Saudi Electronic Saudi Arabia Petroleum Products Industry Paper

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Question Description

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.

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Q3 2019 www.fitchsolutions.com 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 © 20 2019 19 Fit Fitch ch Solutions Gr Group oup Limit Limited. ed. All rights rreserv eserved. ed. All information, analysis, forecasts and data provided by Fitch Solutions Group Limited is for the exclusive use of subscribing persons or organisations (including those using the service on a trial basis). All such content is copyrighted in the name of Fitch Solutions Group Limited and as such no part of this content may be reproduced, repackaged, copied or redistributed without the express consent of Fitch Solutions Group Limited. All content, including forecasts, analysis and opinion, has been based on information and sources believed to be accurate and reliable at the time of publishing. Fitch Solutions Group Limited makes no representation of warranty of any kind as to the accuracy or completeness of any information provided, and accepts no liability whatsoever for any loss or damage resulting from opinion, errors, inaccuracies or omissions affecting any part of the content. This report from Fitch Solutions Macro Research is a product of Fitch Solutions Group Ltd, UK Company registration number 08789939 ('FSG'). FSG is an affiliate of Fitch Ratings Inc. ('Fitch Ratings'). FSG is solely responsible for the content of this report, without any input from Fitch Ratings. Copyright © 2019 Fitch Solutions Group Limited. 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 3 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. fitchsolutions.com 4 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. fitchsolutions.com 5 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. fitchsolutions.com 6 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. fitchsolutions.com 7 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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Saudi Arabia’s Petroleum Products Industry Outlook

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SAUDI ARABIA’S PETROLEUM PRODUCTS INDUSTRY OUTLOOK

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Saudi Arabia’s Petroleum Products Industry Outlook
Introduction
Leveraging the benefits of globalization requires a critical analysis of the country’s
economic environment to determine the risk and opportunities relative to key exports. This paper
comprises a discussion of the petroleum products industry in Saudi Arabia, identifying the most
important environmental aspects for the industry in the long-term.
Important Strengths, Weaknesses, Opportunities, and Threats
The most important strengths for Saudi Arabia’s petroleum products industry is vast
reserve base and t...

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