reasons, after
prospecting with Shell in Block 7 of the southern offshore region.
CORRAL PETROLEUM HOLDINGS (CPH)

This is a Swedish-registered company in which Shaikh Mohammed Hussein Al
Amoudi, of a prominent Jeddah-based merchant family, has a controlling interest.
Corral’s CEO is Ghazi Habib, a former director at Samarec who left after the company
merged with Saudi Aramco. Corral is the biggest Saudi private downstream operator
overseas.
CPH in the first quarter of 1999 assumed control over the oil refining and retail
business in Morocco. This was done through a merger of the country’s two oil refining
companies in which Corral had held the majority since May 1997: Societe Anonyme
Marocaine de l’Industrie de Raffinage (Samir) and Societe Cherifienne de Petroles
(SCP).
CPH’s local unit, Corral Holdings Morocco (CHM) merged Samir and SCP so that
their resources were pooled together to gain economies of scale and help CHM prepare
a $500m programme for expansion. This will include an upgrade of the two refineries,
as gasoline specifications in Morocco are to be changed by 2003. CHM is to increase
their retail networks, now under a common system.
CHM’s LPG retail network in Morocco is being expanded through a merger agreed
in October 1998 with Tayssir Primagaz, Azizgaz and Elf Intergaz. The merged entity
now has 85% of the LPG market and is to invest in new plant and equipment for gas
bottling centres in order to meet the growth in domestic demand. Previously CHM had
10 LPG filling units accounting for 40% of the filling sector but only 5% of the LPG
market.
Corral’s first major deal was on March 16, 1994, when it acquired Stockholm-
based OK Petroleum AB (OKP) for $738m. In July 1994 OKP bought Sweden’s 400
Texaco petrol stations, representing a 7% share of the market. The total deal was worth
around $1.2 bn. As from mid-1996, OKP has been renamed Preem Petroleum. (Nimir
had initially wanted to buy OKP but decided against it. Then Al Amoudi hired Nimir
as a management consultant prior to buying OKP. Nimir undertook the negotiation
and acquisition of OKP, on behalf of Corral. Nimir now has a management
consultancy agreement with Preem). Preem is the biggest refiner in Scandinavia with
a capacity of 300,000 b/d, in two refineries: the 200,000 b/d Scanraff plant, jointly
owned with Norsk Hydro, and the 100,000 b/d Preem refinery. A $200m upgrade is
being carried out at the latter refinery. Preem Petroleum also has extensive storage
facilities. (At the same time of the purchase, OKP was the biggest refiner in
Scandinavia with a capacity of 265,000 b/d, 23% of the Nordic total. It was the 22nd
biggest company in the European market). Preem has E&P concession sin three North
Sea fields, in the Baltic and in Angola. In January 1995, it acquired Polish oil company
Va-Po, which owns a storage facility in Poznan and 20 retail outlets. Currently, Corral
owns some 500 retail outlets under the Preem brand name. In 1996, Preem had a
turnover of more than $2.5 bn. In addition to Preem, Corral also owns Svenska
Petroleum and Exploration, which produces 18,000 b/d of crude oil and has annual
sales totalling around $160m.
In July 1995, Corral teamed up with Dubai-based Gulf Interstate to take a 15%
share in refined product retailer Fortuna of Lebanon, at a cost of $50m. Corral’s share
has since been raised to 70% and Gulf Interstate is out of the venture. Fortuna has two
operating subsidiaries: Coral Oil and Speed Oil. It operates 150 retail outlets in
Lebanon, with sales in 1996 estimated at $105m, representing 2.2m barrels of refined
products. (In June 1995 Shaikh Amoudi signed an agreement with the Al Mawarld
Group of Saudi Arabia to buy its Naft Services Co., which has the largest chain of
petrol stations in Saudi Arabia. Naft’s operations are concentrated around Jeddah,
Riyadh and Al Khobar).
DELTA OIL CO.

Based in Jeddah, this is part of Delta Investment Co. which groups about 50 prominent
Saudi businessmen, may of them politically well connected within the kingdom. Delta
Oil Co. was established in 1993 to manage the group’s energy interests. In 1994 it
formed a “strategic partnership” with Nimir Petroleum. Through this partnership it has
joined the AIOC and NAOC consortia in Azerbaijan. Delta Oil has been involved in
repeatedly frustrated efforts to build a gas pipeline from Turkmenistan to Pakistan via
Afghanistan. It was working on this with Unocal of the US. Delta executives
personally negotiated with Taliban leaders to get their backing for the project. Delta
Oil’s Chairman and CEO is Badr M. Aiban (or Ayban), who used to be consultant in
the Saudi state oil sector. His deputy is Nabil Al Khowaiter, who used to be on the
staff of Aramco. Ray Harlow, previously head of Sun Oil International, has been a key
executive in Delta since September 1997. Delta Oil had applied in 1992 for a licence
to operate under the name of Arabian Petroleum Co. as a Saudi joint stock venture,
which would have helped raise finance for its intended purchase of 50% in the
downstream network of Belgium company Fina in the US. But the Saudi government
blocked the move in 1993.
In early 1999, Delta Oil acquired 26% in Centurion Energy International of
Canada. It bought $3m of shares in a private placement and paid $3.8m of an existing
debenture. Centurion is active in oil exploration in Tunisia and Egypt. It has three
concessions in Tunisia which produce 3,200 b/d.
Other Saudi companies involved overseas include the Dallah Al Barakah Group.
One of the Saudi corporate giants, this Jeddah-based group is controlled by leading
businessman Shaikh Saleh Al Kamel. His group has considered E&P deals in
Kazakhstan and Uzbekistan for several oilfields. In November 1991 it opened a JV
bank in Almaty to focus on oil and gas projects. The bank reportedly had about $150m
in authorised capital, with Dallah holding 50%. In 1993, it disclosed plans for a
refinery service venture in Moscow.
A little known Saudi firm, Ningharco, is part of a group led by Bridas of Argentina
to build a Turkmenistan-Afghanistan-Pakistan gas pipeline rivalling that of Unocal-
Delta. Arab Group International (AGI), based in Riyadh and headed by Prince Sultan
Ibn Saud Ibn Abdullah Al Saud, had in 1995 agreed to take a 50% stake worth $345m
in Arakis Energy of Canada, which has acreages in Sudan. AGI said it was ready to
provide $405m to fund development of oilfields in central Sudan. The project’s
viability was questioned because it was located in a civil war zone. In early 1998,
Mobil and Alireza were reported to be planning to invest over $200m in converting a
Panamanian bunkering centre into a hub supplying fuels to Latin America. This was
to involve a 3m barrel storage centre by the Panama Canal, a 30,000-60,000 b/d
refinery and a 50-100MW power plant. Xenel Industries of Jeddah has a stake in Hub
Power Co. in Pakistan.
PART VII
THE DECISION MAKERS
The day-to-day running of the Saudi kingdom, including policy decisions on the
petroleum sector, is in the hands of Crown Prince Abdullah Ibn Abdel Aziz Al Saud.
Officially the ailing King of Saudi Arabia, Fahd Ibn Abdel Aziz Al Saud, remains in
charge of everything in this country.
Despite his poor health, King Fahd receives heads of state or lower ranking visitors
of importance to Saudi Arabia, but no serious discussions take place. He occasionally
presides over cabinet meetings. He remains the prime minister and chairman of the
highest decision making body for the petroleum sector, the Supreme council of Saudi
Aramco, which has rarely met since the 1990 Gulf crisis – one year after it was set up.
King Fahd, however, has delegated power to Prince Abdullah and is no longer
concerned with policy making, clearly satisfied with the way Prince Abdullah is
running things. He has made the leadership regard Abdullah as acting ruler.
ABDULLAH IBN ABDEL AZIZ AL SAUD

Born in August 1924, Prince Abdullah rules a kingdom which is in transition between
the ageing sons of the later King Abdel Aziz (Ibn Saud) to the better educated
grandsons. It is a transition which is to last until a chosen grandson of Ibn Saud has
become king.
One could tell who, among a collegiate of about 500 princes, would be the king
form the new generation when a grandson becomes second deputy prime minister. In
the Saudi tradition – but this is not necessarily the system as King Fahd made a change
in 1992 – the crown prince is the first deputy prime minister and is first in the line of
succession to the throne, with the second deputy premier being the next in line.
Holding the key positions of First Deputy Premier and Commander of the National
Guard, Crown Prince Abdullah is the man now in charge of the main decisions in all
matters – including the petroleum sector – and is the chairman of the Supreme
Economic Council (SEC). Prince Abdullah is not a full-brother of King Fahd. King
Fahd has many half-brothers, having had the same father (Ibn Saud) but different
mothers from different tribes.
The SEC was ordered in late August 1999 by King Fahd, who then was vacationing
in Spain. King Fahd appointed his very powerful full-brother, Prince Sultan Ibn Abdel
Aziz (2nd deputy PM, defence/aviation minister & inspector general), to be deputy
chairman of the SEC. The other SEC members are the ministers of finance/economy,
oil, industry/electricity, trade, PTT, public works/housing, planning, labour/social
affairs, three state ministers, the governor of the Saudi Arabian Monetary Agency
(SAMA), and ten leading Saudi businessmen representing the private sector.
The SEC, formed in September, studies the annual budgets, the five-year plans,
reform requirements such as privatisations and partial market deregulations, projects
to diversify the economy, and monetary and fiscal policies. It has executive powers,
but only in getting its decisions to be approved and issued by the Council of Ministers.
The SEC is to issue regular reports to the Council of Ministers on the state of the
economy.
THE OIL PRICE PERSPECTIVE

