How much oil does Saudi Arabia have and why is it diversifying?

Think of oil, the first country that would come to your mind would be Saudi Arabia. Saudi Arabia has been abundantly enriched with oil and gas reserves. Oil in Saudi Arabia has earned wealth for this oil-driven country. The rise in crude oil production and consumption has led to economical transformations of this land of deserts. The kingdom grew with the oil industry.

Despite all the abundant oil reserves, the country is on the path of diversifying its economy. The main objective is to limit the GDP’s dependence on commodities like oil and gas — further invest and benefit from other avenues.

So why is this economic diversification new agenda of the Saudi government? How much oil does Saudi Arabia have? Are the oil reserves dwindling? Or are the fluctuations in oil prices made them consider other avenues and limit their dependence on non-renewable energy sources? How far is clean energy in the minds of the Saudi government?

Keep reading to find answers to all these questions.

Oil in Saudi Arabia

The economic growth and development in Saudi Arabia all became possible due to the decision taken by King Abdulaziz bin Abdulrahman Al-Saud to extract oil back. In 1938, Saudi Arabia gave rights for oil extraction to an American company, Standard Oil of California, Socl (Chevron later). It was a new beginning for the kingdom when Socl discovered an oil site and named it Dammam No.7. This first discovery proved to be the cornerstone in transforming the economic situation of the once-troubled kingdom. This discovery gave the country access to the world’s most powerful energy source, oil.

Saudi Arabia has the second-largest oil reserves in the world. The country possesses 17.2% of the total oil reserves in the world. Oil production for Saudi Arabia is 11.04 million barrels per day — the USA tops with 16.46 million barrels per day. Saudi Arabia is the largest oil exporter in the world — oil exports account for more than 70% of its exports. As of December 2021, the oil exports in Saudi Arabia were 6.94 million barrels per day. Besides, the crude oil sector makes more than 40% of its GDP.

Saudi Aramco, the state-based official oil company, manages oil in Saudi Arabia. Saudi Aramco is one of the biggest companies in the world, with a market cap of $2.28 trillion. With such high valuations, the company stands on par with Apple and Microsoft. Saudi Aramco grew the kingdom to success it claims today.

The economic model of Saudi Arabia has always been oil-driven. The rise in oil prices in 2003 doubled the country’s GDP and created many jobs — mainly in the oil sector. Saudi Arabia is also a prominent member of the Organization of the Petroleum Exporting Countries (OPEC). Any of its decision on volume and prices of oil affects all the OPEC countries.

Oil in Saudi Arabia and GDP

The country has the second-largest oil reserves after Venezuela of 297.50 billion in 2020. Saudi Arabia is also the leading oil exporter in the world. As the table below shows, the petroleum sector contributes the highest percentage of wealth to the GDP.

Source: Trading Economics

The country has heavy dependence on the oil sector — the changes in oil demand and prices affect the economy. Besides, the private sector also positively contributes to the Saudi economy. Through various programs, the government also aims to uplift the growth and employment in the private sector. According to the study, by 2030, the private sector share of GDP will rise to 65% in Saudi Arabia due to economic diversification.

As the country’s economy is growing and consists of a younger population, the government must boost the private sector to create more jobs for the young population. Besides, the government needs to improve the public sector wages. Wages in the oil sector are extremely high, which puts further pressure on the government to promote non-oil sectors for job creation.

Vision 2030 and National Transformation Plan (NTP): Background

Oil signifies the Saudi economy. The oil industry provides wealth for the economy; it also creates jobs in the country. The period from 2003 to 2008 is highly significant for all the oil-producing countries due to massive oil prices surge. The supply uncertainties caused by the US invasion of Iraq and the boost of economic activities in China helped culminate the oil prices to higher levels — $146.02 per barrel in 2008. During this period, the GDP of Saudi Arabia almost doubled. Besides, this rise in oil prices created 1.7 million jobs in the kingdom.

Saudi Arabia is the largest oil exporter and second-largest oil producer. The country is the most prominent member of the OPEC and controls over 50% of the global oil supply. Since Saudi Arabia is a leading OPEC member, the oil prices fluctuate with surplus or shortage in oil production in the country. OPEC countries dominate the oil industry as they have more accessible reserves and cheaper sources of oil than any non-OPEC country. Despite all of this, in 2016, the Saudi government launched its plan, Vision 2030 — aiming to bring economic diversification to the kingdom. The main idea is to limit the dependence on the oil industry and promote other services sectors, including health, education, infrastructure, recreation, and tourism.

