With one-fourth of the world's proven oil reserves, Saudi Arabia is likely to remain the world's largest oil producer for the foreseeable future. During 2000, Saudi Arabia supplied the United States with 1.5 million barrels per day of crude oil, or 17%, of U.S. crude oil imports during that period.

Information contained in this report is the best available as of June 2001 and is subject to change.
 

GENERAL BACKGROUND
With oil revenues making up around 90-95% of total Saudi export earnings, 70% of state revenues, and around 35-40% of the country's gross domestic product (GDP), Saudi Arabia's economy remains, despite attempts at diversification, heavily dependent on oil (although investments in petrochemicals have increased the relative importance of the downstream petroleum sector in recent years). The sharp rebound in world oil prices since early 1999 has improved the country's economic outlook greatly, and to some extent removed pressures for major changes, although Saudi Arabia continues to face both short- and long-term pressures to reform its economy and to open up to increased private investment. For 2001, Saudi Arabia is expected to earn about $62.6 billion in crude oil export revenues, down 5.1% from 2000, but double 1998 oil export revenues. During 2000, in large part fueled by high oil export revenues, Saudi Arabia's real GDP grew by about 4.1%, and the outlook for 2001, assuming relatively strong oil prices continue, is for growth of around 2.1%.
 

Saudi Arabia needs strong economic growth to keep up with a rapidly increasing (and young -- 50% under age 18) population, and to face the challenge of finding good jobs for its people (outside of the public sector, which is overstaffed and a drain on the country's budget). Over the past two decades or so, Saudi real economic growth has fallen far behind population growth, resulting in sharply reduced real per capita incomes and higher unemployment. Saudi Arabia also has a high level of domestic debt (around 100% of GDP) which it hopes to pay down, and is attempting to replenish foreign assets and official reserves, both of which were depleted in 1998 and early 1999. In 2000, Saudi Arabia apparently achieved a budget surplus (of about $12 billion) for the first time in two decades, and the country plans a balanced budget for 2001 as well, with $57.3 billion worth of spending and revenues, and a fairly conservative oil price assumption (for Saudi oil) of around $22 per barrel. The 2001 budget appears relatively conservative in terms of spending (a 6% increase over 2000), with the Finance Ministry saying that any surplus will be used to pay down public debt. Saudi Arabia also is maintaining a relatively tight monetary policy.
 

Despite the recent surge in oil revenues, Saudi Arabia's government officially (in its 2000-2005 development plans) has accepted the need to reduce state involvement and increase private sector -- including foreign -- participation and investment in the economy, but has moved very slowly in this direction (largely due to fears of job losses for Saudi citizens, as well as resistance by the private sector and some members of the Saudi royal family). Currently, large state corporations, like oil firm Saudi Aramco (which has a monopoly on Saudi upstream oil development) and the Saudi Basic Industries Corporation (SABIC) dominate the Saudi economy. To date, there has not been a single sale of state assets to private control, and privatization largely has been limited to allowing private firms to take on certain service functions. Saudi Arabia also has moved slowly and cautiously towards government subsidy cuts, tax increases, or financial sector reforms. Saudi leadership (Crown Prince Abdullah, in particular) has indicated that it sees privatization -- although controversial -- as a "strategic choice," and has created (in August 1999) a "Supreme Economic Council" charged with boosting investment, creating jobs for Saudi nationals, and promoting privatization. Changes to rules governing foreign investment, granting the same basic rights to foreign investors as to Saudi nationals, were approved earlier in 2000. Changes to the country's tax code (taxes on foreign business profits currently range as high as 45%) also are being considered.
 

Saudi Arabia's desire to join the World Trade Organization (WTO) is behind some of the push towards economic liberalization in the country. Saudi Arabia had hoped to be admitted to the WTO by the end of 2000, although this has been delayed indefinitely by a variety of issues, including the degree to which Saudi Arabia is willing to increase market access to its banking, finance, and upstream oil sectors. Ultimately, WTO membership likely would result in significant changes to the Saudi economy, which currently is characterized by relatively high tariff rates (among the highest in the Gulf Cooperation Council -- GCC), extensive direct and indirect subsidies (especially in the petrochemical sector), and a variety of restrictions on the free market.
 