Prince Abdullah has been at the centre of OPEC’s price defence strategy since late
February 1998, when oil prices began a steep fall and he gave Oil Minister Ali Naimi
the green light to negotiate a trilateral pact in Riyadh with Mexico and Venezuela to
cut oil production. That and subsequent efforts, culminating in a serious accord
between Saudi Arabia and Iran, led to the March 1999 pact involving OPEC and four
non-OPEC states – Mexico, Norway, Oman and Russia – to limit oil production for
one year until end-March 2000. Prince Abdullah has accepted to attend an OPEC
summit in Caracas, the first such summit since the 1975 event of Algiers, to be held
after the next OPEC ministerial conference in the Venezuelan capital in the late
March. But the Saudi leadership refrained from calling for the summit to extend the
production cuts for another year, whereas other OPEC members want the price
defence strategy to be kept for years beyond end-March 2000.
Prices of WTI rose to $27/barrel and Brent to $26 – a record since the 1990 Gulf
crisis – after Iraq on November 23 cut off oil exports to protest a two-week extension
of the UN oil-for-aid programme. In this move, Saddam Hussein was pressuring the
US and UK in a game of wits reminding the world that he was a key factor at the
beginning of what was expected to be a severe winter. In Saddam’s last game, in early
December 1998, the winter was mild, with oil prices falling, and his moves led to a
limited US/UK air war against Iraq. This time Saddam is using the oil weapon in a way
which could be embarrassing to Saudi Arabia, Kuwait and other OPEC allies of the
US. If oil prices rise above $30/barrel – with inventories falling rapidly – and if
Washington does not release oil from its strategic stockpile as it did at the beginning
of the Gulf war in January 1991, Saudi Arabia and the other allies of the US might be
compelled to raise their oil production. Such a move could jeopardise the OPEC price
defence strategy and may even lead to a cancellation of the OPEC summit.
Concerned that the Saudi economy remained vulnerable to the downward price
spiral of a single commodity, oil, the Riyadh leadership in early 1998 began a quiet
debate on the options open to the kingdom. It decided that Prince Abdullah should go
on a world tour to consult with political and business leaders. He and a large
delegation were to discuss what options Saudi Arabia could take to improve and
diversify its economy.
Thus Prince Abdullah headed a delegation of key ministers and experts on his tour.
As he visited the US, he invited the CEOs of the biggest American oil companies to a
meeting at the residence of the Saudi Ambassador to Washington, Prince Bandar Ibn
Sultan Ibn Abdel Aziz, on September 26, 1998. He told them Saudi Arabia was ready
to listen to any proposal for investment to boost and diversify the economy. Present at
the meeting were Foreign Minister Prince Saud Al Faisal, Oil Minister Naimi and
other top officials.
During and after that meeting, when the American CEOs asked whether oil E&P
was open, Naimi was emphatic in saying the upstream oil sector was reserved to Saudi
Aramco. Anything else might be open for partnership if and when the government
took relevant decisions. The Saudi side later hinted that Riyadh might allow gas E&P
investments if these were to be part of integrated projects including downstream
ventures such as IPPs and petrochemical producers.
Prince Abdullah invited the CEOs to visit Saudi Arabia and meet with him. They
were also asked to meet with Prince Saud and other senior officials. Subsequently, the
CEOs of European and other major oil companies were invited to visit Saudi Arabia
and make proposals. In the background was the offshore concession of Arabian Oil
Co. (AOC) in the Divided Zone which is shared equally by Saudi Arabia and Kuwait
but which, on the Saudi side, expires in February 2000. (The Kuwaiti side expires in
early 2003, and the Kuwaitis now are waiting the outcome of the Saudi-Japanese
negotiations).
From December 1998 and through the following months in 1999, the Western
CEOs visited Saudi Arabia and met with Princes Abdullah and Saud and other
officials. The last one to visit Saudi Arabia in late November 1999 was BP Amoco
CEO John Browne. Each of them has made specific proposals – and nearly all have
also proposed to take up AOC’s concession if this was not to be renewed.
In May 1999, Prince Abdullah ordered the formation of a technical committee of
experts from Saudi Aramco to evaluate all proposals made by the foreign companies.
The committee was asked to make recommendation on each proposal and submit them
to a group supervised by Prince Saud.
In June 1999, King Fahd decreed a cabinet change and, among other things,
retained Naimi as oil minister for another four-year term. In July, Prince Abdullah
ordered experts from the ministries of oil, finance, industry/electricity, trade and
foreign affairs to be included in the technical committee, along with experts from
SAMA.
In August, an inter-ministerial committee under Prince Saud’s chairmanship was
formed to study the evaluations of the technical committee. Prince Saud was also to
chair a Higher Committee to evaluate the work of both the technical committee and
the inter-ministerial committee. The Higher committee was to submit to the Council
of Ministers by late 1999 a report on all the foreign companies’ proposals and the
Saudi recommendations.
The inter-ministerial committee is made up to deputy ministers and top experts
from the ministries of oil, finance, industry/electricity and trade and from SAMA. The
Higher Committee, under Prince Saud, includes the ministers of oil, finance,
industry/electricity and trade and the governor of SAMA.
Prince Abdullah leads the conservative wing in the royal and his mother’s father
was a chief of the Shammar which is the most numerous confederation of tribes in the
Middle East stretching to the north of Syria, major parts of Iraq and Jordan, down to
the south of Hail. Abdullah also has good connections with the Aal Al Shaikh clan
which descends from the founder of Wahhabism. Married to an Alawite relative of
Syrian President Hafez Al Assad, among his wives, Abdullah is an ally of Damascus.
Prince Abdullah led the Saudi delegation to the 8th Islamic conference which was
held in Tahran on December 9-11, 1997. In Tehran, he offered to mediate between US
and Iran. Since then, relations between Riyadh and Tehran have been developed to
solid friendship which, among other things, is the key to OPEC’s current price defence
strategy.
At home, Prince Abdullah stands in a very delicately balanced position. As he has
the biggest confederation of tribes on his side and is in full control of the National
Guard, King Fahd and his full-brothers lead the progressive wing of the royal family
and assume control over other key power bases: Sultan controls the regular armed
forces, Nayef controls internal security and the border guards, Salman controls the
intelligence establishment (though this is nominally led by a son of late King Faisal,
Prince Turki Al Faisal who once was Clinton’s class-mate) as well as being the Emir
(governor) of the bast Riyadh province.
Prince Abdullah’s Shammar base is very active, particularly in Hail. He has a
strong tribal base in each of Qassim, the Eastern Province and other parts of the
kingdom. His National Guards in the Eastern Province have an imposing role. But
Abdullah’s relations with the progressive camp are very cordial.
Prince Abdullah’s first son, Mit’ab, in his early 50s, assists him in public relations,
the command of the National Guards and the family’s racehorses. His second son,
Khalid, commands the National Guards in the Eastern Province. A young son of his
Alawite wife, Abdel Aziz, received President Assad’s son and heir Basher during the
latter’s recent visit to Saudi Arabia.
SAUD AL FAISAL IBN ABDEL AZIZ AL SAUD

Born in 1942, Prince Saud is the first candidate among the grandsons of Ibn Saud to
become king at the end of the current transitional period. He is the foreign minister, a
post he took up after the death of his father King Faisal in late March 1975. (King
Faisal used to be foreign minister, as well as king and prime minister, and he had held
that post since the 1930s when he founded the foreign affairs ministry in Jeddah).
Prince Saud is close to Prince Abdullah. All CEOs of foreign oil companies who
have made proposals since late 1998 have met with Prince Saud – apart from meeting
with Prince Abdullah – in his capacity as chairman of the Higher Committee o new
proposals for petroleum partnerships. These partnerships, with foreign companies, are
to be integrated gas-to-power and/or gas-to-petrochemicals ventures in Saudi Arabia.
Prince Saud will be a key decision maker in this aspect of petroleum policies.
Ali Ibrahim Al Naimi: Petroleum and Mineral Resources Minister Naimi was first
appointed to this post on August 2, 1995, replacing Shaikh Hisham Nazer who had
served in the government for 30 years. Naimi was made a member of Saudi Aramco’s
Supreme council in March 1989, having become president of the Saudi Arabian Oil
Company (Saudi Aramco) in 1984 and the company’s CEO in 1988, when the
government formally announced this firm. Naimi now is also the chairman of Saudi
Aramco’s board of directors.
The state’s takeover of Arabian American Oil Company (Aramco) had theoretically
occurred in 1976. This took effect in 1980 when John Kelberer resigned as chairman
and president of Aramco. He was succeeded by Naimi, the first Saudi to hold such a
position in the world’s largest oil producing company.
During the early 1990s Naimi supervised Saudi Aramco’s integration, with the
company absorbing Samarec in 1993, and helped in the pursuit of downstream
expansions overseas, mainly in the US and Asia. All this was done in a businesslike
way.
Naimi’s appointment as oil minister in October 1995 was to indicate, among other
things, King Fahd’s desire to separate oil from foreign policy. Naimi was well suited
for such a task. Coming from outside the tribal and sectarian frameworks of the
political elite, he is beholden to the top leadership – i.e., Crown Prince Abdullah who
now is acting on behalf of King Fahd – and to no one else. For most of his life, he has
been an Aramco man.
With limited experience in international oil politics, especially in the OPEC arena,
Naimi has since late 1995 quickly proved to be a good oil diplomat. He has raised his
profile during OPEC’s ministerial meetings. From October 1997, he set the tone for
the OPEC ministerial meeting, which was held in Jakarta on November 26-27, by
calling for a higher production ceiling and a proportional increase in Saudi Arabia’s
8m b/d quota. His position led to a 2m b/d rise in OPEC’s ceiling of 25.033m b/d.
That was a miscalculation, however, as the Asian economic crisis lowered world
oil demand and the winter was very mild. Inventories were high and were built up
further in the subsequent months, which led to a collapse of oil prices in 1998. By
early-1999, the price of Brent had fallen below $10/barrel and the value of oil was
unreasonable low.
The fall in oil prices triggered a wave of mergers among the major oil companies,
including BP’s takeover of Amoco, Total’s takeover of Petrofina of Belgium and
Exxon’s proposed merger with Mobil, among several others. A consensus in the
industry by then had it that the period of low oil prices was going to last for many years
– the opposite of an industry consensus in 1996 that oil prices were to be above
$20/barrel for many years.
It was Mexico’s Energy Minister Luis Tellez, a novice in the world of oil who had
joined the Mexican cabinet in 1997, who took the initiative in February 1998 to
contact Venezuela with the aim of getting OPEC to defend oil prices through
production cuts. Tellez contacted his Venezuelan counterpart, Erwin Arrieta, and the
two agreed at a meeting in Miami to approach Naimi. With a green light from Crown
Prince Abdullah, who had consulted with King Fahd and other Saudi leaders, Naimi
agreed to a meeting in Riyadh with Tellez and Arrieta in early March 1998. That led
to a tripartite pact and persistent efforts subsequently for a cut in oil production by
OPEC and Mexico. Later, Oman joined the effort.
Encouraged by the market’s positive reactions, as oil prices rose every time
production cuts became evident, Prince Abdullah got Naimi to pursue a more credible
price defence strategy among OPEC members. Algeria’s Energy Minister Youcef
Yousfi played a key role in the background as Iran’s oil and foreign ministers
embarked on regular contacts with their Saudi counterparts.
Finally, a credible Iran-Saudi agreement was reached in early 1999 and that led to
further cuts in production and the March 1999 pact which involved OPEC (excluding
Iraq) as well as the states of Mexico, Norway, Oman and Russia. The pact became
effective originally for one year, from April 1, 1999 to end-March 2000.
THE SAUDI DECISION MAKERS – NAIMI’S PROFILE

