Saudi Arabia-Oil Industry in the 1990s

Structure and Organization

After two decades of organizational change, the reshaping of the oil industry in Saudi Arabia reared completion by the late 1980s. During the 1970s and early 1980s, the industry was transformed from one controlled by foreign oil companies (the Aramco parent companies) to one owned and operated by the government. Decisions made directly by the ruling family increasingly became a feature of the industry in the late 1970s. Saudi Arabia's participation in the Arab oil embargo in 1973 and foreign policy goals were featives of this transition. In 1992 the government had title to all mineral resources in the country (except in the former Divided Zone, where both Kuwait and Saudi Arabia had interests in the national resources of the whole zone). Through the Supreme Oil Council, headed by the king, and the Ministry of Petroleum and Mineral Resources the government initiated, funded, and implemented all investment decisions. It also controlled daily operations related to production and pricing.

On a functional level, the industry also underwent significant transformation. By the late 1980s, the major companies established by or taken over from foreign owners by the government were required to produce a particular product. For the most part, only one company controlled a certain industrial subsector, although there was some overlap. In the upstream part of the oil industry, all exploration, development, and production decisions within Saudi Arabia were controlled by Saudi Aramco. It managed the oil fields, pipelines, crude oil export facilities, and the master gas system throughout the country. Through its subsidiary Vela Marine International, Saudi Aramco controlled Saudi Arabia's tanker fleet. Because downstream investments overseas were an integral part of Saudi Arabia's crude oil marketing strategy, these have come under the control of Saudi Aramco. These downstream investments were joint-venture operations with foreign oil refiners. Saudi Aramco also operated the kingdom's largest oil refinery. In 1992 the refinery's output largely conformed to Samarec's specifications. Saudi Aramco was managed by a board of directors headed by the minister of petroleum and mineral resources and a senior management staff headed by a president, with the Supreme Oil Council having oversight. Most operational decisions were made by the professional staff except oil output decisions, instructions for which came from the king through the minister.

The downstream subsector of the oil industry was dominated by Samarec. Operated as a wholly government-owned refining and marketing company, Samarec took over Petromin's operation in 1988. Petromin still existed on paper, legally holding title with three foreign oil companies to the export refinery joint ventures at Al Jubayl on the gulf, and Yanbu, and Rabigh on the Red Sea. In addition to managing these refineries, Samarec operated three wholly owned domestic refineries at Riyadh, Jiddah, and Yanbu. Samarec controlled the distribution of refined products within Saudi Arabia and managed the bulk plants, loading terminals, tanker fleet, and product pipelines. All export sales of refined products were also managed by the downstream company. During the Persian Gulf War, to augment domestic supplies of jet fuel and other products, Samarec bid for products in the Singapore market. The Petromin board of directors, headed by the minister of petroleum and mineral resources, set Samarec policy but operations were managed by a senior staff.

After the reorganization of Petromin, the government transferred the production and distribution of lubricating oils to two joint ventures with Mobil. Two new companies were established: Petromin Lubricating Oil Company (Petrolube) and Petromin Lubricating Oil Refining Company (Luberef). Luberef operated the kingdom's single base oil refinery (base oil is a byproduct of the refining process), while Petrolube ran three small lubricating oil blending plants. Three other smaller private sector plants also operated lubricating oil blending facilities.

Al Marjan gas-oil separation plant

Courtesy Aramco World

Ras Tanura Sea Islands Number 3 and Number 4, with tankers

Courtesy Aramco World

Data as of December 1992