Saudi Arabia possesses about 18% of the world’s total petroleum output. It is ranked as the largest petroleum producer in the world. In 2013 it was ranked as the second largest petroleum liquids producer after the United States and the second largest crude oil producer (Metz, 1992). Petroleum accounts for 85% of all exports of Saudi and its economy remains heavily dependent on oil. Saudi Aramco is the nation’s oil and gas company and is the largest oil company in terms of production in the world. Saudi has about 266 billion barrels of proved oil reserves excluding the barrels in the Saudi Kuwait Neutral zone. They account for 16% of the world’s oil barrels. Saudi has about 100 major oil fields with more than 50% concentrated on its North East part of the country (EIA, 2014).
Saudi produces a range of oils from heavy to super light. Most of the crude oil produced in Saudi is considered light gravity. However, the country is moving to reduce production of the medium and the heavy gravity oil into super light. The Kuwait Saudi neutral zone is an area approximately 2,200 square miles. It contains a total of 5 billion barrels of total oil reserves that were divided equally between the two countries (Metz, 1992). Saudi’s Saudi Aramco operates the largest oil processing facility and crude stabilizing plant in the world. Saudi Arabia has been a top oil producing country in the world for decades and proves to continue through their constant innovations and improvements of oil fields.
Oil mining in Saudi went real about the year 1933. Western countries showed interest in the oil in Saudi Arabia. Standard Oil Company of California signed a sixty year contract with Saudi Arabia. Four years later, they were joined by three other companies, among them was Mobil. This resulted to formation of Aramco, the Saudi oil exploration company. It started operating in about five sites across the country in 1938. They had reached a commercial level by 1945 (Haroon, 2014).
Prior to this success, during the era of Abd al-Aziz ibn Abd ar-Rahman Al Saud, the first King of Saudi, he failed to gain control of the western part of Saudi Arabia. He granted an oil concession to a British investment group. However, the group failed to sell since they were just dealing with the possibility of selling the investment to the British government which declined to take it. Hence the venture failed terribly in 1928. The Standard Oil Company of California had however succeeded to explore oil since they were not affected by what was called the red line agreement (Metz, 1992).
Red line agreement which was in practice around 1930s blocked companies with a part ownership of the company operating in Iraq, from acting independently within that area that actually covered a bigger junk of the Middle East. Hence since the company from California was not barred, it made its entrance into the trade. The original concession was charged a rental fee of 5,000 British pounds in gold, a loan of 50,000 British pounds in gold to Saudi government and royalty payment in some shillings for each unit they exported (Metz, 1992).
The concession agreement was however changed severally from the initial one. The first modification was done in 1939 after the oil discovery in 1938. This increased Aramco concession area and period to 1999. The charges were also higher than previously. In 1950 they changed the agreement to a fifty –fifty profit sharing agreement. More adjustments followed up to until 1980. Aramco kept on expanding occupying up to 80% of the original area of about 1.3 million square kilometers. Once oil was ascertained in Saudi, Aramco engaged in several innovations to cut transport costs (Haroon, 2014). It during 1970s came up with pipelines to decrease costs of transportation and waste of time in the sea and tax across the Mediterranean Sea. The line was however damaged severally and was constantly in and out of use (Metz, 1992).
The initial stages of setting up Aramco were faced with many challenges. They could not get enough personnel from Saudi since most of them were not even familiar with machines. The infrastructure of the place was not developed. This meant that Aramco had to outsource most of services and build infrastructure. Aramco started by training Saudis to take over oil production (Metz, 1992). They trained them through scholarships to foreign countries. By the year 1980, 22,000 of the 38,000 Aramco employees were Saudi (EIA, 2014). In 1982 Aramco had the first Saudi president. He rose in ranks gradually from a junior employee who started working there at the age of eleven. The presence of the United States which was very strong in the early fifties had gone down significantly by the year 1980 (Metz, 1992).
Aramco then began to be slowly taken over by the government. The kingdom wanted to transfer it from a company owned by its foreign parent companies to the state owned company. The kingdom’s gradual take over and constant issuing of directives became a common feature in 1970s. Saudi Arabia participated in the Arab oil embargo in 1973 which supported it to gain access to the management of Aramco. By the I980s Aramco was fully controlled by the Saudi government and adopted the name Saudi Aramco. The government of Saudi has since early 1990s been involved in drastic changes to gain more control and arrange the style of production of Saudi Aramco and other production companies in Saudi (Metz, 1992).
The Kuwait-Saudi neutral zone is a shared zone with oil fields. The place had been waiting judgment on demarcation back in the 1920s when its values suddenly shot up upon discovery of Oil. The two countries sat to deliberate on the matter and agreed to share the region. The agreement and demarcation of the area finally were signed and became real in 1966 and 1967 officially (Haroon, 2014).
Oil Exploration in Saudi
Saudi Arabia holds 16% of the world’s proven oil reserves. This represents the biggest proportion in the world from a single country. It is the second largest petroleum producer after Russia. Most of the revenues they earn come from petroleum and its products. The country has also embarked on plans to increase their petroleum products and production of crude oil. Saudi Aramco remains to dominate the Saudi oil productions and still is the largest oil producing company. Saudi Arabia produced an average of 11.6 million bbl/d of total petroleum liquid in 2013. The production of 2013 declined slightly by 0.13 million bbl/d to accommodate non-OPEC production growth, mainly United States and to a lesser extent Canada (EIA, 2014).
