Country Focus: Saudi energy sector at forefront of IKTVA
Aramco is leading the kingdom's oil and gas sector by not just overseeing and driving the upstream operations, but also elevating itself to play the role of a socio-economic reformer by aligning its strategy to the goals of Vision 2030
If you ever thought that the Gulf’s oil giants can only compete against each other and can never join hands, think again. The present realities of the global oil and gas industry, brought about by subdued oil prices, has not just dawned upon the GCC’s NOCs the need to embark on a journey to optimise operations, but has also urged them to look for ways to innovate and collaborate to drive efficiency in their businesses.
The Kingdom of Saudi Arabia, being in more ways than not the harbinger of trends in the global oil and gas industry, has recently set a new precedent of cooperation in the Gulf’s energy sector – a move that will only usher in a period of sustainable development by way of partnerships, if other players take the cue from it.
The kingdom’s oil behemoth, Saudi Aramco, has recently signed two separate memorandums of understanding with the Abu Dhabi National Oil Company (ADNOC) and with Masdar, covering energy and technology collaboration, renewables and carbon management.
Under the terms of the MoU between Aramco and ADNOC, the two companies will collaborate on identifying technologies that could deliver improved operational performance and efficiency across the oil and gas value chain. With Abu Dhabi’s Masdar, Aramco will collaborate on sustainable development and renewable energy to yield advancements in clean electricity generation, and carbon capture for Saudi Arabia, the UAE and the world.
“Definitely as the world gets accustomed to a new era of low oil prices, it is quite natural to leverage and capitalise on existing industry expertise by adopting a renewed approach to partnerships. Innovation and technology (are key) to improve operational efficiency,” Vinod Raghothamarao, director consulting – Energy Wide Perspectives at IHS Markit, says.
“In addition, Aramco has embarked on an ambitious programme in sustainable energy, including renewables and CO2 capture, to promote use of renewables in power generation and water desalination. Definitely Aramco has made the early move and shown the way for other oil giants to follow.”
Aside from reinventing the way it goes about doing its business, and also as it prepares for its giant stock listing in the form of an initial public offering (IPO) in 2018, Aramco is also increasingly playing the role of a socio-economic reformer of some sorts.
The company, with Saudi Energy Minister Khalid Al Falih and CEO Amin H Nasser at the helm of affairs, has totally aligned its policies with Saudi Vision 2030 and is playing the role of a flagbearer of the In-Kingdom Total Value Add (IKTVA) localisation policy in Saudi – nurturing and training the youth, creating jobs, sourcing material and resources locally, boosting local industries, launching energy projects and above all overseeing the economy’s transition into becoming a knowledge-based one.
As part of their commitment of contributing to economic transformation, companies operating in the kingdom’s energy sector are required to partner with Aramco to fulfil their IKTVA obligation of giving back to the community they are benefiting from. GE Oil & Gas, which has been operating in the kingdom for almost 80 years now, having started supplying machinery and compressors back in the 1930s, employs a workforce of 2,000 people and has been able to achieve about 65% Saudisation, according to Zaher Ibrahim, GE Oil & Gas’ CEO for Saudi Arabia & Bahrain.
“That’s the beauty of our business in Saudi Arabia that we did not wait for IKTVA to embark on the journey of localisation. If you look at the investments that GE Oil & Gas, and even GE as a whole, has done in the kingdom in the past years, the expansion of the pressure control unit’s capacity for instance, were all part of our localisation drive,” Ibrahim told Oil & Gas Middle East over the phone from Saudi Arabia. “So, when IKTVA was introduced, it was in line with our strategic objectives in Saudi Arabia. We even started talking with our customers before this had been launched to really drive our efforts. We wanted IKTVA as much as our customers did, because we wanted to elaborate our efforts and investments to position ourselves closer to our customers.”
“The investments to expand the capacity of the process control facility was an immediate step. The Dhahran Technology Valley (DTV) and transforming it into a global resource centre, supporting the whole oil and gas business in Saudi Arabia, which was connected to GE’s global resources network, was actually part of our IKTVA efforts and was in fact the heart of our IKTVA campaign from a knowledge transfer perspective,” Ibrahim says.
