Saudi Aramco, the Kingdom’s national oil giant, continues to support the country’s economy and the industrialization plans through a variety of investments designed to increase substantially its crude oil, petrochemical and refining capacity.
Although most upstream activities are still handled by Saudi Aramco, the company’s policy has been to seek out international partners for downstream projects, with the emphasis on creating additional petrochemical feedstock and increased Saudization of the work force.
Global energy demand has skyrocketed, due in large part to rapid economic development in Asia. It, together with a variety of other market factors, has sent crude oil prices soaring to unprecedented levels. To ensure stability in the global oil market and to continue the Kingdom’s long-standing policy of maintaining surplus capacity, Saudi Aramco has embarked on a massive, multibillion-dollar program to improve existing facilities and expand capacity through several mega projects.
Maximization of revenue is one of the aims. New domestic refining is being designed to process heavier grades of sour crude, freeing up the highly desirable Arab light crude for export while adding additional value by way of refined products. Petrochemical feedstock development also solidifies the Kingdom’s position as one of the world’s leading producers of these valuable substances, which can be used to generate even more value through the manufacturing in Saudi Arabia of petrochemical-based products — a keystone of the Kingdom’s industrialization drive.
There is speculation that the current mega projects will prove to be the largest expansion effort in the history of the oil business in the Kingdom — even more so than the 1970s which in large part powered the modernization of Saudi Arabia. This is because it is not just a matter of what is going to be done, there is also the matter of how it is going to be done. In the 1970s a large number of skilled, expatriate tradesmen and engineers were responsible for construction of the company’s facilities, this time every effort is being made to increase Saudization to unprecedented levels.
Saudi Aramco’s role in expanding the country’s industrial skills base and the numbers of Saudis in the work force was evident in two project management services contracts awarded earlier this year to two business consortiums, involving locally-based engineering companies and international partners.
The result will be two private sector Saudi contracting companies that will support Saudi Aramco in complex design work. They will operate initially within the Kingdom but in time look to the entire Gulf region. The contracts will actively stimulate the development of these two local engineering offices’ capabilities, so as to provide front-end engineering for complex hydrocarbon facilities normally executed outside the Kingdom. They are expected to become internationally recognized engineering firms and expand beyond working with Saudi Aramco.
The first contract was awarded to a well-established Saudi engineering consulting company, Saud Consult, in consortium with the US-based Jacobs Group and Canadian-based SNC Lavalin. The second was given to Zuhair Fayez Partnership Consultants, another well-established Saudi company, in a joint venture of Australia-based Clough Group and US-based S&B. Both companies will be based in Alkhobar and act as project management consultants, performing predominantly front-end engineering and design work for hydrocarbon extraction and processing facilities. At the time, Ali A. Al-Ajmi, Saudi Aramco’s vice president, noted the strategic importance of these two local engineering entities in supporting the expanding oil, gas and petrochemical industries throughout the Gulf.
Seeking the participation of private-sector firms and promoting Saudization are integral to the company’s economic development initiatives. They can be made possible through mega project work planned for the coming years. One hundred percent Saudization is Saudi Aramco’s target for contractor businesses.
“Saudizing the contractor manpower is a step in the right direction that provides many benefits for the company and the Kingdom at large,” said Amer A. Al-Sulaim, executive director of Saudi Aramco’s Industrial Services Organization. “Our vision is to maximize the Saudization of services provided by our contractors.”
Al-Sulaim emphasized important factors in working with contractors, stressing the level of service provided, cost, quality and above all, reliability. “We’ve counted on our contractors during tough times,” said Al-Sulaim. “They’ve been with us for a long time and have done a great job.”
Examples of this reliance on the private sector include the award of contracts to build marine vessels for the company’s offshore activities to contractors Zamil A. Al-Zamil and Hadi H. Al-Hammam, and a 15-year, 100 percent Saudization contract awarded to the Shuwayer Group of Companies to supply 40 cranes of 50- to 200-ton capacity to be used on Saudi Aramco projects throughout the Kingdom.
