Saudi Electronic Saudi Arabia Petroleum Products Industry Paper Acknowledging country risks and opportunities relative to key exports is essential in compr

Saudi Electronic Saudi Arabia Petroleum Products Industry Paper Acknowledging country risks and opportunities relative to key exports is essential in comprehending the effect of globalization on our world economy. Identify the most important strengths, weaknesses, opportunities, and threats for Saudi Arabia’s long-term petroleum products industry outlook in your view. Explain your reasoning. What are the implications of the Saudi Vision 2030 for the petroleum sector? Use the Saudi Arabia Oil & Gas Report to help you as you write your discussion question. Embed course material concepts, principles, and theories, which require supporting citations along with at least one scholarly, peer-reviewed reference in supporting your answer unless the discussion calls for more. NOTE:1- I need the answer to be in one page or more, BUT NOT less than one page.2- (Word file) Q3 2019
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Saudi Ar
Arabia
abia
Oil & G
Gas
as R
Report
eport
Includes 10-year forecasts to 2028
Saudi Arabia Oil & Gas Report | Q3 2019
Contents
Key View…………………………………………………………………………………………………………………………………………………………………….. 4
SWOT ………………………………………………………………………………………………………………………………………………………………………….. 5
Industry Forecast……………………………………………………………………………………………………………………………………………………… 6
Upstream Exploration……………………………………………………………………………………………………………………………………………………………………………………….. 6
Upstream Projects ……………………………………………………………………………………………………………………………………………………………………………………………. 9
Upstream Oil Production…………………………………………………………………………………………………………………………………………………………………………………11
Upstream Gas Production……………………………………………………………………………………………………………………………………………………………………………….13
Refining……………………………………………………………………………………………………………………………………………………………………………………………………………….17
Refined Fuels Consumption ……………………………………………………………………………………………………………………………………………………………………………20
Gas Consumption …………………………………………………………………………………………………………………………………………………………………………………………….24
Oil Trade ……………………………………………………………………………………………………………………………………………………………………………………………………………..26
Gas Trade…………………………………………………………………………………………………………………………………………………………………………………………………………….30
Industry Risk/Reward Index ………………………………………………………………………………………………………………………………….32
MENA Upstream Oil & Gas Risk/Reward Index ……………………………………………………………………………………………………………………………………………32
MENA Downstream Oil & Gas Risk/Reward Index ………………………………………………………………………………………………………………………………………41
Saudi Arabia Upstream Oil & Gas Risk/Reward Index ………………………………………………………………………………………………………………………………..50
Saudi Arabia Downstream Oil & Gas Risk/Reward Index……………………………………………………………………………………………………………………………52
Market Overview……………………………………………………………………………………………………………………………………………………..54
Saudi Arabia Energy Market Overview ………………………………………………………………………………………………………………………………………………………….54
Oil & Gas Infrastructure ……………………………………………………………………………………………………………………………………………………………………………………55
Company Profile………………………………………………………………………………………………………………………………………………………58
Saudi Aramco ……………………………………………………………………………………………………………………………………………………………………………………………………58
Regional Overview…………………………………………………………………………………………………………………………………………………..59
Middle East And North Africa Oil & Gas Overview……………………………………………………………………………………………………………………………………….59
Oil & Gas Glossary……………………………………………………………………………………………………………………………………………………65
Oil & Gas Methodology……………………………………………………………………………………………………………………………………………66
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2019
19 Fit
Fitch
ch Solutions Gr
Group
oup Limit
Limited.
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THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS MACRO RESEARCH and is NOT a comment on Fitch Ratings’ credit ratings. Any comments or data included in the report are solely derived from Fitch
Solutions Macro Research and independent sources. Fitch Ratings’ analysts do not share data or information with Fitch Solutions Macro Research.
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Saudi Arabia Oil & Gas Report | Q3 2019
Key View
Key View: The outlook for Saudi Arabia’s oil sector looks more clouded in 2019. In the face of tougher sanctions measures on Iran,
oil prices have remained weak due to mounting concerns for the global economy amid rising trade tensions. Global demand growth
is also slowing, putting pressure on OPEC to reduce its output to match consumption. We have downgraded our short-term oil
production forecast to reflect this altered market balance and to allow for a rollover of the OPEC+ production cut deal into H219.
The outlook for gas production remains bullish, with the kingdom progressing a number of projects, including a major expansion at
Hawiyah. Downstream capacity is also expanding, with Jazan set to reach full capacity in 2019, boosting both domestic supply and
exports. Oil demand growth, though, remains weak, dragged down by softer-than-expected economic activity and the aftershock of
fuel subsidy reforms in January 2018. Gas demand continues to grow strongly but is capped by domestic supply constraints and the
lack of import alternatives.
