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In this paper, there is a detailed
discussion on the oil and gas industry in the Saudi Arabia. The Saudi Aramco
has the second-largest confirmed crude oil reserves in the world, at
approximately 270 billion barrels, and in the daily oil production it is also
the second-largest. In the OPEC
coordination and a number of non-OPEC countries, it is decided by the Saudi
Arabia to cut oil production early on in 2017 to control supply and help in international
prices. The most of the
essential public spending score have previously happened and the pace of
austerity expects to be on ease in the upcoming years. The supply of oil
and gas is now becoming less elastic because of the new supplies of oil and gas
come progressively from alternative oil.
The major alternates for gas and oil energy comprise solar power, nuclear power, wind power and
ethanol.
Table
of content
The market structure of the industry
Pricing assumptions tied to economic analysis
Upside potential and Downside risk
Factors that influence demand for the company’s
produce
Factors that influence supply of the company’s product
Impacts of an event on the industry
Introduction of Oil and Gas Industry in Saudi Arabia
The Saudi Arabia is leading producer of
oil and natural gas and as of 2015 embrace about 16 percent of oil assets in
the world. Saudi Arabia as G20 member and 17th-largest exporter in the world,
Saudi Arabia is also known as the powerhouse of economy. Because of the high
oil and gas revenue, Saudi Arabia is categorize by World Bank as a nation with
high-income, its populace of about 30m has set up a customer market to flourish
domestic and global businesses. The utilization of its resources of
hydrocarbons has driven expansion for many decades, and the trading status of
Saudi Arabia has been increased by its geographic benefit as a three continents
connector and also its immediacy to Red Sea, through about 10% trade of world.
On the other hand, this era of low prices of oil has presented a lot of
challenges for Saudi Arabia and economies of the other counties. As a result, the
reforms of economy are changing in numerous Gulf countries, and the venerable
goal of diversifying revenues not here from hydrocarbons is finest than ever
The oil and gas industry of the Saudi Arabia is likely to gather condensation in the coming year as its stronger financial place should encourage the private expenditure and speculation. On the other hand, the downside risks at rest emerge great economic outlook over the country, mainly the stem from protectionism rising trade that also add downward global growth stress, and also from increasing geopolitical danger in the country and indecision about the reform agenda of the country
Introduction of the Saudi Aramco
The Saudi Aramco, is
formally the Oil Company in the Saudi Arabia (Arabian-American Oil Company), is
Saudi Arabian national natural gas and petroleum company headquarters in the
Dhahran, Saudi Arabia. Saudi Aramco is one of the major companies in globe by income,
and as said by Bloomberg News accounts, it is the most profit making company. The
Saudi Aramco has the second-largest confirmed crude oil reserves in the world,
at approximately 270 billion barrels, and in the daily oil production it is
also the second-largest
Industry background of Oil and Gas Industry in Saudi Arabia
The government of Saudi Arabia goes on
to pursuing diversification and economic reform, mainly in 2005 economy
accession of Saudi Arabia’s to the WTO, and promotes foreign investment in the
Kingdom. In 2016, the governments of Saudi publicize socio-economic reforms
broad set, also known as Vision 2030. The reduction in international oil prices
all through 2015 and 2016 considerably lowered governmental revenue of Saudi
Arabia. In reaction, the Saudi Arabia government cut financial support on
electricity, water and gasoline; concentrated compensation packages of
government employee; and also announced limited taxes of new land. In the OPEC
coordination and a number of non-OPEC countries, it is decided by the Saudi
Arabia to cut oil production early on in 2017 to control supply and help in
international prices
The Saudi Arabia economic revival
continuously increases traction in Q2, with expanding GDP at the greatest speed
in 1.5 years. The economy of Saudi Arabia continued to gain profit from higher
prices of oil—which are approximately 50% higher than levels practical last
year—and production of solid crude oil. Next to this setting, the governments
release its financial stance that mainly interpret into higher contributions
and cash transport to domestic to compensate unhelpful spillovers from
financial support cuts and the opening of VAT in January. In spite of a soft
start to year, movement in non-oil sectors is gradually gathering force, with
the non-hydrocarbon PMI sector in July and August balanced over Q2’s average.
The economic position Saudi Arabia expected to cover JP Morgan to proclaim, in
26 September, the enclosure of country into promising bond indexes market
government in the next year, which leads Saudi bonds to public meeting in
September.