The idea is to revamp the country by investing in other sectors that can change the country’s image in the eyes of the world.

Vision 2030

The Vision 2030 by Crown Prince Mohammed bin Salman, involves creating: “a vibrant society, a thriving economy, and an ambitious nation.”

The plan aims to create a society that has religious influence but also has a healthy all-inclusive lifestyle and education. Also, it aims to create more job opportunities for the population and enhance education, especially modern education.

According to the plan, the government aims to create more job opportunities in the private sector. The plan involves partially privatizing state-owned Aramco and promoting other industries besides petroleum, including manufacturing, tourism, defence, entertainment, and others. So, the government aims to foster privatization, tourism, entrepreneurship, and women empowerment in the country.

The gist is to battle against the stereotypes and take away dependence on oil to other sectors to foster economic growth. If the plan is a success then the private sector share of total GDP will rise to 65% by 2030 in Saudi Arabia.

Now, why after almost a century, the country decides to take away its dependence on the world’s most valuable resource oil? Let us try to map out some reasons for this ambitious plan, including the very important question, “How much oil does Saudi Arabia have?”

Dwindling Oil Reserves: How Much Oil Does Saudi Arabia Have?

Oil is a non-renewable energy source. Since it is finite, it depletes and exhausts and eventually will extinct from the earth.

As already discussed in our article, “How Much Oil Is Left in the World and When Will We Run out of It?”: In 2020, the daily global consumption of oil was 91,297,000 barrels. The average daily consumption of oil is 97,360,000 barrels. As of 2020, the world has 1.7324 trillion barrels of oil remaining. If we keep using oil at the same rate daily and do not opt for other alternatives, then this non-renewable source of energy will last only 48.7 more years.

How Much Oil Does Saudi Arabia Have & When Will It Run out of It?

Similarly, according to the BP report, the 2020 proven oil reserves in Saudi Arabia are 297.5 thousand million barrels or 40.9 thousand million tonnes. While its 2020 oil production was 11,039 thousand barrels per day. At this rate, the oil reserves of the country will last for:

Expected year to last (at current rate) = Current reserves / Current production

= 297,500,000,000/ (11,039 * 1000 *365)

= 73.84 years.

So, if the country at the same rate keeps producing and consuming oil, then after 74 years it will run out of oil reserves.

According to various conjectures, the projected figures, however, given by the government of the proven oil reserves are way more than the actual reserves. Some researchers have insinuated that the Saudi Kingdom has overstated its reserves. The confidential cables released by WikiLeaks from the embassy in Riyadh revealed;

The kingdom’s crude oil reserves may have been overstated by as much as 300 billion barrels — nearly 40%.

Besides, since the 1970s, no breakthrough discovery of new oil reserves and fields has been made. This further proves that the country has less than a century before it loses its dominance.

So, if all the conjectures hold any truth, then the country has even less time before it runs out of oil. So, the urge for economic revamp and transformation may have derived from dwindling oil reserves more than the official picture represents.

The Volatility in Oil Prices: The Case of 2014-2016 Prices Decline & the Pandemic

Like any other basic necessity, the prices of oil are highly volatile. Saudi Arabia has gained immensely from the oil industry since its discovery in 1938. The monarchy of Saudi Arabia derives its legitimacy from oil wealth and religion. The most profitable period for the country was between 2003 and 2008. During this period, the oil prices culminated to the highest levels because of the US invasion of Iraq, and the booming of the Chinese economy. Any small event on a global level can have an immense impact on the prices and demand of oil thus the economies of countries are highly vulnerable to fluctuations in the oil market.

After 2008, the rising trend in crude oil prices could not make it with the same force again. From 2014-16, the world economy encountered the world’s biggest downturn in oil prices. The oil prices dropped from $114.84 per barrel in June 2014 to $28.47 in June 2016, affecting largely the OPEC countries. The decline in oil prices during this period is the biggest since the World War II and the longest since the supply-driven collapse of 1986. 

The US shale oil production was the main culprit behind the decline in prices. The prices now have increased. The USA still gives intense competition to the OPEC countries due to the shale oil and gas discovery. It also has the highest share in the world’s oil production of 18.6%, with 16.48 million barrels per day of oil production in 2020.