In the more recent months, several OPEC members called for the price defence pact to
be extended at least for another year, to end-March 2001. They wanted the OPEC
summit, proposed to be held in Caracas after the next OPEC ministerial conference in
the Venezuelan capital in late March 2000, to adopt a longer-term price defence strategy.
Naimi has kept silent on all this, however, because the Saudi leadership is
embarrassed by the big rise in prices caused by Iraq’s recent halt in oil exports. Iraq’s
move was part of a game by Saddam Hussein to pressure the US and UK into ending
the UN sanctions against his country.
The Saudi role in OPEC, always guided by the top leadership, is also being played
in the background through Naimi’s powerful deputy, the ministry’s Under-secretary
for Petroleum Affairs Prince Abdel Aziz Ibn Salman, who was appointed to the post
on July 4, 1995.
Apart from being confident and an expert in the Saudi oil business, Naimi has the
trust of the top leadership. After his appointment as minister in 1995, he said he would
“be focused on managing the ministry along business thinking and business lines”.
Reflecting the leadership’s concern, Naimi wants oil prices stabilised within a band
reasonable to all concerned. At present, oil prices are too high. Saudi Arabia may have
to change its stand if the US does not release oil from its Strategic Petroleum Reserve
(SPR) should prices rise above $30/barrel during the winter. But the Saudi position is
that world oil inventories should drop to 1996 levels, a view held by Iran and the other
members of OPEC.
Naimi told an API conference in Washington DC on November 11, 1996: “Our
kingdom’s policy remains founded on market stability and oil supply reliability. The
best tool we have to help the world achieve balance and mitigate price volatility is our
stand-by spare production capacity. For the past 15 years, through wars, revolutions,
invasions, crises and increased consumption, this tool has been employed to offset
disruption of world oil supplies. We remain committed to that policy.
“Saudi Arabia also recognises its role among the world’s other oil producers and
consumers. We have sought good relationships with our competitors as well as our
customers, and have assumed a leading stance in creating new partnerhips. These have
the objective of improving efficiency, sharing technologies and ultimately serving the
consumer with better products”.
The minister now is also focusing on Saudi Arabia’s huge reserves of natural gas.
Addressing a gas conference in Yanbu’ held on October 18-20, 1997, Naimi said:
“Our global energy goals go hand-in-hand with development at home. Sound business
practice and a long-term view are the cornerstones of Saudi Arabian policies. At home,
we view the need for commercially sound hydrocarbon supplies, both for serving our
industrial base and for meeting rising demand from public utilities, as putting natural
gas squarely at the forefront of our future”.
Naimi added: “At the upstream level....involvement of international companies is
not needed. We have at our disposal, through Saudi Aramco, the finest means and
expertise anywhere to develop our own gas reserves...
Its low-cost efficiencies and strong financial base also make Saudi Aramco up to
the task of developing the upstream sector (for oil or gas) with little direct involvement
of others”.
He then said: “Building the natural gas infrastructure, from drilling the wells to
laying the pipelines, is accessible to foreign firms (as contractors). With regard to
downstream investment in the petrochemical industry, it is also completely open and
encouraged”.
In late 1998, however, Naimi and other officials in the petroleum sector began
considering proposals for major foreign oil companies to explore for and produce
natural gas in Saudi Arabia as part of integrated projects. Such projects would include
downstream industries, such as power plants (IPPs), gas-to-liquids (GTLs), and
petrochemicals.
Most of the major Western oil companies have made such proposals following a
world tour by Crown Prince Abdullah in 1998 during which he invited their CEOs to
visit the kingdom and present their ideas.
Naimi outlined his country’s new policy gas during a major gas conference held in
Tehran on November 7, 1999. He said in a keynote address that development f Saudi
Arabia’s gas resources had become a national priority, together with gas-based
industries ranging from electricity generation to the production of petrochemicals and
super-clean fuels from natural gas.
He stressed the need for Saudi Arabia to co-operate with qualified companies in
these fields. He said these would be through joint ventures transferring advanced
technology to Saudi Arabia and sharing their capital and marketing strengths.
Naimi was retained as minister of petroleum and mineral resources for another
four-year term in June 1999, when King Fahd ordered a minor cabinet reshuffle.
Naimi is a nice, simple and highly intelligent man. His gentle leadership has made
an imprint on his subordinates. Known for his reserved and contemplative nature, he
is a rational thinker and pragmatism is one of his strong points. He had delegated
powers within both the ministry and Saudi Aramco’s top management.
Naimi was born in 1935 of a poor Shiite family in Ar Rakah, in the Eastern
Province. As a child he used to tend to his father’s flock of sheep. He started working
for Aramco in 1947, at the age of 12, as an office boy. Soon his intelligence and sense
of dedication attracted the attention of American executives. Without schooling, he
quickly learned to speak English and studied from whatever books or casual tutoring
he could get in his free time.
In 1951, one of the US executives recommended that Naimi be sent to a proper
school. He was given years of full-time schooling sponsored by the company. There,
too, he excelled. He was given the job of a foreman. In late 1953 he became an
assistant geologist at Aramco’s Exploration Department.
After three years of work combined with self-education, Naimi was sent for further
education. In 1956 he went to the International College in Beirut and later to the
American University of Beirut, under company sponsorship. Then Naimi was sent to
the US. In 1962 he received a BS in geology from Lehigh University in Pennsylvania.
In 1963 he received an MA from Stanford University in the same subject, with
emphasis on subterranean water science and geo-economics.
Backed by experience in field work and apprenticeship under noted US geologists,
Naimi was prepared for a brilliant career. He also had excellent contacts among
American executives at Aramco.
He returned to Dhahran in 1963 to take up the position of a hydrologist and a
geologist at Aramco’s Exploration Department. From 1967 to 1969 Naimi worked in
the company’s Departments of Economics and Public Relations, and at the Abqaiq
Producing Division. Between 1972 and 1975 he was appointed assistant manager of
the Producing Department, manager of the Southern Area Producing Department and
manager of the Northern Area Producing Department. He completed the executive
programme in business administration at Columbia University in 1974.
In 1975, Naimi became vice president in charge of production and water injection.
He was made a senior vice president in July 1978, in charge of oil operations. In 1979
he completed an advanced management programme at Harvard University. He was
appointed to Aramco’s board of directors in 1980, the year when the company was
taken over by the Saudi government. He was the first Saudi from within the company
to reach that position. In 1982 he became first executive vice president for operations.
In 1984 he became president. In 1988 he was made CEO.
Naimi was also made chairman of the board of Saudi Petroleum International Inc. (a
subsidiary set up in 1988 for liaison with buyers of Saudi crude oil in the Western
hemisphere); a director on the board of Saudi Refining Inc. of Houston (the Saudi-owned
partner of Texaco in Star Enterprise which began operations in early 1989); and a director
on the board of Ssangyong Oil Refining Co. (South Korea’s third largest refining and
marketing company in which Saudi Aramco acquired a 35% equity in 1991).
For the royal family, Naimi is a kind of symbol providing to the people that a self-
made man in the kingdom can rise to a top position. It is also a way of showing that
the kingdom is maturing as a nation, transcending sectarian outlooks among its people.
In 1988, o his confirmation as president of Saudi Aramco, King Fahd gave him one
million riyals as a personal gift, plus a plot of land and various allowances to raise his
family’s standard of living.
A hard working man, Naimi now is concentrating on development of the country’s
natural gas resources. In his keynote address to the Tehran gas conference on
November 7, 1999, he said: “Saudi Aramco is today busy with multiple projects to
double our gas production and distribution capacities”, putting the proven Saudi gas
reserves now at 214 TCF. He pointed to Saudi Aramco’s 25-year development
programme which, he said, envisaged spending $45 bn to build one big gas processing
plant every five years. Raw gas production should reach about 7,000 MCF/day by
2002. Naimi subsequently had a meeting with Iranian President Khatami who stressed
the importance of the close oil co-ordination between Tehran and Riyadh.
PRINCE ABDEL AZIZ IBN SALMAN IBN ABDEL AZIZ AL SAUD

One of the brightest sons of the powerful Emir of Riyadh, Prince Abdel Aziz is Naimi’s
deputy in his capacity as Under-secretary for Petroleum Affairs at the ministry, a post
he was given in mid-1995. In his 30s, Prince Abdel Aziz has contacts worldwide.
When Hisham Nazer was the oil minister, the young prince used to be his advisor
for OPEC affairs and for other matters. Close to Abdel Aziz is Prince Faisal Ibn Turki,
one of minister Naimi’s oil advisors who also worked under Nazer.
Prince Abdel Aziz is a bold figure and is occasionally sent on delicate missions
abroad. He has been on the board of Arabian Oil Co. (AOC) of Japan, which is seeking
renewal of its offshore concession in the Divided Zone. On the Saudi side this
concession expires in February 2000, and on the Kuwaiti side it expires in early 2003.
Prince Abdel Aziz maintains links with some of the private Saudi oil companies. In
late May 1997, he led a Saudi delegation to the Russian Far Eastern Island of Sakhalin,
where the private Saudi firm Nimir Petroleum (of the Bin Mahfouz family) is an
operator. The delegation, which also held talks in Moscow with leaders of Gazprom
and Russian oil companies, included executives from Saudi Aramco and Nimir
Petroleum.
SULEIMAN JASSER AL HERBISH