The goal of WTO membership is in part due to Saudi Arabia's desire to attract foreign investment (up to $200 billion over the next 20 years, according to Foreign Minister Prince Saud, including over $100 billion in the power sector alone, plus billions more in petrochemicals and telecommunications), and in part to its push for new markets for the country's petrochemical industry. A significant recent development on the foreign investment front is the award of three major natural gas upstream projects (see below for more details on the so-called "Gas Initiative") to major international energy companies. This could result in investments of $25 billion over 10 years. In November 1999, King Fahd stated that "the world is heading for...globalization" and that "it is no longer possible for [Saudi Arabia] to make slow progress." In the context of successfully becoming integrated into the global economy, Fahd also emphasized the importance of regional unity among Gulf states -- economically, politically, and militarily. A customs union, for instance, among GCC countries, was agreed upon at the December 1999 GCC summit. The union is to take effect in March 2005. Currently, goods from GCC countries are exempt from all Saudi import duties, as long as 40% of their value has been added within the GCC and the producing company is owned at least 51% by GCC citizens.
 

Saudi Arabia also has a policy known as "Saudization," the goal of which is to increase employment of its own citizens by replacing 60% of the estimated 7.2 million foreign workers in the country. In order to do so, Saudi Arabia has stopped issuing work visas for certain jobs, has moved to increase training for Saudi nationals, and has set minimum requirements for the hiring of Saudi nationals by private companies (5% per year of the workforce for companies with a minimum of 20 employees). The current five-year plan (2000-2005) calls for employing more than 817,000 Saudis, of which 488,000 will be through Saudization of current jobs held by foreigners. However, it is estimated that the Saudi economy currently is producing far fewer jobs than would be needed to meet this goal. The five-year plan also calls for annual economic growth of 3.2%.
 

State subsidies and losses by unprofitable state-owned enterprises are large contributors to Saudi Arabia's budget deficit. The country's finance ministry has called for an increased private sector role. At present, the private sector accounts for around 40% of Saudi Arabia's GDP (and 89% of employment), but only 5%-10% of those employed in the private sector are Saudi nationals.
 

During the past year, Saudi Arabia resolved two long-standing border disputes, one with Yemen and the other with Kuwait. Both settlements remove sources of friction, which have flared up in the past, and opened the door to development of energy resources along the borders, including the huge (13 trillion cubic feet) Dorra gas field, which lies in waters straddling Iranian, Saudi, and Kuwaiti territories. Since its settlement with Saudi Arabia, Yemen has proposed several joint oil refinery and oil pipeline projects (including a pipeline linking existing Saudi oil fields to the Masila line, and a new pipeline from Saudi Arabia through Yemen's eastern al-Mahra governate). In February 2001, Saudi Arabia and Syria signed a bilateral free-trade agreement. On June 11, 2001, Saudi Arabia announced (in a letter to UN Secretary General Kofi Annan) that it was taking ownership of Iraq's pipeline to the Saudi Red Sea coast (closed since August 1990), citing Iraqi threats and aggressive actions, including (allegedly) a series of cross-border raids in recent months. Saudi Arabia said that Iraq's behavior had "destroyed any rationale for maintaining the [pipeline] facilities."
 

OIL
Saudi Arabia (not including the Saudi-Kuwaiti "Neutral Zone") contains 259 billion barrels of proven oil reserves (more than one-fourth of the world total) and up to 1 trillion barrels of ultimately recoverable oil. Saudi Arabia is the world's leading oil producer and exporter, and its location in the politically volatile Gulf region adds an element of concern for its major customers, including the United States. In the first quarter of 2001, Saudi Arabia produced around 9.2 MMBD of oil (including half of the Saudi-Kuwaiti Neutral Zone's 600,000 bbl/d), compared to production capacity of around 10.5 MMBD. In 2000, Saudi oil production totaled about 9.1 MMBD, of which about 8.4 MMBD was crude oil and 0.7 MMBD was natural gas liquids.
 