HEADLINE FORECASTS (SAUDI ARABIA 2017-2023)
Indicator
2017
2018e
2019f
2020f
2021f
2022f
2023f
12,071.0
12,297.9
12,163.8
12,337.2
12,384.3
12,488.8
12,546.1
Dry natural gas production, bcm
128.6
129.9
131.2
141.2
143.3
150.5
153.5
Dry natural gas consumption, bcm
128.6
129.9
131.2
141.2
143.3
150.5
153.5
Refined products production, 000b/d
2,865.8
2,871.6
3,043.9
3,129.1
3,144.7
3,160.5
3,169.9
Refined products consumption & ethanol, 000b/d
2,410.5
2,338.2
2,361.6
2,397.0
2,444.9
2,493.8
2,538.7
54.75
71.69
70.00
76.00
80.00
85.00
85.00
Crude, NGPL & other liquids prod, 000b/d
Brent, USD/bbl
e/f = Fitch Solutions estimate/forecast. Source: EIA, JODI, Saudi Aramco, Fitch Solutions
Latest Updates And Forecasts
• In the short term, the prospects for production have worsened, with global oil prices likely to force a rollover of the OPEC+
production cut deal into H219.
• In the 2020s, Saudi Arabian oil production will trend higher, as the kingdom brings its large spare production capacity into play to
meet a rising deficit in the global oil market.
• In order to support exports, the kingdom has looked to increase the role of gas in the domestic power and industrial sectors.
However, domestic gas consumption remains capped due to limited production growth.
• In spite of Saudi Arabia’s heavy focus on unconventional onshore non-associated gas resources, we expect slow progress in
developing these prospects. Domestic production will likely remain insufficient to meet unrestrained demand.
• Prospects for the start-up of LNG imports have improved under the economic stewardship of Crown Prince Mohammed bin
Salman and reports have emerged of Saudi Aramco in talks with a number of companies to purchase LNG or take up stakes in
LNG export ventures.
• Oil demand should normalise in the coming years, as the impact of subsidy reform rolls off and economic activity picked up.
Further subsidy reforms will likely drag on energy demand growth over the longer term.
THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS MACRO RESEARCH and is NOT a comment on Fitch Ratings’ credit ratings. Any comments or data included in the report are solely derived from Fitch
Solutions Macro Research and independent sources. Fitch Ratings’ analysts do not share data or information with Fitch Solutions Macro Research.
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Saudi Arabia Oil & Gas Report | Q3 2019
SWOT
SWOT Analysis
Strengths
• Vast proven reserves base.
• Developed oil and gas infrastructure.
• Established services sector.
• Stable operating environment.
Weaknesses
• High-level subsidisation of both oil and gas.
• Close nature of the sector, both in the upstream and downstream segments.
• Challenging business environment.
Opportunities
• Substantial unexplored acreage, including onshore unconventionals and offshore Red Sea.
• Continued expansion of refining and petrochemicals capacity.
• Energy price liberalisation.
Threats
• Rising regional instability.
• Risk of oil price relapse, undercutting Saudi Aramco’s long-term revenue base.
THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS MACRO RESEARCH and is NOT a comment on Fitch Ratings’ credit ratings. Any comments or data included in the report are solely derived from Fitch
Solutions Macro Research and independent sources. Fitch Ratings’ analysts do not share data or information with Fitch Solutions Macro Research.
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Saudi Arabia Oil & Gas Report | Q3 2019
Industry Forecast
Upstream Exploration
Key View: The lower oil price environment is leading to a strategic revision of investment. Focus is shifting away from crude oils and
moving towards non-associated gas.
Latest Updates
• In the first four months of 2019, there were on average 119 drilling rigs active in Saudi Arabia, compared to 113 rigs in the same
period last year.
• We have updated the proven reserves estimates for Saudi Arabia for 2019, in line with the most recent financial disclosures from
Saudi Aramco. Crude and condensate reserves now stand at 261.5bn bbl, and natural gas reserves at 6.6tcm.
• Saudi Aramco has announced plans to develop an international upstream arm. The company is reportedly mulling an
investment in Equinor’s shale assets in the US. Exposure to the US unconventional space could aid developments domestically.
Structural Trends
The bulk of Saudi Arabia’s oil and gas reserves are located in the country’s east and north-eastern provinces. NOC Saudi
Aramco estimates total proven reserves of 256.8bn bbl of crude oil, 4.1bn bbl of condensate, 35.1bn bbl of NGLs and 6.3tcm of gas,
the bulk of which is associated. Estimates cover both Saudi Arabia and Saudi Aramco’s equity share of the Saudi-Kuwaiti Neutral
Zone. Reserves are spread across more than 100 fields, with around half concentrated in nine giant fields in the kingdom’s
northeast, namely: Ghawar, Safaniya, Khurais, Manifa, Shaybah, Qatif, Khursaniyah, Zuluf and Abqaiq. Exploration in Saudi Arabia is
conducted by Saudi Aramco. In 2017, the company made two oil discoveries – Sakab and Zumul – and one gas discovery – Hadidah.
The total number of discovered fields now stands at 133.
The focus of exploration has increasingly shifted towards less proven plays, including the Red Sea and onshore unconventionals.