Saudi Arabia’s Governor in OPEC, Herbish has served as assistant deputy oil minister
for years under both Hisham Nazer and Ali Naimi. Now he is Saudi Arabia’s candidate
for the key post of OPEC secretary general, with efforts to get him chosen for the job
having begun since May 1999 when secretary general Rilwanu Lukman of Nigeria
was made special advisor to newly elected Nigerian President Obasanjo.
In the contest, Herbish faced Iran’s OPEC Governor Hossein Kazempour Ardebili as
a rival candidate for secretary general. Just before OPEC’s ministerial conference was
opened in Vienna on September 22, Iraq put the candidacy of its former ambassador to
Unesco and chief oil negotiator with the UN Dr. Abdil Amir Al Anbari (one of the
speakers at the 12th Annual APS Conference held in Beirut on October 4-6, 1999).
As the oil ministers in Vienna failed to agree on a new secretary general, with
Algerian Energy Minister and current OPEC President Youcef Yousfi having
presented himself as a compromise candidate, Lukman was asked to continue holding
the post for an interim period. But he handed over the running of OPEC’s secretariat
to Shokri Ghanem, of Libya, while Lukman supervised activities from the Nigerian
capital of Abuja.
For their part, Saudi Arabia and Iran agreed to jointly designate Herbish and
Ardebili as their successive – “back-to-back” – candidates for the next two three-year
terms of OPEC secretary general. That will be done during the next OPEC ministerial
conference to be held in Caracas in March 2000. The only previous time a Saudi
national held the post of OPEC secretary general was in 1967, when Mohammed
Joukhdar assumed that role only for one year.
The Saudi Arabian Mining Co. (Maadin), created as part of the petroleum and
mineral resources ministry, was approved by a royal decree in April 1997 to be in
charge of developing Saudi Arabia’s mines other than those of hydrocarbons and to
replace Petromin.
Maadin has since taking over all of Petromin’s interests in the mining sector. These
have included the Saudi Company for Precious Metals, a 50-50 venture with the
Saudi-Swedish firm Boliden Mineral which runs a gold mine at Sukhaybarat. Maadin,
based in Riyadh, will be fully or partly offered for public subscription once it has
become commercially viable.
Petromin, created in the 1960s, was once set to become an empire bigger than
Aramco as its former governor Abdel Hady Taher had wanted. By late 1988, two years
after Taher was dismissed, Petromin had become a “messy organisation”. In 1989
Samarec was created to take over Petromin’s oil business. But Samarec was absorbed
by Saudi Aramco in 1993, after having proved to be inefficient.
ABDULLAH SALEH AL JUM’AH

Two days after the appointment of Naimi as oil minister on August 4, 1995, Jum’ah was
made acting president and CEO of Saudi Aramco to succeed him. Jumah’s position as
chief executive of the company was confirmed by a royal decree in December 1995.
A close associate whom Naimi had favoured as his replacement to head Saudi
Aramco, Jum’ah previously was executive vice president and board member and
headed the International Operations division. It was explained in late 1995 that, while
Naimi as a geologist was made oil minister to help speed up upstream expansions at
home and function as a minister, Jum’ah was given the top Saudi Aramco post to
emphasise the company’s international role and overseas acquisitions. This is why the
current head of International Operations, SVP Ashgar, reports directly to Jum’ah.
Jum’ah has vast experience in downstream operations overseas, marketing and
industrial relations, now key elements in Saudi Aramco’s marketing strategy. He was
the man who negotiated Saudi Aramco’s move into South Korea in 1991, into the
Philippines in 1994 and into Greece in 1995. He participated in the negotiations on the
50-50 partnership between Saudi Aramco and Texaco, which in late 1988 led to the
setting up of Star Enterprise in the US, and more recently he backed the mega-merger
in the US between Shell, Texaco and Saudi Aramco.
The International Operations unit was partly reorganised after Saudi Aramco’s late
November 1992 decision to reduce the number of its divisions from seven to five.
Jum’ah, the head of this division, built up the unit and was empowered to negotiate
major partnerships, under a programme approved by the Supreme Council.
SAUDI WHO’S WHO – JUM’AH’S PROFILE.

Under Minister Naimi’s guidance, in Naimi’s capacity as chairman of Saudi Aramco’s
board of directors, Jum’ah and other executives managed to raise the price of plant gas
from $0.50 to $0.75/m BTU as from the beginning of 1998. This affected feedstock
supplies to local industries, mostly JVs between Saudi Basic Industries Corp. (SABIC)
and foreign partners, and fuel gas supplies to Saudi Aramco’s local refineries
including Samref and Sasref. State power utilities and other industries had to pay the
same price for gas being supplies to them.
Saudi Aramco’s executives also worked on lowering the 30% discount on LPG
being supplied to SABIC ventures and other local industries. Now they hope that,
eventually, fuel subsidies will be phased out by the state.
Now the focus is on raising gas production capacity on a massive scale and at top
speed, with dry gas output to reach 7,000 MCF/day by 2002 as Minister Naimi says of
Saudi Aramco’s own plant, and on a big expansion of the Saudi electricity and
petrochemical sectors. In this, Saudi Aramco may have some of the world’s biggest
multinationals as partners. About 20 big integrated industrial joint ventures, based on
gas, have been proposed by the multinationals and the biggest European majors.
Sources close to Jum’ah believe a recommendation on the proposed JVs by a higher
petroleum committee under Prince Saud Al Faisal is likely to come out in the first
quarter of 2000, rather than in late 1999.
ENI group of Italy has proposed one of the integrated JVs and Enel, Italy’s main
power utility which is part of ENI, is to be involved in a related IPP. Enel has set up
an office in Saudi Arabia to pursue its part of the proposed JV. Its engineering and
construction arm, EnelPower, is getting involved in Saudi projects already. In
November 1999 it won a $107m contract to build a 130 MW steam turbine generating
plant at Yanbu’ for the Royal Commission for Jubail and Yanbu’.
Like Niami, Jum’ah upholds the US style of management inherited from the days
when Aramco was an American company, owned by Chevron, Texaco, Exxon and
Mobil. Under Naimi, when he was president of Aramco, the American style was
carried on I the 1980s and the early 1990s, with Saudi Aramco board members Clinton
C. Garvin (ex-chairman of Exxon), Harold J. Haynes (ex-chairman of Chevron) and
B. Rodney Wagner (of Morgan Guaranty) providing advice and facilitating things in
the US. Three US figures have been retained as members of Saudi Aramco’s board
since 2989, when King Fahd formed the company’s Supreme Council under his
chairmanship.
Jum’ah is also the chairman of Motiva Enterprises, the huge US downstream entity
which was created in 1998 out of the merger between Shell, Saudi Aramco and
Texaco. Motiva’s CEO is Wison Berry, formerly president of Texaco’s refining and
marketing operations in the US. Jum’ah is on excellent terms with Shell group’s
Chairman and CEO Mark Moody-Stuart and the CEOs of the other multinationals.
In his early 50s, Jum’ah was born in Al Khobar to a well-established Saudi family.
He was educated at the American universities of Cairo and Beirut, the latter through
an Aramco scholarship. He graduated from AUB with a degree in political science in
1968. In the same year, he joined Aramco’s government relations department. In 1972
he joined the company’s public relations department, and in 1975 he became manager
of that department. In the meantime, he got extensive training in Aramco and in 1976
he completed the Management Development Programme at Harvard University. In
1977, he joined Aramco’s power systems division and was one of the first batch of
Aramco employees seconded to Saudi Consolidated Electric Company for the Eastern
Province (Sceco-East). He also pursued studies at the King Fahd University of
Petroleum and Mineral Resources in Dhahran.
Jum’ah was promoted steadily and in 1981 he was given his first executive position
as vice president in charge of the power systems division. He was also Aramco’s
representative on the board of directors of Sceco-East, and took over as its managing
director. Between 1984-88 he was Saudi Aramco’s vice president for government
affairs. In July 1988, he was made senior vice president for industrial relations. In
1992, he was made executive vice president for international operations, the post he
held until he became CEO to Saudi Aramco on August 4, 1995. Jum’ah has an
attractive personality with good leadership qualities.
Salem Said Alydh, vice president for Saudi Aramco affairs, acts as the main
assistant to Jum’ah and spokesman for the company.
THE BOARD OF SAUDI ARAMCO

This company’s board of directors has 10 members, some of whom were appointed in
late February 1996:
1. Minister Naimi, as chairman. The boards’ meeting can be held at the chairman’s
request, when necessary, or upon the recommendation of more than half of the
board’s members.
2. Abdullah Jum’ah, president of Saudi Aramco.
3. Sadad Husseini, exec. vice president (EVP) for E&P (then new).
4. Abdel Aziz Al Hikail, EVP for manufacturing operations (retained).
5. Harold Haynes, former chairman of Chevron (retained since 1989).
6. Clinton Garvin, former chairman of Exxon (retained since 1989).
7. Rodney Wagner, of Morgan Guaranty (retained since 1989).
8. Commerce Minister Osama Al Faqih (then new).
9. State Minister Musaed Al Ayban (then new).
10. Rector of King Fahd University of Petroleum & Minerals Abdel Aziz Al
Dakheel (then new).
Nabil Al Bassam resigned as EVP for finance and industrial relations in

November 1998 and his division was dissolved subsequently. The functions of this
unit were taken up by the relevant units among the remaining divisions.
Attached to the board of director are executive commissions. These are formed
on ad hoc basis, especially when the board needs additional studies concerning
major projects or a big overseas acquisition. Such a committee is formed also to
study major problems or disputes.
Saudi Aramco now is structured into fur divisions, reduced from seven in 1993
and from five in late 1998. These are known as “business centres”.
Production Operations, under EVP Sadad Husseini, is in charge of the entire
upstream sector form E&P and development to the producing areas for oil and gas.
It is also in charge of the upstream gas plants of the Master Gas System (MGS) at
Shedgum, Uthmaniyah and Berri and two such plants being built at Hawiyah and
Haradth. In addition, the MGS is to have one such plant built every five years under
a plant to the 2020s.
Manufacturing, Supply and Transportation, under EVP Abdel Aziz Al Hokail, is
in charge of the downstream operations, the MGS’ downstream gas fractionation
plants at Juaymah and Yanbu’, the domestic refineries and distribution systems and
their infrastructure and logistics, and the Ras Tanura refinery. The Refining and
Distribution Dept., under Ali Saleh, reports directly to Hokail.
International Operations, under SVP Saud Al Ashgar, is in charge of crude oil
and products marketing and exports, all of the company’s overseas ventures, the
local export refineries Samref and Sasref, Vela Int’l Marine, and the Houston-based
Aramco Services Co. Ashgar reports directly to Jum’ah. But he sites on the boards
of Samref and Sasref, while his aides sit on the boards of Saudi Aramco’s overseas
JVs. Before becoming president, Jum’ah used to head International Operations.
The Engineering & Operations Services Dept., under SVP Abdullah Al Ghanem,
reports directly to Jum’ah rather than to EVP Hokail.
On November 2, 1996, Saudi Aramco’s board elected five new VPs: Abdel Aziz
Al Khayyal, for employee relations & training, who till then was executive director
for crude oil/products sales & Marketing; Ibrahim Al Mishari; Fuad Saleh;
Dhaifallah Al Otaibi,; and Abdel Rahman Al Wutaib. In December 1996, Saleh Al
Kaki was made executive director for crude oil/products sales and marketing, to
succeed Khayyal. Abdullah Al Samari was made CEO of Vela Int’l to succeed
Otaibi. Khalid Al Faleh was in April 1999 elected president of the board of
Philippine refiner Petron, replacing Ali Al Ajmi who has since remained a board
member. Saud Bukhari in September 1998 replaced Chang Chong Tian as regional
VP of Saudi Petroleum Singapore.
SADAD IBRAHIM AL HUSSEINI