Although Saudi Arabia has about 77 oil and gas fields (and 1,430 wells), over half of its oil reserves are contained in only eight fields, including Ghawar (the world's largest onshore oil field, with estimated remaining reserves of 70 billion barrels) and Safaniya (the world's largest offshore oilfield, with estimated reserves of 19 billion barrels). Ghawar's main producing structures are, from north to south: Ain Dar, Shedgum, Uthmaniyah, Farzan, Ghawar, Al Udayliyah, Hawiyah, and Haradh. Overall, Ghawar alone accounts for about half of Saudi Arabia's total oil production capacity.
 

Saudi Arabia reportedly has plans to increase its oil production capacity, especially of relatively light crudes, to 12.5 MMBD in coming years. One possible project, at the Qatif field, could boost Arab Light and Arab Medium production capacity by 500,000 bbl/d at a cost of $1.2-$1.5 billion. Qatif contains medium quality, 33-34^o API gravity oil. Another potential project, at the Khurais field, could increase Saudi production capacity by 800,000 bbl/d by 2005 at a cost of $3 billion. This would involve installation of four gas/oil separation plants (GOSPs), with a capacity of 200,000 bbl/d each, at Khurais, which first came online in the 1960s but was mothballed by Aramco (along with several other fields -- Abu Hadriya, Abu Jifan, Harmaliyah, and Khursaniyah) in the 1990s. For 2001, Saudi Aramco's budget calls for drilling 246 wells (208 onshore, 38 offshore) at a cost of $1 billion, a 25% increase from 2000 and nearly double the 1999 drilling budget of $580 million. For 2002, Aramco plans to drill 292 wells at a cost of $1.2 billion. Many of these wells will be drilled in Ghawar.
 

In other oil news, in early January 2000 Saudi Arabia announced that it was establishing an 11-member Supreme Petroleum Council (SPC) to oversee oil and gas policies in the country. In mid-October 2000, the government announced that the Council would take over certain powers over Saudi Aramco. The SPC could help push Saudi Arabia's overall goal of accelerating private sector and foreign involvement in the country's oil sector, although there is opposition by conservatives.
 

Saudi Arabia produces a range of crude oils, from heavy to super light. Of Saudi Arabia's total oil production capacity, about 65%-70% is considered light gravity, with the rest either medium or heavy. The lightest grades generally are produced onshore, while the medium and heavy grades come mainly from offshore. The Ghawar field is the main producer of 34^o API Arabian Light crude, while Abqaiq (a super-giant field with 17 billion barrels of proven reserves) produces 37^o API Arab Extra Light crude. Since 1994, the Hawtah Trend (also called the Najd fields), which includes the Hawtah field and smaller satellites (Nuayyim, Hazmiyah) south of Riyadh, has been producing around 200,000 bbl/d of 45^o-50^o API, 0.06% sulphur, Arab Super Light. Overall, the Najd fields are estimated to contain 30 billion barrels of liquids and major reserves of natural gas. Offshore production includes Arab Medium crude from the Zuluf (over 500,000 bbl/d capacity) and Marjan (270,000 bbl/d capacity) fields and Arab Heavy crude from the Safaniya field.
 