From the recent research it is
estimated that the personal spending growth would remain indifferent as returns
of inflation follow the fiscal reforms of Saudi Arabia and the partial oil
prices recovery. The economic diversification efforts of the country are
improbable to surprise considerably soon and not likely to increase to
expenditure over the temporarily, predicted by BMI. The Consumer prices
increased 3% on yearly basis in January and about 3.9 %from December, according
to bureaucrat information
The Saudi Arabia Gasoline Prices
remained unaffected at $0.54 per Liter from $0.54 per Liter, in September 2017
to august 2018. The Gasoline Prices has been 0.24 USD/Liter from 1995 until
now, in January of 2018 accomplishes all time high of 0.54 USD/Liter and in
March of 2013 low evidence of $0.12 per Liter. The Price of Gold in Saudi Riyal
is at a present level of 4575.28, up from 4521.11 the preceding market from
4838.82 in one year.
In Mar 2018 the data of Consumption
Expenditure was stated at 420,908.76 SAR MN. In Dec 2017, this also account a
decline from the preceding figure of 481,205.58 SAR mn. The GDP of Saudi
Arabia’s data of Consumption Expenditure is quarterly updated; averaging from
Mar 2003 to Mar 2018 is about 260,925.01 SAR mn, with 61 remarks. In Dec 2017
the data reached an unprecedented high of 481,205.58 SAR mn and in Mar 2003
evidence low down of 110,994.00 SAR mn. The data Consumption Expenditure in
Saudi Arabia remains in active position in CEIC and is account by General
Authority
In Saudi Arabia the Consumer Price
Index is forecasted to be about Index Points 107.52 by this quarter end, so
according to Trading Economics international analysts’ expectations and macro models. By forward Looking, it is also estimated
that Consumer Price Index (CPI) in Saudi Arabia to stand at 110.19 in time of
one year. In the long-standing, the CPI of Saudi Arabia is predictable to trend
approximately 111.67 Index Points in 2020, concerning the models in econometric
The Saudi Arabia can now not rely on public spending and oil revenue for growth, in the shifting market of global energy and a demographic changeover that will considerably augment working-age Saudis number by the year 2030. The present rate of labor participation is about 41 %, and output growth of 0.8 % yearly from 2003 to 2013 trails a lot of promising economies. The most awful for Saudi economy is most likely to over now. The most of the essential public spending score have previously happened and the pace of austerity expects to be on ease in the upcoming years. This supposed to be hold up a steady recovery of non-oil sector in Saudi. In the meantime, there are by now signs that bumper $17.5 billion last week global bond issuance is facilitating the government to untie a little the purse strings, with expenses to outworker being resumed that is also a downside risk for Saudi Arabia .
Factors that influence demand for the company’s produce
Industry Profitability of Oil and Gas Industry in Saudi Arabia
The Saudi Arabia oil and gas industry
are under control by petrochemical based products. The major Saudi Arabia industries
related to oil and gas of include petroleum refining, crude oil production,
fertilizers, commercial ship, industrial gases, ammonia, cement, sodium
hydroxide, metals, plastics and aircraft repairing. The Saudi Arabia
contribution in the sector of real estate to economy signify GDP 5.1 percent at
SAR55 billion. The lend operations have guide towards a investments turn down
in the residential real estate sector in the past 10 years, resulting in
deficit of about 20 percent of investment levels
The Domestic policy in the Saudi
Arabia will stay centered in the crown prince, Mohammed bin Salman hands. The
prices of oil have presented a lot of challenges for Saudi Arabia and economies
of the other counties, that also make Saudi government to invest in other
ventures. The economy of Saudi Arabia continued to gain profit from higher
prices of oil, which are approximately higher than levels practical last year
and production of solid crude oil. The Kingdom can make investment in high
shortfall for numerous years by substantial foreign assets drawing down or by
have a loan from other countries, it has decrease capital expenditure and
condensed financial support. Nonetheless, the economy must recollect growth
through 2023, raised by an over-all uptick in prices of oil.
In the oil and gas industry in Saudi Arabia
the overall bargaining power of suppliers is comparatively very high. Some of
the major gas and oil industry suppliers are entirely unified oil and gas
industry (International and National Oil Companies) that are dynamic in whole
oil and gas industry. The ability of these companies to effect the prices of
oil in the industry is very high because of their business involvement on all
segments in oil and gas industry, so
there is no doubt that the bargaining power of suppliers is significantly
higher than the buyers in the industry. The alternates’ influence of oil and gas industry in the
Saudi Arabia is also high. The main substitute to sources of the oil and gas
for energy production are as follow:
The supply of oil
and gas is now becoming less elastic because of the new supplies of oil and gas
come progressively from alternative oil. The elasticity is a term used by the economists
to define how much demand or supply affects the changes in the product price. The
overall energy demand elasticity is now becoming inelastic in short run but in
the long run it is more elastic. The overall supply of the oil is turning to be
less elastic because of the sustainability issues. Oil price is exceptional
from products as it not likely to substitute easily. Consequently, because many
substitutes the demand of the oil and gas is becoming less elastic. The major alternates for gas and oil energy comprise solar power, nuclear
power, wind power and ethanol.