Initially tipped among favourites to take over as Saudi Aramco CEO after Naimi in
August 1995, Husseini was in February 1996 made a member of the company’s
board. He is one of the company’s EVP and heads the E&P division. He has since
been retained as head of this huge division, with other responsibilities including
petroleum engineering & development, drilling & workover, the producing areas
and the upstream gas plants of the MGS. His division, previously called Oil
Operations, was restructured and enlarged in August 1993 with downstream assets
and other functions transferred to the Manufacturing Operations division under
Hokail. Until end-November 1992, Husseini was SVP in charge of E&P. He is also
in charge of Exploration and Petroleum Engineering Centre (EXPEC).
Husseini belongs to a prominent clan of Palestinian origin which claims descent
from the Prophet Mohammed. Members of this clan hold key positions in Saudi
Arabia, including the oil sector. Born in 1946, he joined Aramco in 1972, shortly
after receiving his doctorate in geology from Brown University in Providence, USA.
Earlier he had a master’s degree in geology from Brown and a BS in geology from
the American University of Beirut. In 1972 he became a staff geologist at the
Aramco exploration department, a post he held until 1976, when he was named
supervisor of the exploration area. He completed an Aramco management

development seminar in the US in 1977 and the Management Development
Programme at Harvard in 1982. He was made assistant chief geologist, exploitation,
In 1977. He became director of budgets and programmes for corporate planning in
1978. He was promoted to relief chief petroleum engineer early in 1980 and was
named manager of the Production Engineering Dept. later that year. In 1982 he was
promoted to general manager of petroleum engineering. In 1984, he was made VP
with responsibility for the northern producing area. He became VP for petroleum
engineering & development in 1985, and was promoted to SVP in December 1987
in charge of E&P. His prominence became apparent in early June 1989, when his
division found sweet oil and gas in Hawtah, 190 km south of Riyadh. Further finds
have proved the Najd fields contained big reserves of oil, condensates and gas. In
late 1991 he was elected to the board of Ssangyong Oil Refining in S. Korea, after
Saudi Aramco bought 35% in it.
ABDEL AZIZ MOHAMMED AL HOKAIL

A Saudi Aramco board member since March 1989 and currently EVP, Hokail was in
charge of Saudi Aramco’s restructuring in mid-1993. He supervised the absorption of
Samarec, with most of its assets forming a division called Manufacturing Operations.
Hokail was in August 1993 confirmed as head of this division, which includes
manufacturing, supply & transportation assets transferred from what used to be
known as Oil Operations under Sadad Husseini. From late November 1992, when
Saudi Aramco was streamlined from seven divisions, until August 1993 he headed
the Industrial Relations & Affairs division, which became part of Manufacturing.
Until November 1992, he was a FVP and headed the division of Production,
Importation and Transport which included manufacturing, gas processing, industrial
relations and other functions. Now Manufacturing is structured into: (1)
Manufacturing, Supply & Transport; (2) Oil Refining & Distribution, headed by Ali
Saleh; (3) Riyadh & Jeddah Refining Operations; and (4) Yanbu’ Refining
Operations. The heads of these departments report directly to Hokail.
Hokail was born in Al Majma’ on December 16 1942. He studied at the King
Fahd University of Petroleum and Minerals in Dhahran. He joined Aramco in the
1960s. Later he pursued oil engineering studies in the US. He has a B.Sc. degree in
petroleum engineering, with extensive training in upstream operations, downstream
and other industrial operations. In 1974-78 he was a manager of the oil production
division. He became a first vice president in 1980 and head of Aramco’s corporate
planning. He has since built up his reputation as one of the most efficient executives
in this company. Now he is also a board member of the Organisation of Technical
and Vocational Training, and a member of the Saudi Society of Petroleum
Engineers.
ABDULLAH AL GHANEM
A senior vice president, Ghanem heads the department of engineering and operations
services. He reports directly to President Juma’h rather than to Hokail and his
responsibilities include the monitoring of downstream operations overseas.
SAUD AL ASHGAR
SVP, Ashgar heads the International Operations division, a key post he was given in
early 1996 to succeed Abdullah Al Juma’h, who became the CEO. Ashgar reports
directly to Juma’h. He sits on the boards of the two JV refineries in Saudi Arabia,
Samref (50% Mobil) of Yanbu’ and Sasref (50% Shell) of Jubail. He is responsible for
all the company’s operations outside Saudi Arabia, as well as Saudi Aramco’s export
sales of crude oil and petroleum products, their marketing and market development
efforts, Vela International Marie, the foreign JVs and overseas oil storage facilities,
and the Houston-based Aramco Services Co. Saleh Al Kaki is executive director for
sales & marketing of crude oil/products and gas liquids in Ashgar’s division, a post he
took up in late 1996 to succeed Abdel Aziz Al Khayyal. Kaki joined Aramco in 1974
and worked in the crude oil/products marketing department in 1991-95. In 1996 he
became chief executive of Samref (50% Mobil) in Yanbu’. The head of crude oil sales
is Fahd Al Moosa. The head of oil products sales is Robert Hansard.
Abdullah Al Samari is CEO of Vela Int’l Marine, the shipping unit based in Dubai
with a huge fleet of tankers. He took this post in late 1996 to succeed Otaibi, who in
November 1996 became a VP.
Mustafa A. Jalali in August 1995 became CEO of Houston-based Aramco Services
Co. (ASC). ASC owns: (a) Saudi Refining Inc., a Houston-based unit which trades in
oil and is in charge of Saudi Aramco’s 50% share in Star Enterprise, a JV with Texaco;
(b) Saudi Petroleum Int’l, a New York-based unit which arranges transport and
delivery of crude oil sold by Saudi Aramco to the Western Hemisphere; and (c)
Aramco Associated, an aviation unit based in Houston. ASC provides contract
services to Saudi Aramco, including administration of engineering & design project
teams in the US. Jalali is chairman of Saudi Refining and has been on the board of
Star’s management committee. Before, Jalali was VP of Vela. A 20-year veteran of
Saudi Aramco, he has served in various other departments. Before joining Vela, he
was manager of Northern Projects/Designs & Construction Dept. for three years. He
had a two-year assignment in Houston where he supervised design work on a GOSP
plant involving Saudi offshore fields. Jalali replaced Dr. Ibrahim Mishari, who became
head of corporate planning at Saudi Aramco and in November 1996 was elected VP.
In the early 1990s, Mishari was executive director for computers, communications and
office systems.
Abdel Aziz Al Khayyal in November 1996 became VP for employee
relations/training. Until then he was executive director for sales and marketing, a
position taken by Kaki. In 1994, Khayyal had been seconded to Petron, the leader in
the Philippines oil market in which Saudi Aramco acquired 40% in that year.
Previously, Khayyal was head of Saudi Aramco’s New York office.
THE POLITICAL LEADERSHIP

The Supreme Council of Saudi Aramco, chaired by King Fahd, has members from the
government and the private sector. At its first meeting in March 1989, the council
approved a programme for 1990-95 covering the expansion of the company’s oil
production capacity, export and marketing facilities, overseas partnerships, and new
exploration. Its meetings have been rate after the Gulf war of early 1991.
KING FAHD IBN ABDEL AZIZ AL SAUD

Proclaimed king in June 1982 by the Council of Elders and Ulema, upon the death
of King Khalid, Fahd has global responsibilities that come with being an absolute
monarch controlling the largest oil reserves in the world. He also heads the cabinet
as prime minister. His knowledge of the oil sector has accumulated since April 1973,
when he founded the Supreme Petroleum Council – precursor of Saudi Aramco’s
Supreme Council – under then King Faisal Ibn Abdel Aziz. He has been uniquely
qualified to be the man with final authority over the Saudi oil sector. But in recent
years he has delegated power to the Crown Prince and 1st Deputy PM Abdullah Ibn
Abdel Aziz.
King Fahd issued a Basic Law of government in March 1992, decreed that the
succession to the throne was to be altered eventually with a collegiate of about 500
princes to choose a future king, and introduced a Shura Council as well as a
provincial system in a manner which had ripples on the ruling family. He reshuffled
his cabinet in a big way on August 2, 1995.
King Fadh was born in 1921 as the son of Abdel Aziz Ibn Saud, who established
the modern Kingdom of Saudi Arabia in 1932. His mother was Hussah, the most
favoured among Abdel Aziz’s many wives, of the powerful Sudairi clan. She raised
Fahd and her other six sons – who together form the “Sudairi Seven” – as well as
her daughters in an enticing political atmosphere, always urging them to stick
together. And they have. The Sudairi Seven presently control all the vital sectors in
Saudi Arabia, from oil to defence and internal security. They function as a close-knit
group and try to meet at least once a week.
Prince Sultan, minister of defence and aviation, 2nd deputy PM and inspector
general, was born in 1924 as the second of the Sudairi full-brothers. He has wide
powers in administrative, military, political and business fields and is described as
the most important man in Saudi Arabia next to King Fahd and CP Abdullah. He is
the overseer of “offset business” generated by military contacts, partly tied to oil
barters, and the civil administration, and an ambition military expansion
programme. The defence ministry is one of the biggest generators of projects in the
kingdom. Sultan is a serious and industrious man. He has a strong character. Prince
Sultan was appointed second deputy premier in June 1982, as Fahd became king,
thus coming next to Crown Prince Abdullah Ibn Abdel Aziz in the line of
succession. He received palace education and was sent to the Princes’ School in
Riyadh. He began working at an early age. He career: deputy to the emir of Riyadh,
Prince Nasir Ibn Abdel Aziz in 1940, at the age of 16; emir of Riyadh, 1944;
minister of agriculture, 1953; minister of communications, 1955; defence & aviation
minister, October 1962. Sultan has several sons, including: Ambassador to
Washington Prince Bandar Ibn Sultan, a key figure in Saudi diplomacy and behind
the Arab-Israeli peace process; Prince Khalid Ibn Sultan, who commanded the
Arab/Islamic side of the US-led coalition which defeated Iraq in early 1991, and
now is the agent of French electronics group Thomson-CSF and controls London-
based ‘Al Hayat’ newspaper; and Prince Fahd Ibn Sultan, a deputy minister for
social welfare at the ministry of labour and social affairs.
Prince Nayef is in charge of security as interior minister since late 1975. He is a