The Neutral Zone contains about 5 billion barrels of proven oil reserves. Within the Neutral Zone, Japan's Arabian Oil Co. (AOC) traditionally had operated two offshore fields (Khafji and Hout) with 300,000 bbl/d in production, but in February 2000, it lost the concession (in April 2000, however, AOC said that it had reached an agreement with Aramco's Gulf Operations Company to split output from Kafji until January 4, 2003, when AOC's concession on the Kuwaiti side of the Neutral Zone expires). The offshore Saudi Neutral Zone had represented Japan's most significant upstream oil interest, with 80% of revenues going to AOC and 10% each to Saudi Arabia and Kuwait. Texaco, meanwhile, operates three onshore fields (Wafra, South Fawaris, and South Umm Gudair) in the Neutral Zone. Saudi Arabia had stated that it wanted AOC and Japan to increase their investments in Saudi Arabia (including more than $1 billion in a railway linking remote mining areas to export terminals), as well as their purchases of Saudi oil, as a condition for renewal of AOC's drilling rights in the Neutral Zone. AOC reportedly will be asked to develop the offshore Dorra gas field, now that Saudi Arabia and Kuwait have agreed on a border demarcation.
 

Saudi Arabia is a key oil supplier to the United States, Europe, and Japan; however, in recent years, Western Hemisphere producers (Venezuela, Canada, and Mexico) have challenged Saudi Arabia's dominance in the U.S. market. Asia now takes over half of Saudi Arabia's crude oil exports, as well as the majority of its refined petroleum product exports. The United States is Saudi Arabia's second largest oil export market, followed by OECD Europe. Saudi Arabia also reportedly provides around 150,000 bbl/d in oil to Pakistan and Afghanistan as foreign aid in lieu of cash (although this oil does not appear to be officially counted in Saudi export figures). During 2000, Saudi Arabia exported 1.57 MMBD of oil (1.52 MMBD of crude) to the United States. For this time period, Saudi Arabia ranked second (after Canada, and just ahead of Venezuela) as a source of total (crude plus refined products) U.S. oil imports, and first for crude only (ahead of Canada and Mexico). Saudi Arabia is eager to maintain and even expand its market share in the United States for a variety of economic and strategic reasons. During 2000, Saudi Arabia's share of U.S. crude oil imports was 17%.
 

In October 1999, Oil Minister Naimi stated that Saudi oil policy was based on four facts: 1) the largest oil reserves and among the lowest production costs -- around $1.50 per barrel -- in the world; 2) maintenance of significant spare oil production capacity; 3) a national economy closely linked to the oil industry; and 4) a stable political and economic system. Naimi also stressed the importance of "a stable international oil market" where "wide and rapid swings in prices are undesirable." Reportedly, the SPC has approved Aramco spending of $15 billion per year between 2000 and 2004, in order to boost oil production capacity as well as to increase gas output.
 

Saudi Arabia is continuing to invest in the development of lighter crude reserves. Priority has been given to developing the Shaybah field in the remote Empty Quarter area bordering the United Arab Emirates. Shaybah contains an estimated 7 billion barrels of premium grade 41.6^o API sweet crude oil, and ultimately is slated to produce 500,000 bbl/d of crude oil and 870 million cubic feet/day of natural gas. Shaybah began production in July 1998 at around 250,000 bbl/d, and now produces over 600,000 bbl/d. Overall, the Shaybah project will cost $2-$2.5 billion, and will include three gas/oil separation plants (GOSPs) and a 395-mile pipeline to connect the field to Abqaiq, Saudi Arabia's closest gathering center, for blending with Arabian Extra Light crude (Berri and Abqaiq streams). As Shaybah light crude production increases (to 500,000 bbl/d), Saudi Arabia likely will cut production of Arab Light from overworked parts (water content is rising) of the Ghawar reservoir, as well as Arab Heavy from offshore. Two U.S. companies are playing a major role in the Shaybah project: Parsons Corporation (project management) and Bechtel (construction). Another project, the $200-million Haradh-2 gas-oil separation plant for the Ghawar field, appears to be back on track as part of Saudi Arabia's effort to increase production of Arab Light oil by 600,000 bbl/d.
 

