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Research Report

THE END OF SAUDI ARABIA’S ADDICTION TO OIL: DOWNSTREAM INDUSTRIAL DEVELOPMENT

Jean-François Seznec
Copyright Date: Jan. 1, 2017
Published by: Atlantic Council
Pages: 32
OPEN ACCESS
https://www.jstor.org/stable/resrep03693
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Table of Contents

  1. (pp. 2-3)

    Hidden behind the constant bad news concerning the Middle East–civil wars, vast flows of refugees, and nasty sectarian tensions–lies a profound shift occurring within the societies of the Gulf driven by economic development. The Gulf countries are well-known for being large producers and exporters of crude oil and natural gas. However, less well-known is that they have been making substantial efforts since the mid-1970s to become less dependent on the mere production of oil and grow into more broadly based industrial powers in their own right.

    Of course, with the price of crude going from $1.21 per barrel...

  2. (pp. 4-13)

    Refining has become a major part of Saudi Arabia’s energy production. Saudi Arabia’s state-run oil company, Saudi Aramco, now has enough refining capacity to give it a “base load”⁵ of demand for over half of its crude oil production and is slated to increase this base load further with the addition of new refineries both at home and abroad.

    Saudi Arabia’s production of crude oil in 2016 has varied between 10.26 and 10.55 million barrels per day (b/d), but it exports only 7.51 million b/d. The balance is used internally for two main purposes. One is to burn crude to...

  3. (pp. 14-16)

    Aluminum production is particularly significant for the Kingdom’s future development, as it can encourage the creation of numerous smaller companies that will transform aluminum into a wide variety of products used in the automobile and construction industries, among others.

    Many Saudis, some say over 50 percent, own shares on the stock exchange (the Tadawul) in Riyadh. The public owns 30 percent of SABIC’s shares and 45 percent of Ma’aden’s; the public also has significant minority-level ownership of the affiliates of these two companies and those of Saudi Aramco. Every initial public offering (IPO) that involves Saudi Aramco, SABIC, or Ma’aden...

  4. (pp. 17-19)

    The present and future success of the development of downstream industrial production has been greatly helped by the financing institutions and structures used to fund the companies. The largest companies in the Kingdom, like Ma’aden, SABIC, and some of the Saudi Aramco downstream companies, are ventures between the state and the public, and thus are publicprivate partnerships. These firms have mastered how to blend sophisticated structures that include suppliers’ credit from the countries selling the equipment; loans from the local state funds, like the Public Investment Fund, now slated to become the shareholder of Saudi Aramco; or loans and sometimes...

  5. (pp. 20-20)

    Chemicals, mining, and the Public Investment Fund will see a lot of growth and development as a result of Vision 2030. The following are the expected changes in these areas:

    Investments in chemicals, both basic and advanced, will continue and accelerate mainly through SABIC, but also increasingly through Saudi Aramco. The template for these investments is the format developed by SADARA, the $20 billion joint investment between Saudi Aramco and Dow Chemicals. SADARA is in the process of ramping up production and is expected to create a large number of new companies that will take the chemicals produced by the...

  6. (pp. 21-21)

    Of course, Vision 2030 is not likely to succeed without trials. Its very ambitious nature is forcing major changes to the country’s societal structures. Indeed, faced with an important decline in revenue, the state is incurring a very large budget deficit, expected to be $68 billion in 2016, exclusive of the very high cost of the Yemen war. Hence, perhaps the most important part of Vision 2030 is the unstated policy that the people can no longer depend on the state as their main provider, but that in reverse the state now will depend on the people

    Even though this...