In a desert region known as the Empty Quarter, in the eastern part of Saudi Arabia, lies what is by far the world’s largest and most productive oil field. Just over 170 miles long by 30 miles wide, the Ghawar Field contains estimated proven reserves of approximately 70 billion barrels of Arabian Light crude. Some 5 million barrels of oil are produced there every day – around half the national output.
Last year, oil from Ghawar and Saudi Arabia’s other giant oilfields was pumped into the global energy market at a record rate, filling a gap left by international sanctions on Iran and the temporary shutdown of production in Libya. Output averaged 9.95 million barrels per day (bpd) – up from an average of just over 8 million bpd in 2009, and 9.1 million bpd in 2008.
With record production matched by sustained high oil prices, well into triple digits, petrodollars flowed into the kingdom’s coffers, taking export earnings to a record $347 billion, and pushing the current account surplus to an all-time high of $178.5 billion, according to Riyadh-based Jadwa Investments.
A robust, recession-beating economy
While the world economy remains in the doldrums, Saudi Arabia has been enjoying robust growth. The last couple of years have seen a surge in economic activity, exceeding the average pre-crisis level.
Recently revised government statistics show the kingdom enjoyed gross domestic product (GDP) growth of around 6% in 2012, and 8.5% in 2011 (the highest since 1979). This rapid rate of expansion is expected to moderate to a still very respectable 4% in 2013, mainly due to projected slower growth in oil production
Sustained long-term growth
The International Monetary Fund, in its Article IV report on Saudi Arabia published last September, forecasts a medium-term rate of growth of above 4% through to 2017.
Looking further ahead, PricewaterhouseCoopers forecasts in its biannual The World in 2050 report that the economy will more than triple in size to $3 trillion by 2050 – growing 230% to $1.582 trillion by 2030, and then doubling over the following 20 years to become the 18th largest in the world, ahead of other Middle Eastern countries, such as Egypt and Iran.
|Recent years have seen economic activity exceeding the average pre-crisis level the private sector is being encouraged to ‘start leading the way’ to ensure balanced growth|
Oil dominates the Saudi economy, accounting for 90% of Saudi Arabia’s total export earnings, 80% of government revenue, and 45% of GDP. However, while hydrocarbons will remain the economic mainstay for the foreseeable future, an increasing proportion of the oil output is being directed toward domestic uses, such as fueling the increased power generation required to support the kingdom’s ongoing economic boom.
Saudi Arabia is the largest consumer of petroleum in the Middle East. According to the national oil and natural gas company Saudi Aramco, it currently consumes more than 2 million bpd, around a quarter of its total production.
Having established the world’s largest crude oil production capacity – estimated at around 12 million bpd – Riyadh is focusing on expanding the natural gas, refining, petrochemicals, and electric power industries.
High government spending is the main engine of the non-oil economy, which last year grew by 7.5% in 2012, exceeding growth in the oil sector of 5.5%.
Industry and agriculture account for a much larger share of economic activity than they did only a few years ago. The petrochemicals industry is emerging as the second largest after oil, and aims to capture a 10% share in the global market.
“The government has done what it should, and now the private sector should start leading the way,” says Hussein Al-Athel, Secretary General of Riyadh Chamber of Commerce and Industry.
The government, which bases its budgets on conservative estimates of national income, plans to spend a record $219 billion in 2013, almost 20% more than the $184 billion it budgeted for 2012.
Capital spending has been allocated $76 billion, much of it will go on projects such as ports, railroads and water resources, and there will also be big rises in expenditure on education and healthcare.
Saudi oil production is expected to slow in 2013 as more oil becomes available from Iraq, and North America boosts its self-sufficiency with increased domestic production.
Nevertheless, even if oil earnings were to fall this year, the kingdom has a huge pile of foreign assets to fall back on – a staggering $634.8 billion at the end of November 2012, projected to rise to $1.2 trillion by 2017.