tough man, very capable in dealing wit any internal challenge. Born I 1933, he got
wide experience in security since 1970. His career: emir of Riyadh, 1953-1954; emir
of Medina; deputy interior minister under Fahd – June 1970-75; minister of state for
internal affairs; and minister of interior since 1975.
Prince Salman is considered the political guide of the Sudairi Seven and is known
for his high intelligence. Apart from being the emir of the vast Riyadh province, the
most important in Saudi Arabia, he plays many roles. One of his sons, Prince Abdel
Aziz Ibn Salman, now is a deputy oil minister. Prince Ahmad is the deputy minister
of interior. Together Princes Sultan, Nayef and Ahmad are considered the tough
ones among the Sudairi Seven. Prince Abdel Rahman, deputy minister of defence &
aviation, is also in charge of the Sudairi Seven’s business interests and their proxies.
Prince Turki is no longer active but takes part in some meetings of the group. A
generous man, he keeps a low profile. He was once a deputy defence minister.
Fahd studied at the Palace School for princes. He showed an interest in Arab
history and literature. Young Fahd used to wait outside his father’s office to join the
advisors in subsequent meetings on local or foreign issues. One day, shortly after
World War II, his father called him to his office and asked him why he wanted to
attend the king’s Advisory Board. Fahd explained how fascinating those meetings
were and how much they had improved his education. Eventually, Ibn Saud asked
him to attend board meetings, and on his mother’s recommendation, Fahd was later
made a member of the board. Fahd travelled extensively and met with Arab and
Western leaders in the 1940s and early 1050s. He was fascinated with the Western
way of life. In 1953, on Ibn Saud’s death, when CP Saud became king, Fahd was
made minister of education. In 1961 he became minister of interior when Faisal,
then the CP and PM, formed his second cabinet. He retained the interior portfolio
after Faisal toppled King Saud in 1964. From then on Fahd became deeply involved
in the modernisation of Saudi Arabia.
Eventually, Fahd was promoted to 2nd deputy PM and retained the post of
interior minister. After King Faisal’s assassination in March 1975, King Khalid
delegated government affairs to Fahd who had become CP. Khalid died on June 13,
1982 and Fahd became king. In October 1986, King Fahd dismissed Shaikh Ahmad
Zaki Al Yamani as oil minister and reversed Yamani’s market share strategy in
favour of price defence. He dismissed Abdel Hady Taher as governor of Petromin in
November 1986. The king made Hisham Nazer oil minister, and moved to establish
Saudi Aramco’s Supreme Council and its board of directors in March 1989. He was
to chair the Supreme Council while the oil minister was to chair the company’s
board of directors. Apart from King Fahd, the first Supreme Council then consisted
of the following:
Hisham Nazer, as oil minister. Nazer was replaced as oil minister in August 1995
by Ali Naimi.
Mohammed Ali Abal Khail, then minister of finance and economy. He retired
and was replaced in the August 1995 reshuffle by Sulaiman Ibn Abdel Aziz Al
Sulaim. But Sulaim resigned two months later for ill health and state sinister
Abdel Aziz Al Khoweiter became acting minister of finance and economy. In
early 1996, King Fahd made state sinister Dr. Ibrahim Al Assaf minister of
finance and economy.
Ibrahim Al Anqari, then minister of municipal and rural affairs. Anqari has been
close to Fahd for decades. He acted as his spokesman from 1954, when Fahd was
minister of education and Anqari headed his office.
Omar Abdel Qader Al Faqih, a minister of state in previous governments. Faqih

had been involved in the oil sector since the 1950s when he worked for the
General Directorate of Petroleum and Mineral Resources.
Ali Al Naimi, then head of Saudi Aramco.
Sulaiman Olayan, head of Olayan Group. The most famous among the council
members from the private sector, Olayan plays many roles in Saudi Arabia and
abroad. He is close to the Sudairi Seven.
Wahib Said Binzagr, head of the giant Jeddah-based Binzagr Group of

companies. He has close links with the royal family.
Khalid Bin Mahfouz, of the Bin Mahfouz clan, was brought to the Supreme
Council in 1989. But he recently lost control to the National Commercial Bank.
He controls Nimir Petroleum Co. which is involved I E&P ventures in several
countries. But he is no longer on the Supreme Council.
Saleh Al Fadl, a leading businessman of the Western Province, Fadl had been on
the boards of directors of Petromin and other state companies for many years.
Dr. Faisal Al Bashir, a former deputy minister of planning. A technocrat turned

businessman, he is a leading expert in industrial planning.
THE NEXT POLITICAL LEADERSHIP

It is expected that, when King Fahd dies, Abdullah will succeed him automatically as
king and Fahd’s full-brother Sultan will become CP. It is not clear who will be the 2nd
deputy PM – i.e., the third most powerful man in Saudi Arabia. It is said that
Abdullah’s candidate for this post is Prince Saud Al Faisal, but there is no agreement
on that yet between Abdullah and King Fahd’s full-brothers. Prince Saud is an
exceptionally balanced grandson of Ibn Saud, wise, a good listener and far-sighted.
PART VIII
STATISTICAL APPENDIX
Table 1
Saudi Arabia Crude Oil Reserves, revisions 1960-2000
Units billion (109 ) barrels

Year Reserves Year Reserves
1960 50.0 1980 163.6
1961 50.0 1981 165.0
1962 52.0 1982 165.0
1963 52.0 1983 162.4
1964 60.0 1984 166.0
1965 60.5 1985 169.0
1966 60.0 1986 168.8
1967 66.0 1987 166.6
1968 74.7 1988 166.6
1969 77.0 1989 170.0
1970 140.0 1990 255.0
1971 128.5 1991 257.5
1972 145.3 1992 257.8
1973 138.0 1993 257.8
1974 132.0 1994 258.7
1975 164.5 1995 258.7
1976 148.6 1996 258.7
1977 151.4 1997 259.0
1978 150.0 1998 259.0
1979 165.7 1999 259.0
2000 261.0
Source: Oil and Gas Journal end year issues

Reserves are 1 January.
Table 2
Saudi Arabia Crude Oil Production 1938 - 1998
Units: Daily average - thousand b/d

: Cumulative production - thousand barrels
Year Daily Cumulative Year Daily Cumulative

Avarage Production Avarage
1938 1.4 511 1969 3,216.2 11,897,177
1939 10.8 4,453 1970 3,799.1 13,283,848
1940 13.9 9,540 1971 4,768.9 15,024,497
1941 11.8 13,847 1972 6,016.3 17,226,462
1942 12.4 18,373 1973 7,596.2 19,999,075
1943 13.3 23,228 1974 8,479.7 23,094,166
1944 21.3 31,024 1975 7,075.4 25,676,687
1945 58.4 52,340 1976 8,577.2 28,815,933
1946 164.2 112,273 1977 9,199.9 32,173,898
1947 246.2 202,136 1978 8,301.1 35,203,793
1948 390.3 344,986 1979 9,532.6 38,683,202
1949 476.7 518,981 1980 9,900.5 42,306,785
1950 546.7 718,527 1981 9,808.0 45,886,705
1951 761.5 996,474 1982 6,483.0 48,253,000
1952 824.8 1,298,351 1983 4,539.4 49,909,884
1953 844.6 1,606,630 1984 4,079.1 51,402,828
1954 961.8 1,957,687 1985 3,175.0 52,561,687
1955 976.6 2,314,146 1986 4,784.2 54,307,920
1956 1,002.8 2,681,171 1987 3,975.2 55,758,849
1957 1,030.8 3,057,413 1988 5,090.6 57,622,007
1958 1,058.5 3,443,765 1989 5,064.5 59,470,549
1959 1,152.7 3,864,501 1990 6,412.5 61,811,112
1960 1,313.5 4,345,242 1991 8,117.8 64,774,109
1961 1,480.1 4,885,478 1992 8,331.7 67,823,511
1962 1,642.9 5,485,137 1993 8,047.7 70,760,921
1963 1,786.0 6,137,027 1994 8,049.0 73,698,806
1964 1,896.5 6,831,146 1995 9,023.4 76,627,347
1965 2,205.3 7,636,080 1996 8,102.3 79,592,789
1966 2,601.8 8,585,737 1997 8,011.7 82,517,060
1967 2,805.0 9,609,562 1998 8,280.2 85,539,333
1968 3,042.9 10,723,264
1) Including share of production from Neutral Zone.

