Aramco Capacity Push Faces Services Crunch

Saudi Aramco is moving full steam ahead on its upstream expansion, but supply chain issues and intense competition for services pose a challenge to the program. By 2027, Aramco plans to boost its oil production capacity by 1 million barrels per day to 13 million b/d in what many industry insiders think could be its last big push — at least in oil expansion. Contractors are seeing a boom in workflow, to the extent that there are now questions over their ability to allocate sufficient resources to cover the projects. Over the next three years, Aramco expects to award contracts for some 90 projects, of which 66 are related to oil and gas processing and refining facilities, 14 related to pipelines and distribution, and 10 for civil infrastructure and security systems. The majority of the oil increment will come from offshore fields, for which it plans to award 12 projects between 2023 and 2025 to upgrade platforms as part of the expansion. Aramco’s solid financial position, strengthened by recent robust oil prices, will help cover the significant expenses. Aramco CEO Amin Nasser said last year the company would ramp up its capital spending to $40 billion-$50 billion in 2022 with further increases following in 2023-25. Recently tendered work included packages related to the expansions of the Safaniya and Manifa offshore oil fields. Bids for the second phase of the Jafurah gas field are due to be submitted this year, according to contractors. Other projects in the pipeline include an expansion of the kingdom's Master Gas System, which involves building a 4,000 kilometer pipeline from the east coast to the west coast.

To meet the 2027 target, contractors say Aramco must award the majority of related contracts this year to avoid running into supply chain shortages exacerbated by the pandemic and the Ukraine war. Other Saudi megaprojects like the futuristic city of Neom and Red Sea developments are adding to the strain on contracting resources. Aramco’s 90 projects alone are expected to require 12,000 km of pipeline, 20,000 km of cable, and 2.2 million cubic meters of concrete. Some contractors said competition for personnel and materials for upstream projects in the Mideast Gulf was mainly between Saudi Arabia and Qatar, as Abu Dhabi’s plan to accelerate its upstream expansion was not yet noticeable on the ground. One thing for sure is that the boom in Gulf projects — and especially in Saudi Arabia — has created a “contractors' market.”

One of the ways that Aramco is tackling this challenge is by encouraging the growth of local manufacturing. Since 2015, contacts awarded include an In-Kingdom Total Value Add (IKTVA) target. Aramco’s IKTVA program achieved 63% local content in 2022, up from 59% in 2021 and 35% in 2015. Aramco is targeting 75% local content by 2025 — and that will also include efforts to align the program with the company's target of net-zero emissions by 2050. "We are determined to make the localization of our supply chain and associated in-kingdom investments more sustainable as part of our contribution to climate protection," Nasser said recently. Companies like US-based McDermott are starting to open fabrication yards in Saudi Arabia, which they say will help cut costs related to logistics and paying customs that can be up to 50%. “Any project we execute now for Aramco, we do it fully and lead it fully from Saudi [Arabia], so the full engineering task force, project management, supply chain and hopefully fabrication in 2024 will all be done in-kingdom,” said Firas Soussan, McDermott International's vice president of operations in Saudi Arabia. He added that their recently inaugurated fabrication yard in Ras al-Kheir will be manufacturing and assembling offshore structures needed for the Zuluf field truckline project, using around 95% local content. “We are seeing that the market has evolved … with localization we are getting the benefit of less logistics involved, we get the benefit of a controlled working environment,” said Soussan.