The country produces a range of crude oils. It produces from super light to medium and heavy gravity. The country is aiming to maximize mining mostly of light crude oil and minimize mining of medium and heavy gravity. The oil of Saudi comes from several fields but more than a half of it comes from about eight fields (EIA, 2014).
The fields include Ghawar. This is the largest field in the world that was discovered in 1948 and oil extracted from it in 1951 first. It is managed and controlled by Saudi Aramco. It is found to the North East of Saudi in a place called Al Ahsa Eastern province. It is an onshore field with a physical area of 280 by 30 square kilometers. It produces 5.8 million bbl/d of Arab’s light crude. The second oil field in Saudi as arranged by capacity of production is Safaniya. This is an offshore field located in the Persian Gulf. It is the largest offshore field and produces heavy crude. It produced, according to 2012 estimates, 1.2million bbl/d. The third largest oil field in Saudi is the Khurais, an onshore field that produces an equivalent of Safaniya. It gives light crude but by 2012 there were plans underway by Saudi Aramco to expand its production by 0.30 million bbl/d by 2017. Other fields include Manifa an offshore 0.90 million bbl/d located in the Persian Gulf near a place called Al Jubail and Shaybah onshore field producing over 0.50 million bbl/d. Other fields scattered within Saudi and which contribute to the half of its production include Qatif, Khursaniyah, Zuluf, and Abqaiq (EIA, 2014).
The country has the largest company of oil producers. Saudi aramco has the largest world processing facility (Nakov &Nuno, 2011). Additionally Saudi possesses several refinery plants around the country. Among the big refineries include Ras tanura. It is located on the Persian Gulf coast near Jubail. It has a crude distillation capacity of 550,000 barrels per day. It is owned by Aramco and began operations back in 1945. The other big refinery is Yanbu with capacity of 250000 bbl/d (EIA, 2014). Other refineries include Riyadh, Jedah, Satorp Jubail, Petro Rabigh, Samref Yanbu etc. In addition to these Saudi has refineries abroad mostly in United States, China, South Korea, and Japan (Nakov &Nuno, 2011). Despite also having big ports specialized for oil transportation to other countries, it has got a net work of pipelines. It operates averagely 12,000 miles of crude and petroleum product pipelines through the country. The major pipelines include Petroline which is a 746 mile long pipe running from Abqaiq complex to The Red sea. Running parallel to it is the Abqaiq –Yanbu NGL pipeline. It serves petrochemical plants in Yanbu (Nakov &Nuno, 2011).
Impacts of Oil in Saudi
Oil has revolutionized the way Saudi do most things over several years. Oil discovery changed the economy of the country to a great extent. Since 1930s the economy of Saudi has been growing due to sales made from oil. As they increasingly took more control over Saudi Aramco, they increased revenues and the country’s GDP grew. Oil exploration and the setting up Saudi Aramco necessitated for the buildup of infrastructure. It also led to training of skilled labor in Saudi (Shah, 2011).
During the set up of Aramco, many employees were obtained from other countries. However the government enacted laws and policy that lead to the scholarships granted by Aramco. About 60 scholarships were given annually to Saudi students who flew abroad to study. This increased the literacy level of Saudi Arabians. Oil discovery strengthened relationship between Saudi Arabia and other countries especially United States of America (Blanchard, 2014).However, oil in Saudi has had some bad effects. Security has been threatened as their oil fields have been targeted severally. They have also grown to be one of the greatest oil consumers in the world. This comes with environmental pollution (Shah, 2011).
Saudi Arabia produces a lot of oil to the world. It being one of the greatest producers of oil has helped its economy growth through revenues from exports. Saudi has got the highest number of oil fields in the world and the biggest oil producing company. It has also shown great interest in taking charge and improving their production through technological advancement. Though it has encountered some terrorist attack threats around oil fields, Saudi has taken measures to secure the regions. Saudi, the land of oil has experienced a significant positive impact of oil discovery and production.
Blanchard, C. (2014). Saudi Arabia: Background and U.S. Relations. Retrieved from http://fas.org/sgp/crs/mideast/RL33533.pdf
Energy Information Administration (EIA). (2014). Country analysis brief: Saudi Arabia. Retrieved from http://www.eia.gov/countries/analysisbriefs/Saudi_Arabia/saudi_arabia.pdf
Haroon, A. (2014). History of Saudi Arabia & Wahabism. Bloomington. Xlibris Corporation.
Metz, H. (1992). Saudi Arabia: A country study. Washington. GPO for Library of congress. Available from http://countrystudies.us/saudi-arabia/
Nakov, A. & Nuno, G. (2011). Saudi Aramco and the oil market. Working paper series. 1354. European Central Bank. Available from http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1354.pdf
Shah, A. (2011). Advantages and Disadvantages of Oil – Cons Disregarded by Powerful Lobbies. Retrieved from http://www.greenworldinvestor.com/2011/07/07/advantages-and-disadvantages-of-oil-cons-disregarded-by-powerful-lobbies/