FUELING THE KINGDOM
The name Saudi Arabia has for decades now been synonymous with petroleum. The kingdom is the largest oil exporting country by a considerable margin in an already oil-rich region. It boasts proven reserves of 260 billion barrels – 20% of global oil reserves and sufficient to last almost a century at 2010 production levels. Add to this large undiscovered reserves widely presumed to lay dormant, as well as the country's capacity – alone among OPEC member states – to deploy a large reserve production capacity to smooth price surges when necessary, and it takes no genius to see the kingdom is set to keep on dominating the world oil market for the foreseeable future.
Crude oil sales have historically accounted for 90% of the country's overall export earnings and roughly 75% of its budget revenues. The Economist Intelligence Unit estimates that the value of Saudi Arabia's exports totalled $189.7 billion in 2009, down from $313.5 billion in 2008, with the drop largely reflecting the fall in oil prices from their 2008 peak. Indeed, the 2003-2008 spike in oil prices has greatly benefited the kingdom's trade balance and hence its ability to invest in renewing infrastructure and expanding education and employment – the two most pressing needs for its young population.
An increasing role of the private sector
The state-owned oil company Aramco currently delivers about 45% of Saudi Arabia's GDP, as compared to 40% which originates in the private sector. However, this proportion is gradually decreasing as ever more projects designed to diversify the economy come online, starting with but not limited to downstream petroleum industries. The objective in this is not only to create additional sources of income, but also to make the country less dependent on imports and to increase employment opportunities for a young and rapidly growing population.
Petroleum, when extracted, comes with associated gas from layers covering the oil deposits. This gas is released under pressure as a by-product of the oil extraction process. Whereas initially, producers worldwide would just burn this gas off, creating massive air pollution, the more environmentally conscious late twentieth and early twenty-first century has found solutions to prevent this waste and create additional profits in the process. Thus, Saudi Arabia's national oil company Aramco has been putting this side effect to good use as feedstock for a downstream petrochemical industry.
Oil, gas and what comes out of it
Indeed, from the mid-1970s onwards, the Kingdom stopped being a mere exporter of raw materials and began transforming its hydrocarbon reserves into petrochemical products such as ethylene, which were then exported at much higher prices than the raw materials. Gradually, the Saudi government plans to move further downstream, and thus these raw materials are also beginning to be used locally to manufacture various by-products destined for export or for consumption by a growing population at home. In fact, the petrochemical sector is one of the fastest expanding in the economy and already forms the largest non-oil sector in KSA. Says Jamal Malaikah, CEO of petrochemical company Natpet (National Petrochemical Industrial Co.): “KSA's non-oil exports are still relatively low at $30 billion per annum, but we should be able to double that number in less than 10 years.” According to Saudi Arabia's General Investment Authority (SAGIA), Saudi Arabia is currently the world’s 11th largest petrochemicals supplier, accounting for 7-8% of total supply, while simultaneously increasing its global market share in petrochemicals to 13-14%. Judging by the profile of the 80-plus petrochemical facilities in place, however, Saudi Arabia could easily become the world’s third largest producer by 2015. Additionally, construction has started on a number of major new hydrocarbons projects, including refineries, aluminum and other petrochemical plants. These are scheduled to come online between 2012 and 2014 and take industrial activities further downstream to produce previously imported products such as sober absorbent polymer (SAP – used in diapers), acrylates, caustic soda and ethylene dichloride (EDC).
The start of a new sector
Less well known, however, is the fact that the kingdom's soil also contains a wealth of mineral resources other than oil and the associated gas. In fact, tens of thousands of square kilometres of hard rock and mountainous regions in the country contain minerals ranging from gold, silver, lead, zinc and uranium to iron ore, copper, phosphates, bauxite, coal and tungsten.
A Mining Investment Service Centre has been set up to provide information and assistance to those interested in obtaining mineral concessions. The centre has been conceived as a one-stop shop also providing access to mineral maps and technical reports. Says Ali Al-Naimi, Minister of Petroleum & Mineral Resources: “Many resources are yet to be discovered. Cement, limestone, and other mining sectors will help to substitute foreign products with our own domestic ones.” Assistant deputy minister for mining investment Sultan Ibn Jamal Shawli has stated that state-owned mining firm Maaden's major phosphate and bauxite projects will place the kingdom firmly on the world stage as a producer of downstream value-added fertiliser and aluminium products. Maaden is also exploring for phosphates in the northern areas of Wadi Sirhan and Turaif and is developing magnesium deposits in the central area of the Kingdom. In a sign of the growing willingness of the Saudi government to give up state control over the sector, it has indicated that all of the company's activities will in the longer term be transformed into self-supporting business units ripe for privatisation. Minister of Petroleum and Mineral Resources Ali Naimi has said that liberalising the solid minerals area will create boom conditions for the Saudi mining sector, which he expects to grow at an annual rate of 10%. Indeed, the government's seventh five-year economic plan called for 9% growth in the non-oil mining sector, which would make it the fastest growing area of the economy.