Skilling is crucial. Saudi Aramco cannot afford to relax its high standards to accommodate Saudization. So it is working with contractors to ensure that they have the capabilities to deliver the quality of work upon which oil consumers around the world have come to rely.
“It’s a challenge,” said Zamil A. Al-Zamil, “working with Saudi Aramco. It is also a great responsibility. The company needs financially sound, highly technological and dependable contractors.”
Traditionally, Saudi building and engineering contractors have been too small to bid for projects of this size. To address this, Saudi Aramco is devising strategies to encourage the formation of consortiums in the construction sector that will keep the money in the local economy and at the same time boost the number of private sector jobs in goods and services.
Local material acquisition also has become an important consideration in Saudi Aramco’s business plans. As demand for building materials soars throughout the Gulf, local suppliers and manufacturers are routinely informed about project schedules so that inventory and delivery issues do not slow down the brisk pace of construction throughout the Kingdom.
Even when the company works with outside contractors, contract stipulations promote Saudization through quotas, in-Kingdom offices and staff and training programs to give Saudis the skills to take part in the construction boom.
In the massive Hawiyah Natural Gas Liquids Recovery Project, which will add significant petrochemical feedstock, foreign contractors have made a commitment to employ and train as many Saudi nationals as possible.
The Italian engineering company Snamprogetti is one of the contractors. Company spokesman Enzo Erdoni said its side of the 27-month project will employ nearly 4,000 workers during the construction peak in 2006 with an estimated 14.2 million man-hours involved. Snamprogetti is already about 33 percent above its initial Saudization target, according to Erdoni. It is working with King Fahd University of Petroleum and Minerals (KFUPM) in Dhahran and high schools across Saudi Arabia to find talented students who will join its project teams in Kingdom. Its personnel will help train young Saudi engineers to work under Saudi Aramco’s exacting standards. Erdoni said the company hopes to have 45 Saudi engineers joining its ranks in the coming months. “We will include as many Saudi engineers as we can on our team,” he said.
Satoshi Sato, project manager for the Japanese-based engineering firm JGC, notes that Saudi-based Radicon Gulf Construction was working on 11 of the 18 buildings in its portion of the Hawiyah project. Sato said JGC was hiring Saudis for its engineering department and that all the later construction drawings would be done in Saudi Arabia.
JGC is working with 10 Saudi suppliers in its materials procurement. The company is also working with Saudi Aramco to help local suppliers take on complicated projects that otherwise might be beyond their experience.
JGC expects to have 4,900 men working on its part of construction in the Hawiyah project at its peak, with an estimated 16.8 million man-hours involved. Additionally, JGC is starting a training school to qualify Saudis for well-paying jobs in the construction trades.
The scale of the work of the Saudi Aramco mega projects scheduled in the coming years represents a huge investment opportunity for local and foreign investors, as well as for contractors looking for a sustainable presence in the area.
Salim Al-Aydh, Saudi Aramco’s senior vice president of Engineering & Operations Services, said there are opportunities for more than 50,000 engineers and other opportunities for more than 700,000 workers in almost every type of job.
Al-Aydh also emphasized the investment opportunities available in manufacturing, due to the massive amount of material required to execute these mega projects. He encouraged investors to explore the partnering possibilities in this area.
As the upcoming mega projects require robust, flexible firms, he called upon the Saudi business community to build on past successes and urged them to restructure, join forces and consolidate in order to rise to the challenges they pose, and to consider this challenge as an opportunity for growth.
If the private sector musters to capitalize on these incredible opportunities and if Saudis muster to take these available skilled jobs, the Saudi economy can be transformed permanently into one of the world’s liveliest for decades to come. Al-Aydh said he has great hopes that this potential Saudi engineering and construction expertise can be developed to someday rival hydrocarbon products among the Kingdom’s exports.