In May 2000, a new law aimed at attracting foreign investment to the Saudi energy sector came into effect. The law permits full foreign ownership of Saudi property and licensed projects, sets up the General Investment Authority (SAGIA) as a "one-stop shop" for foreign investors, and reduces taxes on company profits from 45% to 30%. Previously, foreign companies were limited to a 49% share of joint ventures with Saudi domestic partners. Several important sectors, however, remain closed to 100% foreign ownership, including (as of February 2001): upstream oil, pipelines, media and publishing, insurance, telecommunications, defense and security, health services, wholesale and retail trade, and more. Thus, the new foreign investment law is far less attractive than it appears at first glance. However, in January 2001, SAGIA reported that foreign investment commitments had reached $1.6 billion, including 53 licenses (29 industrial, 24 non-industrial).
 

Ports and Pipelines
Most of Saudi Arabia's crude oil is exported via the Arabian Gulf through the Abqaiq processing facility. Saudi Arabia's primary oil export terminals are located at Ras Tanura (5 million bbl/d capacity) and Juaymah (3 million bbl/d) on the Arabian Gulf, plus Yanbu (3 million bbl/d) on the Red Sea.
 

Saudi Arabia operates two major oil pipelines. The 4.8-million bbl/d East-West Crude Oil Pipeline (Petroline) is used mainly to transport Arabian Light and Super Light to refineries in the Western Province and to Red Sea terminals for export to European markets. Running parallel to the Petroline is the 270,000 bbl/d Abqaiq-Yanbu natural gas liquids pipeline, which serves Yanbu's petrochemical plants. The Trans-Arabian Pipeline (Tapline) to Lebanon is mothballed, and the 1.65 million bbl/d Iraqi-Saudi Pipeline (IPSA-2) was closed indefinitely following the August 1990 Iraqi invasion of Kuwait. According to Saudi Oil Minister Naimi, Saudi Arabia has "surplus oil export and pipelines capacity....[including the] East-West oil pipeline system [which] can carry and deliver 5 million bbl/d" but is being run at "only half capacity."
 

Refining
Saudi Arabia has seven refineries, with combined crude throughput capacity of around 1.75 million bbl/d. In addition, Saudi Aramco has around 1.6 million bbl/d of refining capacity overseas. Since 1999, dramatically higher oil prices and, consequently, an improved Saudi financial situation, has revived plans for investment in refinery upgrades and expansions. Recent proposals for downstream oil projects and gas development amount to $100 billion. These include a $1.2-billion upgrade of the 300,000-bbl/d Ras Tanura refinery. A contract for a 200,000-bbl/d fractionation unit at Ras Tanura was recently awarded to Italy's Snamprogetti. Also slated for upgrading is the Rabigh refinery on the Red Sea coast. Plans call for boosting capacity at Rabigh, Saudi Arabia's largest domestic refinery, to as high as 400,000 bbl/d, as well as upgrading the refinery's product slate away from low-value heavy products towards gasoline and kerosene at an estimated cost of $1.8 billion. Due to Saudi Arabia's financial difficulties in 1998/1999, the Rabigh project was scaled back by 60% or so, to $800 million.
 

Saudi Arabia has ambitious plans for expanding petrochemical production using natural gas as a feedstock. State-owned (70%) SABIC accounts for around 10% of world petrochemical production. In February 2001, SABIC completed a $1 billion expansion at the Yanbu petrochemical facility, making it the largest polyethylene plant in the world. It is uncertain at the present time whether or not the government will sell off more of its stake in SABIC in the near future. SABIC, the Middle East's largest non-oil industrial company, has been soliciting foreign investors in private petrochemical projects, such as a proposed $800-million plant proposed for Jubail. In February 1997, Saudi Petrochemical Company (Sadaf), a joint venture between SABIC and Shell Oil, launched a $1-billion expansion program that includes a new 700,000-metric-ton/year plant for methyl tertiary butyl ether (MTBE). Sadaf also is looking at setting up Saudi Arabia's first independent power plant (IPP) at its petrochemical complex in Jubail. A contract on this could be signed in 2001.
 