Sources: OPEC Statistical Bulletins
Table 3
Saudi Arabia Crude Oil Exports
Selected Years 1984 - 1998
Units: thousand b/d
Destination 1984 1985 1986

NORTH AMERICA 311.2 133.5 676.4
of which:
United States 311.2 133.5 627.1
LATIN AMERICA 175.0 165.0 155.0
WESTERN EUROPE 733.0 605.0 1,348.9
of which:
France 170.4 106.4 285.3
Germany F.R. 91.1 57.8 145.7
Italy 183.6 98.9 301.5
Netherlands 27.3 61.8 196.7
Spain 67.7 19.8 109.2
United Kingdom 47.4 55.4 69.5
MIDDLE EAST 177.0 156.0 236.0
AFRICA 55.0 52.0 55.0
ASIA AND FAR EAST 1,647.8 971.4 730.0
of which:
Japan 1,062.6 594.4 444.2
OCEANIA 53.9 27.8 19.5
CPEs 34.0 40.0 45.0
OECD 2,160.7 1,360.7 2,489.0
TOTAL 3,186.9 2,150.7 3,265.8
Source: OPEC Statistical Bulletins
Units: thousand b/d
Destination 1987 1988 1989 1990 1991

NORTH AMERICA 656.7 985.6 1,042.4 1,330.0 1,846.0
of which:
United States 641.7 952.4 1,008.7 1,240.0 1,746.7
LATIN AMERICA 56.0 89.0 97.5 135.0 201.2
EASTERN EUROPE - - - - -
WESTERN EUROPE 705.2 786.3 879.2 1,290.0 1,525.1
of which:
France 130.2 240.5 206.4 300.4 410.5
Germany F.R. 66.6 95.0 118.5 120.7 156.9
Continued over
Saudi Arabia Crude Oil Exports 1987 - 1991 (continued)
Destination 1987 1988 1989 1990 1991

Italy 123.8 123.1 120.3 165.0 269.4
Netherlands 142.6 125.8 170.6 160.0 371.4
Spain 82.3 56.7 63.7 65.0 142.0
United Kingdom 16.6 57.9 67.4 80.0 169.4
MIDDLE EAST 160.0 174.0 191.4 215.0 219.2
AFRICA 35.0 11.0 12.6 45.0 170.3
ASIA AND FAR EAST 760.0 968.0 1,065.6 1,765.0 2,219.7
of which:
Japan 619.9 513.9 519.8 703.5 904.8
OCEANIA 43.6 16.2 46.8 70.0 40.4
CPEs - - - - -
OECD 2,025.4 2,302.0 2,488.2 3,395.0 4,316.3
TOTAL WORLD 2,416.5 3,030.1 3,335.5 4,850.0 6,221.9
Destination 1987 1988 1989 1990 1991

NORTH AMERICA 1,428.5 1,380.9 1,340.6 1,339.0 1,491.1
of which:
United States 1,379.3 1,314.2 1,298.4 1,305.0 1,409.5
LATIN AMERICA 165.4 146.0 128.8 90.9 86.1
EASTERN EUROPE - - - -
WESTERN EUROPE 1,648.7 1,639.4 1,449.8 1,619.5 1,769.1
of which:
France 448.5 408.3 375.0 390.7 365.1
Germany 143.0 124.3 124.3 119.7 106.9
Italy 241.0 221.7 199.5 268.3 256.2
Netherlands 288.9 285.2 272.1 305.5 302.2
Spain 167.0 172.8 181.0 182.9 189.0
United Kingdom 86.5 73.1 52.3 59.6 64.1
MIDDLE EAST 223.3 220.7 228.4 212.8 209.6
AFRICA 96.3 95.8 96.3 105.7 135.9
ASIA AND FAR EAST2,622.9 2,757.0 2,818.3 2,769.4 2,661.2
of which:
Japan 964.9 986.4 981.5 1,010.5 907.5
OCEANIA 48.5 51.0 47.1 47.2 37.4
UNSPECIFIED - - - - -
OECD 4,090.6 3,057.7 3,819.0 4,016.2 4,205.1
TOTAL WORLD 6,233.6 6,290.8 6,109.3 6,184.5 6,390.4
TABLE 4
Saudi Arabia Crude Oil Prices 1950 - 1998
Saudi Arabia
Posted or Tax Reference Prices, US$ per barrel
Date Effective Berri Arab. Light Arab. Arab. Khafji Hout

FOB FOB Medium Heavy
Ras Tanura Sidon
API Gravity 39.0 34.0 34.0 31.0 27.0 28.0 33.0a)
1950 Nov. 1 1.750
Dec. 1 2.410
1953 Feb. 5 1.930 2.350
1956 Feb. 15 2.420
Dec. 3 2.650
1957 Apr. 29 1.680
Jun. 7 2.080
Jun. 8 1.790
Sep. 10 2.550
1958 Jan. 31 2.450
Sep. 8 1.650
1959 Feb. 13 1.900 2.270 1.500
1960 Aug. 1 1.810
Aug. 9 1.800 2.170 1.470
Oct. 1 1.590
1970 Sep. 1 2.370 1.550
Nov. 14 1.680 1.560
1971 Feb. 15 2.255 2.180 2.085 1.960 1.970 2.185
Mar. 20 3.181
Jun. 1 2.360 2.285 2.187 2.064 2.069 2.290
Jul. 1 3.158
Oct. 1 3.136
1972 Jan. 1 3.106
Jan. 20 2.554 2.479 3.370 2.373 2.239 2.245 2.484
Apr. 1 3.341
Jul. 1 3.321
1973 Jan. 1 2.666 2.591 3.451 2.482 2.345 2.351 2.596
Apr. 1 2.817 2.742 3.677 2.626 2.481 2.500 2.761
Jun. 1 2.973 2.898 3.884 2.776 2.623 2.630 2.903
Jul. 1 3.030 2.955 4.033 2.830 2.674 2.681 2.960
Aug. 1 3.141 3.066 4.184 2.936 2.755 2.782 3.071
Oct. 1 3.086 3.011 4.205 2.884 2.725 2.732 3.016
Oct. 16 5.682 5.119 7.149 4.903 4.633 4.644 5.127
Nov. 1 5.741 5.176 7.228 4.957 4.684 4.695 5.184
Dec. 1 5.596 5.036 7.034 4.822 4.557 4.568 5.403
1974 Jan. 1 12.351 11.651 13.467 11.561 11.441 11.461 11.701
Nov. 1 11.951 11.251 13.247 11.161 11.041 11.061 11.301
1975 Oct. 1 12.768 12.376 12.184 11.978 11.991 12.370
Continued over
Saudi Arabia
Posted or Tax Reference Prices (continued)

Ras Tanura Sidon
API Gravity 39.0 34.0 34.0 31.0 27.0 28.0 33.0
1976 Jun. 1 12.129 11.871 11.884
1977 Jan. 1 13.420 13.000 12.570 12.230 12.237 12.989
Jul. 1 14.220 13.660 13.250 12.920 13.011 13.650
1978 Jan. 1 12.936
1979 Jan. 1 15.118 14.343 13.856 13.453 13.473 14.323
Feb. 20 14.760 15.623
Apr. 1 17.710 15.461 15.110 14.670 16.624 17.565
May 15 19.215 17.269 18.210
Jun. 1 22.929 19.355 18.868 18.465
Jul. 1 20.637 21.499
Oct. 1 22.785 23.581
Nov. 1 26.582 25.806 25.319 24.916 n.a. n.a.
1980 Jan. 1 29.591 27.957 27.370 26.882 n.a. n.a.
Apr. 1 31.742 30.108 29.520 29.032 n.a. n.a.
Aug. 1 33.892 32.358 31.671 31.183 n.a. n.a.
Nov. 1 36.043 34.409 33.822 33.333 n.a. n.a.
1981 Oct. 1 38.280 36.559 35.484 33.871 n.a. n.a.
1982 Jan. 1 38.065 34.839 33.333 n.a. n.a.
Mar. 20 37.118 n.a. n.a.
Saudi Arabia
Official Selling Prices

Ras Tanura Yanbu
API Gravity 39.0 34.0 34.0 31.0 27.0 28.0 33.0
1974 Nov. 1 11.114 10.463 10.380 10.268 10.287 10.510
1975 Oct. 1 11.874 11.510 11.331 11.140 11.152 11.504
1976 Jun. 1 11.280 11.040 11.052
1977 Jan. 1 12.480 12.090 11.690 11.370 11.380 12.080
Jul. 1 13.225 12.704 12.323 12.016 12.100 12.690
1978 Jan. 1 12.030
1979 Jan. 1 14.060 13.339 12.886 12.511 12.527 13.329
Feb. 20 13.727 14.529
Apr. 1 16.470 14.546 14.052 13.643 15.460 16.335
Mar 15 17.870 16.060 16.935
Jun. 1 21.324 18.000 17.547 17.172
Jul. 1 19.192 19.994
Oct. 1 21.132 21.934
Continued over
Saudi Arabia
Official Selling Prices

Ras Tanura Yanbu
API Gravity 39.0 34.0 34.0 31.0 27.0 28.0 33.0
Nov. 1 24.721 24.000 23.547 23.172 25.202 26.004
1980 Jan. 1 27.520 26.000 25.454 25.000 27.202 28.004
Apr. 1 29.520 28.000 27.454 27.000
May 1 29.202 30.004
Jul. 1 31.202 32.004
Aug. 1 31.520 30.000 29.454 29.000
Nov. 1 33.520 32.000 31.454 31.000
1981 Jan. 1 35.202 36.004
Oct. 1 35.600 34.000 33.000 31.500
Nov. 1 31.650 34.014
1982 Jan. 1 35.400 34.600 32.400 31.000 31.030
Mar. 20 34.520
Dec. 1 34.500
1983 Feb. 1 30.520 30.000 30.500 28.400 27.000 27.030 30.014
Mar. 1 29.520 29.000 29.500 27.400 26.000 26.030 29.014
Apr. 1 29.250
Jul. 1 28.600
1985 Jan. 1 29.270 27.650 26.500
Jan. 15 26.530
Feb. 1 28.110 28.000 28.250 27.400 27.600
Jul. 1 27.200 26.000 26.030
1987 Jan. 1 17.870 17.520 16.920 16.270
Feb. 1 17.770 16.270 17.120
Date Effective Arab. Arab.