In 2017, the Saudi Arabia incurs a financial plan
shortfall predictable at GDP 8.3%, which was economics by reserves and bond sales
going down. Even though Saudi Arabia can invest high shortfall for numerous
years by substantial foreign assets going down or by have a loan from other
countries, it has decrease capital expenditure and condensed financial support
on water, electricity and petroleum goods and newly bring in a tax value-added
about 5%. In 2016, Deputy Prime Minister and Crown Prince publicize the Saudi
Arabia plan to list petroleum company shares, ARAMCO – that is another shift to
boost outside investment and revenue. The government of Saudi Arabia has looked
at diversification and privatization of economy directly in the wake the weaken
market of oil.
The Saudi Arabia government is going
towards the economy diversification especially in the market of oil. Now the
Saudi government is not more willing to depend on the oil production for the
economic sustainability. The government starts investing in many of the other
sectors like health care, education etc for growing its economy. From the
previous few years the government of Saudi Arabia is also facing decrease in
the oil prices and now they think that the diversification of economy system is
very important for the long lasting growth of economy. The diversification into an economy envision by leadership of
Saudi Arabia will necessitate venture in areas range from innovation
infrastructure, generating more chances for foreign investors to contribute in
the procedure through the stipulation of expertise in fields and hardware as
diverse as equipment of railway and training in health care. In a lot of
sectors this is previously making some efforts to diversify the economy of the
country. So, it can be said that the diversification of the economy of Saudi
Arabia is a good decision made by the government by keeping in mind the future
and it is likely to provide a lot of benefits to the country as far as growth
of economy is concern
Conclusion on Oil and Gas Industry in Saudi Arabia
Summing up the discussion about the oil and gas industry in Saudi Arabia, it can be said that the reduction in international oil prices all through 2015 and 2016 considerably lowered governmental revenue of Saudi Arabia. The economic diversification efforts of the country are improbable to surprise considerably soon and not likely to increase to expenditure over the temporarily, predicted by BMI. The Saudi Arabia can now not rely on public spending and oil revenue for growth, in the shifting market of global energy and a demographic changeover that will considerably augment working-age Saudis number by the year 2030. The Saudi Arabia contribution in the sector of real estate to economy signify GDP 5.1 percent at SAR55 billion. The economy of Saudi Arabia continued to gain profit from higher prices of oil, which are approximately higher than levels practical last year and production of solid crude oil. The overall supply of the oil is turning to be less elastic because of the sustainability issues. The government of Saudi Arabia has looked at diversification and privatization of economy directly in the wake the weaken market of oil.
References of Oil and Gas Industry in Saudi Arabia
Ceicdata.com. (2018, April 1). Saudi
Arabia GDP: Consumption Expenditure. Retrieved from
https://www.ceicdata.com/en/saudi-arabia/gdp-by-expenditure-current-price/gdp-consumption-expenditure
CONTENT, E. (2010, MARCH 17). Saudi
Arabia Industry Sectors. Retrieved from http://www.economywatch.com/world_economy/saudi_arabia/industry-sector-industries.html
Export.gov. (2018, MAY 11). Saudi
Arabia - Oil and Gas. Retrieved from
https://www.export.gov/article?id=Saudi-Arabia-oil-and-gas
Focus-economics.com. (2018, October 2). Saudi
Arabia Economic Outlook. Retrieved from
https://www.focus-economics.com/countries/saudi-arabia
Gassan Al-Kibsi, J. W., Isherwood, T.,
Khan, J., Mischke, J., & Noura, H. (2015, December ). Moving Saudi
Arabia’s economy beyond oil. Retrieved from
https://www.mckinsey.com/featured-insights/employment-and-growth/moving-saudi-arabias-economy-beyond-oil
Jaber, D. S. (2018, November 12). Oil
& gas industry a critical enabler of economic growth. Retrieved from
http://saudigazette.com.sa/article/547855/BUSINESS/Oil-gas-industry-a-critical-enabler-of-economic-growth
Kassem, M. (2018, March 8). Saudi
Arabia consumer spending to pick up as economy improves. Retrieved from
https://www.thenational.ae/business/saudi-arabia-consumer-spending-to-pick-up-as-economy-improves-1.711417
Sertin, C. (2019, February 26). Saudi
Aramco CEO: Oil and gas industry facing "a crisis of perception".
Retrieved from
https://www.oilandgasmiddleeast.com/drilling-production/33484-saudi-aramco-ceo-oil-and-gas-industry-facing-a-crisis-of-perception
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