NATURAL GAS
Saudi Arabia's proven gas reserves are estimated at 204.5 trillion cubic feet (Tcf), ranking fourth in the world (after Russia, Iran, and Qatar). Most (around 2/3) of Saudi Arabia's currently proven gas reserves consist of associated gas, mainly from the onshore Ghawar field and the offshore Safaniya and Zuluf fields. The Ghawar oil field alone accounts for one-third of the country's total gas reserves. Most new associated gas reserves discovered in the 1990s have been in fields which contain light crude oil, especially in the Najd region south of Riyadh. Most of Saudi Arabia's non-associated gas reserves (Mazalij, Al-Manjoura, Shaden, Niban, Tinat, Al-Waar, etc.) are located in the deep Khuff reservoir, which underlies the Ghawar oil field. Another gas field, called Dorra, is located near the Khafji oil field in the Saudi-Kuwaiti Neutral Zone and may be developed by Japan's AOC. Gas also is located in the countries extreme northwest, at Midyan. In early 2000, Saudi Arabia reportedly decided not to move ahead with development of Midyan, which included provision of gas to the Tabuk power station.
 

With domestic gas demand growing rapidly, increasing gas production is a priority for the Saudi government, with gas development slated to consume a large share of Aramco's budget (in late 1999, Aramco decided to invest $45 billion over 25 years on upstream gas development and processing facilities). However, Saudi Arabia realizes that it cannot accomplish its goals without significant foreign investment capital. Thus, in May 2001, Saudi Arabia selected companies to participate in the huge ($25 billion) "Saudi Gas Initiative," the first major reopening of Saudi Arabia's upstream hydrocarbons sector to foreign investment since nationalization in the 1970s. The Initiative aims to integrate upstream gas development with downstream petrochemicals and power generation, and is seen as the key to Saudi Arabia's entire foreign investment strategy. Companies selected for the three "core ventures" under the Gas Initiative are: 1) South Ghawar: ExxonMobil, Shell, BP, Phillips; 2) Red Sea: Exxon plus an Enron/Occidental partnership; 3) Shaybah: Shell, Total, Conoco. Core Venture 1 will be one of the world's largest integrated gas projects, including exploration, pipelines, two gas-fired power plants, two petrochemical plants, two desalination units, and more in South Ghawar. Core Venture 2 will involve exploration in the Red Sea, development of the Barqan and Midyan fields on the Red Sea coast in northwestern Saudi Arabia, as well as construction of a petrochemical plant, a power station, desalination capacity, and more. Core Venture 3 will involve exploration near Shaybah in the Rub al-Khali ("Empty Quarter") of southeastern Saudi Arabia, development of the Kidan gas field, laying of pipelines from Shaybah to the Haradh and Hawiyah gas treatment plants east of Riyadh, construction of a petrochemical plant in Jubail, and more.
 

Additional gas production is being encouraged as a feedstock for the country's growing petrochemical industry, as well as for electricity generation, desalination plants and other industrial establishments, and as a replacement for direct oil burning. Using gas instead of oil domestically will help free up additional crude oil for export. To date, Saudi Arabia has not expressed great interest in liquefied natural gas due mainly to doubts regarding economic viability. In September 2000, tests at Ghazal No. 1, located on the southern tip of the giant Ghawar oil field and west of the Haradh gas field, indicated a significant gas discovery, and represented the eighth gas or condensate discovery in the area under Saudi Arabia's stepped-up gas exploration program.
 

Domestic demand is driving a $4.5-billion expansion of Saudi Arabia's Master Gas System (MGS), which was completed in 1984. The MGS feeds gas to the industrial cities of Yanbu on the Red Sea and Jubail, which combined account for 10% of the world's petrochemical production. Prior to the MGS, all of Saudi Arabia's natural gas was flared. In November 1996, a project management contract was signed with U.S.-based Parsons Corp. for construction of a $2-billion, 2.4-billion-cubic-feet (Bcf)-per-day gas processing plant at Hawiyah. Others involved at Hawiyah, located south of Dhahran and east of Riyadh, include Japan's JGC, Argentina's Techint, and Italy's Technip. Hawiyah represents the largest Saudi gas project in more than 10 years, and is to be completed by 2002. The Hawiyah plant plus the debottlenecking of three other existing plants (Berri, Haradh, Ras Tanura) is to boost Saudi Arabia's gas processing capacity to 6.3 Bcf per day by 2002. Foster Wheeler is managing a $2.6-billion project to build a new gas processing plant at Haradh, to be completed by mid 2003. In other news, a key pipeline project was completed in June 2000 to extend the MGS from the Eastern Province (which contains large potential gas and condensate reserves) to the capital, Riyadh, in the Central Province. This is part of a broader expansion of the existing gas transmission system in Saudi Arabia.
 