Medium Heavy
1987 16.58 16.12
1988 12.71 12.13
1989 15.39 14.93
1990 19.50 18.77
1991 15.80 14.05
1989 Jan. 13.51 13.36
Feb. 13.90 13.54
Mar. 15.48 15.03
Apr. 17.06 16.49
May 15.62 15.00
June 15.19 14.71
July 15.19 14.63
Aug. 14.70 14.11
Sep. 15.28 14.73
Oct. 15.85 15.48
Continued over
Saudi Arabia
Official Selling Prices (continued)

Medium Heavy
Nov. 15.92 15.52
Dec. 16.93 16.55
1990 Jan. 17.24 17.27
Feb. 16.65 16.23
Mar. 15.54 15.10
Apr. 13.61 13.14
May 13.59 13.19
June 12.09 11.64
July 13.46 13.03
Aug. 22.78 22.33
Sep. 28.75 28.30
Oct. 30.11 28.65
Nov. 26.50 24.50
Dec. 22.19 20.19
1991 Jan. 18.70 16.70
Feb. 13.51 11.26
Mar. 14.34 11.84
Apr. 14.81 12.71
May 14.99 13.39
June 14.53 12.93
July 15.44 13.88
Aug. 15.80 14.28
Sep. 16.68 15.08
Oct. 17.94 16.44
Nov. 17.33 15.83
Dec. 14.58 13.16
Source: OPEC Statistical Bulletins

Medium Heavy
1993 Jan 14.52 13.52
Feb. 15.44 14.32
Mar 15.79 14.44
Apr 15.73 14.38
May 15.27 14.03
June 14.77 13.57
Jul. 13.52 12.32
Aug. 13.68 12.50
Sep. 13.20 12.10
Oct. 14.08 13.08
Nov. 12.94 11.88
Dec. 11.30 10.20
Continued over
Saudi Arabia

Medium Heavy
1994 Jan. 12.23 11.18
Feb. 12.06 11.01
Mar 11.79 10.99
Apr. 13.07 12.27
May 14.58 13.80
June 15.47 14.80
July 16.27 15.67
Aug. 15.89 15.33
Sep. 15.39 14.99
Oct. 15.52 14.37
Nov. 15.65 15.00
Dec. 15.24 14.59
1995 Jan. 15.85 15.24
Feb. 16.41 15.81
Mar. 16.37 15.92
Apr. 17.48 17.08
May 17.35 16.93
June 16.24 15.74
July 15.12 14.62
Aug. 15.31 14.61
Sep. 15.60 15.00
Oct. 14.96 14.38
Nov. 15.60 15.15
Dec. 16.91 16.61
Source: OPEC Statistical Yearbooks

Medium Heavy
1996 Jan. 16.59 16.24
Feb. 16.54 16.19
Mar. 18.30 17.95
Apr. 20.21 19.66
May. 18.10 17.55
June 17.12 16.72
July 17.56 16.96
Aug. 18.36 17.71
Sep. 20.07 19.37
Oct. 21.57 20.87
Nov. 21.03 20.28
Dec. 22.00 21.15
1997 Jan. 21.53 20.68
Feb. 18.98 18.13
Continued over
Saudi Arabia

Medium Heavy
Mar. 18.10 17.25
Apr. 16.87 16.02
May 18.35 17.50
June 17.05 16.20
July 17.03 16.22
Aug. 17.29 16.59
Sep. 17.81 17.11
Oct. 19.22 18.52
Nov. 18.46 17.76
Dec. 15.98 15.08
1998 Jan. 13.01 12.11
Feb. 12.15 11.10
Mar. 10.82 9.77
Apr. 11.18 10.53
May 11.88 11.33
June 11.03 10.48
July 11.02 10.47
Aug. 11.91 11.36
Sep. 12.72 12.17
Oct. 12.27 11.82
Nov. 11.42 11.07
Dec. 9.50 9.15
1987 16.58 16.12

1988 12.71 12.71
1989 15.39 14.93
1990 19.50 18.77
1991 15.77 14.02
1992 16.40 15.22
1993 14.19 13.03
1994 14.41 13.65
1995 16.09 15.58
1996 19.01 18.44
1997 17.97 17.17
1998 11.53 10.90
Table 5
USA Petroleum Imports from Saudi Arabia 1973 - 1999, Volumes, fob and cif Prices
Year Total Imports Crude Oil Imports FOB Landed Cost

Thousand Thousand $/barrel $/barrel
Barrels/day Barrels/day
1973 Average 486 462 3.25 5.37
1974 Average 461 438 10.17 11.63
1975 Average 715 701 10.87 12.50
1976 Average 1230 1222 11.62 13.06
1977 Average 1380 1373 12.38 13.69
1978 Average 1144 1142 12.70 13.94
1979 Average 1356 1347 17.28 18.95
1980 Average 1261 1250 28.17 29.80
1981 Average 1129 1112 32.60 34.20
1982 Average 552 530 33.73 34.99
1983 Average 337 321 27.53 29.27
1984 Average 325 309 27.67 29.20
1985 Average 168 132 22.04 24.72
1986 Average 685 618 11.36 12.84
1987 Average 751 642 15.12 16.81
1988 Average 1073 911 12.16 13.37
1989 Average 1224 1116 16.29 17.34
1990 Average 1339 1195 20.36 21.82
1991 Average 1802 1703 14.62 17.22
1992 Average 1720 1597 15.85 17.48
1993 Average 1414 1282 13.77 15.40
1994 Average 1402 1297 14.12 15.11
1995 Average 1344 1260 W 16.84
1996 Average 1363 1248 19.28 20.49
1997 January 1334 1253 17.37 20.90
February 1361 1250 W 18.33
March 1292 1157 W 18.04
April 1573 1408 15.82 17.56
May 1475 1333 15.64 17.10
June 1299 1174 15.26 16.93
July 1313 1188 15.14 17.02
August 1636 1516 16.89 18.33
September 1599 1511 15.33 18.02
October 1377 1282 W 17.10
November 1308 1257 W 15.43
December 1311 1192 W 14.79
Average 1407 1293 15.16 17.52
1998 January 1515 1438 W 13.41
February 1470 1360 W 13.05
March 1552 1406 W 12.31
April 1527 1348 W 11.45
May 1362 1279 7.62 10.83
June 1647 1566 8.25 10.66
July 1615 1575 9.06 11.02

August 1500 1468 9.77 11.29
September 1606 1532 W 11.71
October 1316 1228 10.19 10.64
November 1386 1323 9.07 9.81
December 1402 1326 7.69 8.94
Average 1491 1404 8.87 11.16
1999 January 1511 1410 9.03 10.03
February 1510 1437 11.59 12.04
March 1645 1584 13.25 14.16
April 1444 1379 W 15.24
May 1502 1406 W 16.29
June 1515 1419 W 17.27
July 1412 1271 W 18.90
August 1394 1299 W 19.94
September 1451 1341 20.64 21.40
October 1284 1188 21.34 21.83
November 1350 1288 21.65 22.52
December 1455 1391
Average 1456 1367
W = Value withheld to avoid disclosure of individual company data.
Source: US DOE/EIA Monthly Energy Review

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1

SAUDI ARABIA: PETROLEUM INDUSTRY REVIEW

Part I Geological potential

* Pierre Shammas is President of the Arab Press Services (APS) Group

FRONTIERS YET TO BE DEFINED

NEW PALAEOZOIC SOURCING THEORIES &

THE OTHER REGIONS

SAUDIS EXCEED TARGET OF FINDING

INVITING FOREIGN E&P OPERATORS

THE SAUDI ENERGY ECONOMY

THE DYNAMICS OF LOCAL CONSUMPTION

THE POWER SECTOR

RESTRUCTURING & PRIVATISATION

JOINT GCC POWER GRID

THE ECONOMIC BASE

THE EXPORT MIX IS LIGHTER

PRODUCTION & EXPANSION COSTS

NEW CAPACITY COSTS

THE NAJD EXPERIENCE

Assuming an ultimate production capacity of 2m b/d in the Najd area would be

Northern Area: Fluor Daniel – $1 Bn

Southern Area: Ralph Parsons – $2 Bn:

The Najd Fields: John Brown – $500M:

To Maintain Potential: Lummus Crest – $500M:

THE GULF CRISIS

SAUDI ARABIA – THE OIL & GAS FIELDS

THE OIL & GAS FIELDS

Main Saudi Field Expansions & Costs*

Name of Budgeted 1991/92 1995-2000 API %

Shaybah March 1999 $2,500 – 500 40-42° 0.7

THE GHAWAR FIELDS

THE MAIN FIELDS PRODUCING HEAVIER CRUDES

THE DIVIDED ZONE

 A direct Japanese investment in the expansion of a Saudi mining railway,

 A financial and fiscal system to encourage Japanese investments in Saudi Arabia

THE OIL REFINING SECTOR

The Saudi Oil Refining Capacity (‘000 b/d)

Area Ownership 1999 2002/03

THE RAS TANURA REFINERY

THE RABIGH REFINERY

THE RIYADH REFINERY

THE YANBU’ REFINERY

THE JEDDAH REFINERY

SAUDI ARAMCO MOBIL REFINERY (SAMREF)

SAUDI ARAMCO SHELL REFINERY (SASREF)

THE LUBRICANTS SECTOR

EXPORTS & LOGISTICS

THE MARKET PERSPECTIVE

International crude oil price mocements after OPEC’s defence strategy

1Q99 2Q99 3Q99 4Q99

EXPORT PRICING & MARKETING

Qualities of Arabian and Reference Crudes

Crude Oil °API % Residue>650°F % S in Residue

FORECASTING SAUDI FORMULAE

Saudi Aramco will not sell for third-party processing.

Buyers must undertake that the crude will not be resold.

FOCUS ON EAST OF SUEZ MARKETS

gasoline in Asian refineries having brought Japanese gasoline prices down

 Saudi Aramco’s cuts in medium/heavy crude supplies, since mid-1992, have

THE SAUDI CRUDE SUPPLY PATTERN

A. Saudi Aramco’s installed oil production capacity should be maintained

mothballed, with Saudi Aramco able to de-mothball affected facilities within

Major Gulf Sour Crudes, Assay Data*

A direct Japanese investment in the expansion of a Saudi mining railway,

A financial and fiscal system to encourage Japanese investments in Saudi Arabia

Saudi Aramco’s cuts in medium/heavy crude supplies, since mid-1992, have

Azerbaijan. Nimir has stake in the Azerbaijan International Oil Consortium

Colombia. Nimir entered Colombia in November 1995 by purchasing all Hocol

Kazakhstan. In June 1997, Nimir signed a 25-year deal to develop Kazakhstan’s

Omar Abdel Qader Al Faqih, a minister of state in previous governments. Faqih

Ali Al Naimi, then head of Saudi Aramco.

Wahib Said Binzagr, head of the giant Jeddah-based Binzagr Group of

Dr. Faisal Al Bashir, a former deputy minister of planning. A technocrat turned