Saudi Aramco has been conducting geological and geophysical studies in the Red Sea since 2009. The initial targets were mostly in
shallow water, but have expanded to include deeper and more technically challenging prospects. Exploration drilling began at the
end of 2011 and has yielded two significant discoveries: al-Haryd and Shaur (a shallow water gas find). During the downturn, Saudi
Aramco suspended its exploration programme in the deepwater Red Sea. According to industry sources, the programme was
among the kingdom’s most expensive, operating at a cost of around USD1mn per day. The depth of the water, the complexity of the
basin and Saudi Aramco’s limited understanding of the geology all inflated drilling costs. These factors, alongside the lack of
infrastructure in the region, also substantially raise the prospective costs of development. Saudi Aramco indicated that the initial
development of the Red Sea resources would cost around USD25bn – a level of investment unsupported by the price environment
at the time. However, the company continued to explore in the shallower water areas. The recovery in oil prices may also pave the
way for a restart of higher cost and higher risk exploration projects in the coming years and the company’s 2017 performance
review referenced two 3D seismic surveys completed in the area that year. However, it was not made clear which specific blocks
were surveyed and whether these were shallow water or deep water.
THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS MACRO RESEARCH and is NOT a comment on Fitch Ratings’ credit ratings. Any comments or data included in the report are solely derived from Fitch
Solutions Macro Research and independent sources. Fitch Ratings’ analysts do not share data or information with Fitch Solutions Macro Research.
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Saudi Arabia Oil & Gas Report | Q3 2019
Price Dampens Appetite For High-Cost Exploration
Saudi Arabia – Front-Month Brent Price Forecast (USD/bbl)
f = Fitch Solutions forecast. Source: Bloomberg, Fitch Solutions
Saudi Aramco is channelling increased investment into non-associated gas exploration and has plans to fast-track the development
of its commercial discoveries. In contrast to oil and associated gas, Saudi Aramco has allowed foreign companies to partner it in
non-associated gas exploration in the kingdom’s Empty Quarter. The company entered four JVs between 2003 and 2004, namely:
•
•
•
•
EniRepSa: A JV of Eni and Repsol
Luksar: A JV with Lukoil
South Robh Al Khali Company: A JV with Royal Dutch Shell
Sinopec-Aramco: A JV with Sinopec
The companies, however, have since withdrawn from their respective JVs. In 2010, Lukoil relinquished 90% of the stake in its block,
which included two significant gas discoveries. Repsol, Eni and Sinopec exited the kingdom in 2012, followed by Shell in 2014.
Although drilling results were relatively positive and yielded a number of prospective finds, the companies believed that the
discoveries were uneconomic. Part of the problem was the high sulphur content in the gas which significantly raised the costs of
development. Another factor was the low domestic gas price cap. Gas prices are set at USD1.25/mnBTU for methane and
USD1.75/mnBTU for ethane. Prices were raised in December 2015, as part of broader energy subsidy reforms, but remain too low
to attract investment from the major internationals. Further subsidy reductions are highly probable, as the kingdom looks to reform
its economy and erode a deep fiscal deficit. However, social pressures and competitiveness concerns for the industry will likely slow
the pace of reform.
THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS MACRO RESEARCH and is NOT a comment on Fitch Ratings’ credit ratings. Any comments or data included in the report are solely derived from Fitch
Solutions Macro Research and independent sources. Fitch Ratings’ analysts do not share data or information with Fitch Solutions Macro Research.
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Saudi Arabia Oil & Gas Report | Q3 2019
In recent years, Saudi Aramco has also been moving to establish itself as a player in the unconventionals sector. The company is
continuing exploration efforts in northern Arabia, South Ghawar and the Jafurah basin. It has completed a number of wells in each of
the three areas and has achieved production at a pilot project in northern Arabia. It also reports drilling cost reduction for all three,
due to a mix of fit-for-purpose technologies and improvements in well design and execution. However, production remains
uneconomic, with the company targeted first economic production in 2020. The company will continue to direct investment into
its R&D in order to achieve this.
Aramco has been investing in R&D into a number of related technologies, including hydraulic fracturing with seawater instead of
freshwater, the use of carbon-dioxide based fracturing fluids and techniques for the in situ conversion of fracturing fluids into solids.
Saudi Aramco has deployed a number of new technologies to date, which includes advanced seismic imaging to identify sweet
spots within reservoirs, extended lateral well lengths and multistage fracturing stimulations. Improved fracturing technologies can
offer higher recovery rates, enhanced well productivity and substantial cost reductions which aid the commercial viability of
unconventional projects. This is of particular importance in Saudi Arabia, given the low domestic gas price.
THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS MACRO RESEARCH and is NOT a comment on Fitch Ratings’ credit ratings. Any comments or data included in the report are solely derived from Fitch
Solutions Macro Research and independent sources. Fitch Ratings’ analysts do not share data or information with Fitch Solutions Macro Research.
fitchsolutions.com
8
Saudi Arabia Oil & Gas Report | Q3 2019
Upstream Projects
KEY UPSTREAM PROJECTS
Name
Block A
Field Name
Companies
Mushaib,
Saudi Aramco
Tukhman
(20%), Lukoil
Status
Est.Peak Liquids Est.Peak Gas
Type Of Project
Output (b/d)
Output (bcm)
Appraisal
na
na
Tight Gas
Discovery
na
na
Oil
300
na
Oil
(8…
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