To many people, the desert Kingdom of Saudi Arabia must seem a distant, unfamiliar place. But the biggest country in the Arabian Gulf has a much closer, more immediate role in U.S. life than might be imagined. It provides much of the oil used to power the nation's industries, fuel its vehicles and heat its homes in winter. If you drive a car or use oil to heat your home, the chances are that some of the fuel you buy this year will have started out under the sand dunes of Saudi Arabia.

Last year, Saudi Arabia was the second biggest supplier of oil and oil products to the United States — just behind Canada and ahead of Venezuela and Mexico — although it has, for periods, occupied the top spot. Its share of U.S. crude oil imports in the first quarter of the year was 15 percent. The importance to the U.S. of maintaining the flow of Middle East oil is such that, 10 years ago, it was prepared to go to war after Iraq invaded Kuwait and threatened neighboring Saudi Arabia. Conversely, it is with the aim of reducing dependence on imports that President Bush recently gave the go-ahead to controversial plans for oil exploration in Alaska's National Wildlife Refuge.

Saudi Arabia's proven reserves of oil amount to about 260 billion barrels or one quarter of the world's total, enough to last about 85 years. Daily production stands at about nine million barrels a day and there is spare, unused capacity of about a further one million barrels a day. This makes the country both the world's biggest producer of crude oil — the basic substance needed to make vehicle fuel and heating oil — and the largest exporter.

"The Kingdom's ability to pump 8 million barrels per day of oil for the next century guarantees its long-term economic viability," says Ali Al-Naimi, the minister for petroleum and chairman of the Aramco board.

This year, Saudi Arabia is likely to earn about $63 billion from crude oil exports — down modestly from 2000 but double 1998 levels when international oil prices tumbled to levels not seen for 25 years in the wake of the Asian financial crisis. Unlike in many other oil producing countries, exploration, production and export activities are entirely in the hands of one national company, whose chairman is also oil minister. This company, Saudi Aramco, is in the extraordinary position of accounting for about 90 percent of the country's total export earnings, three quarters of total government revenues and one third of total Saudi economic output. Its production figures dwarf those of the world's three biggest publicly listed oil companies — Exxon Mobil, Shell and BP — put together.

It is not hard to see what makes the Saudi oil industry successful. Aramco officials have said it costs about $1.50 to produce a barrel of Saudi crude oil, which compares with up to 10 times that in some other oil producing regions, while international prices have been comfortably higher than $20 a barrel throughout 2001.

The highest prices are obtained for so-called light, sweet crude oils, which contain less sulphur than heavy, sour grades and are easier to refine into valuable products such as gas for vehicles. The lighter grades have proved particularly popular in the Far East, which has been Saudi Aramco's fastest growing market. Saudi Arabia's biggest seller is Arab Light, which is extracted mostly from Ghawar in the eastern province — the world's largest onshore oilfield — but a number of other grades are also marketed.

In recent years, Saudi Aramco has attempted to identify and develop new reserves outside its main area of operations in the east of the country. The flagship project is at Shaybah, in the extreme south-east near the border with the United Arab Emirates, where a $2.5 billion facility with production capacity of more than 500,000 barrels a day of oil has been built in a hostile desert environment hundreds of miles from the nearest road.

Several smaller fields in the central area south of the capital, Riyadh, with reserves of high quality, "super light" oil have also been developed. And resolution of long-standing border disputes with Kuwait to the north-east and Yemen to the south are opening the way for exploration and development of reserves in other areas previously off-limits for political reasons.

For the future, Saudi Arabia is reported to have plans to raise oil output to 12.5 million barrels a day, possibly helped by new projects planned for Qatif and Khurais in the eastern province. By the end of 2004, Saudi Aramco hopes to have brought on stream an extra 1.1 million barrels of oil a day as well as 3,500 million cubic feet a day of new gas capacity.

Whether this happens will depend partly on the notoriously volatile price of oil on international markets. When oil prices are low, as in 1998 and early 1999, the Saudi economy and, obviously, Saudi Aramco are hit hard. Budgets are slashed and ambitions curtailed, temporarily at least. For the moment though, times are good. Saudi Aramco's budget for this year called for drilling 246 new oil wells at a cost of $1 billion — nearly double the 1999 budget; for 2002, another 292 wells costing $1.2 billion are planned; and some $2 billion a year is thought to have been earmarked for spending on new projects over the next five years.

Saudi Arabia is also keen to regain its position as top oil supplier to the United States. So although they might not know it, American motorists are increasingly likely to be filling up with gas refined from Saudi oil.

www.opec.org
www.saudiaramco.com
www.api.org (American Petroleum Insitute)
www.energy.gov (Dept. of Energy)

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