The current Russia- Ukraine conflict has also surged oil prices to $130 per barrel, which hit $139 a barrel at one point too.

The COVID-19 Pandemic

Then, the pandemic has also negatively affected the economy. Due to lockdown, the oil exports of Saudi Arabia to its biggest importer, China, declined. According to General Authority for Statistics:

The Gross Domestic Product (GDP) of Saudi Arabia recorded a negative real growth rate of 4.1% in 2020 compared to 2019. This negative growth resulted mainly from the contraction in the oil sector by 6.7%, in addition to a negative growth rate of 2.3% recorded in the non-oil sector. The private sector shrunk by 3.1%, and the government sector showed also a negative growth rate of 0.5%.

In 2021 however, after lifting COVID-19 restrictions, the country again witnessed a rise in its GDP by 6.8% in the third quarter compared to the same quarter the previous year. The 10.8% growth in oil activities accounts for the expansion in the country’s GDP.

These figures manifest how the immense dependence on the oil sector makes the economy of Saudi Arabia so vulnerable. The country’s sole dependence on such a commodity helped it survive and grow last century. But it no longer can guarantee further growth in the future. 

Alternatives of Oil

Due to rising environmental concerns caused by carbon emissions from fossil fuels, the world is transitioning. The world is adopting cleaner and more environmentally friendly alternatives to fossil fuels. The UN 2030 Agenda of Sustainable Goals also encourage people to adopt clean energy sources to combat climate changes.  All the by-products of crude oil used as fuels emit the highest amount of greenhouse gases in the environment, escalating environmental degradation and leading to severe climate changes. 

The world is transitioning towards more environment-friendly and renewable energy sources for a sustainable future. Many countries like Germany, Norway, India, France, the UK, Netherlands, and China are banning fuel-based vehicles by 2030. The United States, the EU, and China provide additional subsidies to the electric vehicles industry to make them more affordable for consumers. Besides, they have imposed stringent rules and regulations on carbon emissions on new diesel-petrol-powered cars.

The Alternatives to Oil and Diesel

Biodiesel, a fuel manufactured from vegetable oils, animal fats, and recycled restaurant grease, is the next best and cleaner alternative for diesel vehicles. Besides, ethanol and natural gas are also common to substitute petrol/oil for vehicles. Similarly, the businesses of electric vehicles are also booming due to initiatives taken by various countries. Many countries are encouraging people to buy electric cars for a cleaner environment and even plan to ban petroleum-diesel vehicles. Every year the sales of electric cars are seeing an upward trend, setting new world records.

Similarly, solar thermal technology is also picking up and replacing petrol-run vehicles. Hydrogen and propane are also environment-friendly alternatives to petrol. Solar energy has also proven to be a better substitute for fossil fuels in power generation.

Saudi Arabia’s Clean Energy Endeavors

Seeing the trend towards sustainability, the Saudi government has planned to further benefit from solar energy. This desert Arabian land receives some of the most severe sunlight — equal to 105 trillion kilowatt-hours a day, equivalent to 10 billion barrels of crude oil in energy terms. According to a research, by 2050, the country can fully utilize solar energy to fulfill its energy needs. Scientists in the kingdom are now working to formulate ways to make solar energy more feasible and economical. 

The Takeaway

In this article, we tried to figure out how much oil does Saudi Arabia has. Besides, we also looked into the reasons for this economic diversification in Saudi Arabia. Heavy dependence on the non-renewable energy source has helped the country to grow, but these reserves are depleting. The world oil reserves can only serve humanity for a less than a century more until they are fully exhausted.

Besides, the world is changing; the climate changes are melting ice, causing floods, ravaging wildfires, and depleting ozone layers. The environment advocates are stressing people to switch to more sustainable energy sources. Many countries are switching to renewable energy sources for the protection of the environment.

Right now some of the renewable energy sources are not as sophisticated and economically feasible. However, considering the work and research done, it will take only a few more decades before the world will successfully shift to environment-friendly energy sources.

As the oil reserves are depleting, it is now time for countries depending solely on oil and gas as the major source of revenues to start focusing on other sectors, before the geopolitics transforms. Therefore, it is the only rational approach to bring economic transformations as Saudi Arabia has planned.