Indeed, Saudi Arabia has some of world's largest phosphate reserves, while estimated bauxite deposits “could feed the planned 620,000 tonnes-a-year capacity aluminium smelter in the new Ras Al Zur industrial mineral city under construction for more than 30 years”, according to Abdullah al-Dabbagh, CEO of the Saudi Arabian Mining Company (Maaden), who has also stated that the kingdom's plans for an integrated mining programme to utilise phosphate and bauxite deposits in the production of fertilisers and aluminium will involve investments of more than $10 billion. The Al Jalamid deposit will supply raw materials for a $2 billion fertiliser production complex to be built at Ras al-Zur, sixty kilometres north of the industrial city of Jubail on the Gulf coast. This new mineral industrial city is being constructed as we speak, and will include plants to produce ammonia, sulphuric acid and phosphoric acid to provide feedstock for a 3 million-tonnes-a year di-ammonium phosphate plant.
The $5.6 billion project at Ras Az-Zur thus marks the first serious attempt by KSA to exploit its non-oil mineral deposits. As part of the general ongoing infrastructure investment, it will be connected by rail not only to the bauxite mines at Zabirah and the phosphate deposits near Jalamid, but also to the nearby industrial city of Jubail – which is itself being expanded with a Jubail 2 section - as well as to the deep water seaport which is being built by the Chinese Harbor Contracting and Engineering Co which won the SR 2.2 billion ($586.7 million) construction contract in 2008. Construction of the port should be completed by the end of 2011. The Saudi Landbridge railway line will later also connect the new port to Dammam. Ras Al Zur will comprise a phosphate fertilizer plant, alumina refineries, a SAR 22.5 billion aluminium smelter, a SAR 13.1 billion di-ammonium phosphate (DAP) fertiliser plant, an ammonia plant and facilities to produce phosphoric and sulphuric acid. Annual production forecasts are to the tune of 6 million tons of granular diammonium phosphate, 440,000 tons of liquefied ammonia, 1 million tons of caustic soda, 1 million tons of alumina and 70,000 DWT.
The new mineral city
Ras Al Zur will eventually also have its own combined power station and desalination plant, for which a SR59.9 million ($16 million) engineering contract was awarded in July 2010 to a consortium led by consultancy firm WS Atkins International. When completed by the end of 2013 the plant, estimated to cost $6 billion in all, will likely be the world's largest, generating 2,400 megawatts of electricity and producing 1,025 million cubic meters of desalinated water per day. The plant will be part of a network of new IPP (independent power producer) projects planned by the Saudi Electricity Company (SEC) worth SR300 billion ($80 billion). In all, 6 IPPs will supply an additional 20,000 megawatts to the energy-starved country by 2018. Beside Ras Al Zur, plants will be constructed in Rabigh, Riyadh, Qurayyah, Dheba and Shuqaiq. Said Amer Al-Swaha, the head of IPP at SEC, “Of the total investment of $100 billion, some $46 billion will go to power generation, and $30 billion will be spent on transmission and $20 billion on distribution.”
Finally, an entire residential city will complete Ras Al Zur. A residential village containing 500 housing units has already been constructed for Maaden's own employees. Says Al Otaibi, head of the Royal Commission for Jubail and Yanbu: "In the first instance, we are aiming to export raw minerals and ores as well as fertiliser and aluminium products to the nearby high-growth markets in Asia, where demand is high and keeps increasing." Indeed, the gigantic and growing economies of India, China are easily reached from the eastern shore of the Arabian peninsula. Korea and Japan are just one stop further away.
As Maaden's Abdallah Dabbagh told Reuters at the occasion of the announcement of the first contract biddings in 2005: "This industrial city, with these two projects, is the largest diversification which has ever happened in Saudi Arabia." Maaden's CEO Khalid Al-Mudaifer told menafn.com in January 2011 that phosphate production would start in Q2 of the same year, adding with pride: "Our phosphate complex is the largest in the world."
Our latest investment report on Kuwait was recently published in one of the leading Spanish dailies, ABC. FindMe in Kuwait explores the economic perspectives of Kuwait and the country´s future plans to compete with its fast developing neighbours. Once the leading country of the Gulf, Kuwait has remained silent for the past decade. And although many would like to see faster changes, Kuwait is moving, at its pace, to them. Inexorably. Learn about who is who in Kuwait and read what the leaders say about their own future in our upcoming release: FindMe in Kuwait Mobile app.
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