ELECTRICITY
Saudi Arabia's rapidly growing population is increasing demand on electric utilities, as power demand grows by 4.5% or more each year. Saudi Arabia's Industry and Electricity Ministry estimates that the country will need up to 50,000 megawatts (MW) of power generating capacity by 2020 (double today's 25,000 MW), at a cost of more than $4.5 billion per year. Most of this will need to come from the private sector, possibly including foreign investors. Also, the vast majority of this capacity will either be natural gas-fired or combined cycle, as part of the government's plans to expand gas utilization in the power sector (and elsewhere) significantly. Meanwhile, new industrial projects have been delayed and brownouts have occurred due to inadequate power supplies, especially during the summer peak cooling demand season. Privatization of Saudi Arabia's electricity sector is under consideration, including creation of an independent regulatory authority. On February 16, 2000, Electricity Minister Dr. Hashem Ibn Abdullah Yamani signed a merger agreement between Saudi Arabia's 10 existing power companies (SCECOs), and on April 5, 2000, the long-anticipated Saudi Electric Company (SEC), a joint-stock company owned 50% by the Saudi government, was established.
 

SEC was formed from the country's 10 regional power companies (including the four SCECO's -- East, West, Central, and South -- which controlled 85% of the country's power supplies). The four SCECO companies had operated at a loss because they had been required to sell power below cost to Saudi consumers, as well as due to inefficiencies and difficulties with non-payment of bills. The government for years has subsidized the cost of electricity and has paid a guaranteed dividend to private shareholders. Restructuring of the SCECO system could be accompanied by a more general streamlining/privatization of the Saudi power sector, such as a further splitting of SEC into units dealing with generation, transmission, and distribution companies. Creation of the SEC also could open the door to private sector construction of new power plants on BOO (Build-Own-Operate) and BOT (Build-Own-Transfer) bases. The future of IPP's (Independent Power Producers) in Saudi Arabia remains uncertain, however, with major challenges including: tariffs, legal and operating framework, taxation, and fuel supply. In April 2000, SEC increased power tariffs to major customers, but on October 9, 2000, it announced that it was rescinding these increases (effective October 28) in the face of widespread resistance. This move was seen as a move away from privatization and reform of the Saudi power sector, particularly as it will reduce SEC revenues and potential profitability.
 

Several projects now underway employ financing mechanisms that are new to Saudi Arabia's electric power sector. For example, the 1,200-MW, PP9 power station north of Riyadh has been funded with extra revenues generated by a special tariff imposed on heavy users since January 1995. The $1.7-billion Ghazlan II power project is being financed by an internationally syndicated, $500-million, commercial loan (the first such loan in Saudi history), and being built by a consortium led by Mitsubishi and Bechtel. Ghazlan II consists of four, 600-MW steam turbine units, which are expected to come online, approximately one unit per year, through 2002. Combined with the existing 1,600-MW Ghazlan I facility located on the Gulf coast north of Damman, the entire complex -- when completed -- will have power generating capacity of 4,000 MW and will supply Saudi Arabia's Eastern Province. In March 2001, Ghazlan I temporarily halted operations following a fire.
 