He further explains, “So localisation of the process control centre, localisation of the investments we have made in the multi-modal facility, to supporting all our businesses in oil and gas to leveraging our global resources centre in DTV, all of this is in line with the IKTVA objectives of the kingdom and Aramco. Of course our localisation work is aligned to Saudi Arabia’s 2030 goals. Our CEO Lorenzo Simonelli is engaged with the top Saudi leadership. We are committed to and are supporting Vision 2030 and are a partner in this journey towards transformation. With all the investments we are making, the commitments we are putting in place and the initiatives and projects we have launched, are all in line with supporting Vision 2030.”
Saudi Arabia is aggressively pushing to develop its offshore potential, with reports suggesting that Aramco may have awarded about $5bn in deals to develop its offshore assets and construct upstream facilities on sea. Bearing in mind the fact that the offshore sector globally has taken a harder blow from falling oil prices than the onshore segment, one may question if this a prudent strategy.
“I think it is important for the country to maintain its investments in the upstream sector, both onshore and offshore. Although prices are relatively weak now, these investments will allow the country to be well positioned in the future, especially given that many energy players are cutting down investments heavily,” believes Ghassan Alakwaa, an energy research at APICORP.
McDermott International, which has been present in the Middle East for decades now and for 55 years in Saudi Arabia specifically, is one of the leading engineering contractors working in the Kingdom’s offshore sector today.
“Our goal is to harness that unique experience and use engineering and innovation as a differentiator to create additional value for Saudi Aramco. Our newly opened Al Khobar office is McDermott’s global centre of brownfield expertise and the Dammam fabrication facility further increases our brownfield capabilities in the country,” Dustin Whiteley, general manager of McDermott Saudi Arabia, told this magazine.
“In 2015 we were awarded a lump sum contract by Saudi Aramco for brownfield work in various offshore fields in Saudi Arabia, under our Long Term Agreement with them. This award was the largest single award for our Middle East Area operations in the company’s history.
More recently, we have been awarded a contract for the design, procurement, fabrication, transportation, installation, testing and pre-commissioning of nine slipover jackets and decks, subsea pipelines and cables, as well as the associated demolition of certain facilities, in the Safaniya field. The contract also includes one single well observation platform in the Zuluf field. This is a brownfield project that is part of a wider programme to replace aging facilities with electrified platforms to enhance the potential of the fields,” Whiteley elaborates.
“We’ve also won another contract for four jackets and three gas observation platforms, which is the third fast-track project we’ve been awarded from Aramco recently,” he reveals.
In its bid to develop the offshore sector, Aramco has recently decided to invest SAR21.8bn or $5.81bn in the huge ship repair and shipbuilding complex in Ras al-Khair. Saudi officials have said the King Salman International Complex for Maritime Industries and Services, being developed by Aramco and foreign partners, would be a major step in the kingdom’s efforts to become both an offshore and a midstream hub in the region.
To that end, McDermott has signed a major MoU with Aramco for a long-term land lease at the new maritime facility at Ras Al Khair. With a long-term phased approach, McDermott plans to build a new fabrication and marine complex, increased automation and an optimised layout to increase McDermott’s abilities to service the company’s growing Middle East and Caspian markets.
“The recent MOU McDermott signed with Saudi Aramco was for a long-term land lease at the new maritime facility at Ras Al Khair, which includes a gradual transition of our Middle East operations from our current location in the UAE to Ras Al Khair,” Whiteley says.
“Our move to Ras Al Khair is the next step in our long-term commitment to the Kingdom. It demonstrates our support for Saudi Aramco’s IKTVA programme to create substantial employment opportunities for Saudi nationals,” he comments.
Whiteley further says: “One of the most exciting aspects of Ras Al Khair is that we are constructing a new advanced fabrication yard. Technology is moving fast and the new yard gives McDermott the opportunity to leapfrog the competition by using the latest technology and automation. Once fully operational, the Ras Al Khair yard is expected to double our GCC fabrication capacity from 8mn to 16mn man hours per year with increased efficiency, enabling us to better serve all of our GCC customers.”