Introduction: true story (with pictures)

Page 2

Deep, Deep background

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Around the Devonian, through the Permian and into the Jurassic periods, 400 -150 mya, “Plankton and algae, proteins and the life that’s floating in the sea, as it died, fell to the bottom, and these organisms became the source of our oil and gas. When they’re buried… and reach an adequate temperature, something above 50 to 70C they start to cook. This transformation… changes them into the liquid hydrocarbons that move and migrate” “Eventually (the hydrocarbon liquids) were either trapped in an oil reservoir or oil escaped to the surface… Any oil buried deeper entered the gas window of 120C to 220C and was converted into natural gas by thermal cracking.”

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While in 1932 initial discoveries of oil were made on the Arabian peninsula, and in 1936 in Saudi Arabia, it was in 1948, that the “elephant of all oilfields”, Saudi’s Ghawar field was first discovered. Stretching 174 miles in length and 16 miles across, current estimates tag cumulative oil production from this geological giant at 55 billion barrels. Average production peaked at 5.7 million barrels per day in 1981, and for the last 10 years has remained around about five million (about half the Saudi total). The field also gives up about 2 billion cubic feet of associated gas per day. The crude is light (more like gasoline than asphalt), sweet (low in the contaminant sulfur) and easy to extract. It is the associated gas that makes this background relevant to my story.

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Associated gas from a smaller production well being flared, DOE photo

Bechtel, and CEO George Schultz, helped Aramco, on behalf of the Saudi government, build 1400 miles of pipeline and associated facilities to start collecting the gas otherwise flared from their production wells. Called the Master Gas System, it handles up to 3.5 billion cubic feet, the equivalent of some 750,000 barrels of crude oil a day, providing fuel and feedstock for plants at the new Saudi industrial cities of Yanbu’ and Jubail.

Oh, Jubail! Now we are getting close to home. The project in my story is the construction of modules for a Polyethylene plant to be built there. More background, first, though.

Al Jubail is a city on the Persian Gulf coast of Saudi Arabia. It has a population of 220,000, up 58% from 1992. In 1975, along with Yanbu’ al Bahr, it was designated as a new industrial city by the Saudi government – although at that time it was just “a stretch of sand dunes and salt flats north of old Jubail”. In 1983, Jubail industrial city project was cited in the Guinness Book of Records as the largest engineering and construction project ever attempted. (Note: the Master Gas System was called “the most ambitious energy project in history” with tens of thousands of workers, 2500 engineers and draftsmen, and nearly 200 million man-hours.)

Jubail

So…

To put my project into perspective. Ours was one of several industrial facilities to be built within the same time-frame, as part of a brand new industrial city. The newly recovered natural gas would provide the raw material for an ethylene plant being constructed by others, which in turn would feed our polyethylene plant. And it was to be built in a country with new wealth, but not many people (perhaps eight million citizens, although the exact figure was rumored to be a government secret). And a country not so stable as to wish to have in-country the tens, perhaps hundreds of thousands of foreign workers who might normally be required for the scope of these works.

The solution was this: modularization! Have most of these new facilities built elsewhere in multi-ton fully finished sections, transported on giant ships expressly built for such purposes, then offloaded to a new port, with special computerized heavy-lift transporters to bring the modules to site. Eureka.

Saudi_Aramco_logo_1988-2001

Saudi-Aramco logo, 1981-2001

Oh, did I mention Saudi Aramco, and the benefits to Exxon of doing well with this project?

History: (paraphrased from here)

In 1933,the Government of Saudi Arabia signed a concessionary agreement with Standard Oil of California (now Chevron) allowing them to explore Saudi Arabia for oil. In 1936 with the company having no success at locating oil, the Texas Oil Company (eventually Texaco, then Chevron-Texaco, now again just Chevron) purchased a 50% stake of the concession – called eventually Aramco.

After four years the first success came with Dammam number 7, which immediately produced over 1,500 barrels per day. It gave the company the hope to continue and flourish. In 1948 Chevron and Texaco were joined as investors by Standard Oil of New Jersey (later Exxon) who purchased 30% of the company, and Socony Vacuum (later Mobil) who purchased 10% of the company, leaving Chevron and Texaco with equal 30% shares. Note: Exxon and Mobil have since merged into Exxon-Mobil… good connections with Saudi oil seems to prosper a company!

In 1950, King Abdul Aziz Ibn Saud threatened to nationalize his country’s oil facilities, thus pressuring Aramco to agree to share its profits on oil sales 50/50. The American government granted US Aramco member companies a tax break equivalent to the profits lost in sharing oil profits with Ibn Saud.

In 1973 the Saudi Arabian government acquired a 25% share of Aramco, increased this to 60% by 1974 and finally acquired full control of Aramco by 1980.

So… Exxon relied on good favor with the Saudi’s for continued access to (very!) profitable Saudi crude. In fact, our project would be visited by a member of the Saudi Royal family in his role as head of SABIC (Saudi Basic Industries Corporation). Our project was a 50-50 joint venture with SABIC.

One Comment

  1. Justin Smith
    Posted August 28, 2007 at 4:21 am | Permalink

    I found the summary of this posting (page 8) very useful. It is clear that you have a lot of good insight into the oil industry. I would like to learn more about the political pressures -internal and governmental- your projects faced, and your recommendationed solution for overcoming/circumventing these obstacles.

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