Meanwhile, plans for a $1.7-billion, 1,100-MW, gas-fired power plant at Shuaiba on the Red Sea coast apparently are moving ahead, following a groundbreaking ceremony in May 2000, attended by Crown Prince Abdullah. ABB Asea Brown Boveri had been awarded the contract on a turnkey basis. The plant is to be constructed in three stages, with the first stage scheduled to come online in mid-2001. Also at Shuaiba, in January 2001, SEC signed a $419-million contract with the Anglo-French engineering company Alstom to expand the Shuaiba oil-fired power plant -- Phase 1 of which is nearly complete -- by 780 MW (units 4 and 5). These two new units should enter service in late 2003 or early 2004. Finally, in May 2001, CMS Energy, along with joint venture partner A.H. al Zamil Group, was chosen to build Saudi Arabia's 230-MW, Sadaf cogeneration power project. This project also represents Saudi Arabia's first privately-owned IPP.
 

On October 9, 2000, Saudi Arabia approved plans for setting up a new utility company (UCO) in the twin industrial cities of Yanbu and Jubail. The company, named Marafeq, is being founded by the Royal Commission, the Public Investments Fund, Saudi ARAMCO, and SABIC, with local investors also holding a stake in the company. UCO may be privatized when it becomes profitable.
 

Besides generation, Saudi Arabia also requires additional investment in power transmission. Currently, for instance, only two of the country's four power regions are connected. Creating a unified national grid could require over 20,000 miles of additional power transmission lines.
 

ENVIRONMENT
Saudi environmental issues are seen related mainly to oil exploration and production. Despite technological advances in exploration and production, offshore oil development continues to have a significant impact on the marine environment, as do oil spills and illegal discharges.
 

Several air quality initiatives, including the introduction of unleaded gasoline into the country in 2001, should reduce Saudi Arabia's level of air pollution, but rising rates of energy consumption and carbon emissions portend possible future problems for the Kingdom. Oil production and development make the country very energy- and carbon-intensive. Saudi Arabia's plentiful supply of domestic oil and gas reserves has stifled incentives for the country to develop a significant renewable energy sector.
 

COUNTRY OVERVIEW
Head of State: King Fahd ibn Abd al-Aziz al-Sa'ud
Crown Prince: Abdullah ibn Abd al-Aziz al-Sa'ud
Independence: September 23, 1932 (unification)
Population (2001E): 22.7 million (growing around 3% per year)
Location/Size: Between the Arabian Gulf and the Red Sea/865,000 square miles (about 1/4 the size of the United States)
Major Cities: Riyadh (royal capital), Jeddah (administrative capital), Mecca, Medina, Dammam, Jubayl, Buraydah
Language: Arabic
Ethnic Groups: Arab (90%), Afro-Asian (10%)
Religion: Muslim (100%) - predominantly Sunni
Defense (8/97): Army (70,000), Navy (13,500 marines), Air Force (18,000), Coast Guard (4,500), National Guard (57,000), Tribal Levies (20,000), Frontier Force (10,500)
 

For more information from EIA on Saudi Arabia, please see:
EIA - Country Information on Saudi Arabia

Links to other U.S. government sites:
2000 CIA World Factbook - Saudi Arabia
U.S. Department of Energy's Office of Fossil Energy's International section - Saudi Arabia
U.S. State Department's Consular Information Sheet - Saudi Arabia
Library of Congress Country Study on Saudi Arabia

The following links are provided solely as a service to our customers, and therefore should not be construed as advocating or reflecting any position of the Energy Information Administration (EIA) or the United States Government. In addition, EIA does not guarantee the content or accuracy of any information presented in linked sites.
Saudi Aramco Home Page
Saudi Arabian Embassy in the United States
1998 Energy Indicators for Saudi Arabia provided by the International Energy Agency
Gulf Wire
The Center for Middle Eastern Studies - Saudi Arabia
Information on Saudi Arabia from Arabia On-Line
Information on Saudi Arabia from ArabNet
MENA Petroleum Bulletin
AME Info Middle East Business Information
Saudia Online.com
Planet Arabia.com
Lonely Planet Guide: Saudi Arabia