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Marketing Plan for Saudi Aramco

Name

Institution

Date of Submission

Table of Contents

Table of Contents 2

Executive Summary 3

Company Description 4

Company’s Strategic Focus 5

Situation Analysis 6

Fig. 1. SWOT Matrix of Saudi Aramco 7

Marketing Product Focus 9

Market Segmentation 10

Fig. 2. Saudi Aramco’s Exports by Destination 11

Upstream Development and Strategies 11

Marketing Mix 12

Product Strategy 12

Price Strategy 13

Fig. 3. Pricing for Saudi Aramco 14

Place Strategy 14

Promotion Strategy 15

Financial Data and Projections 15

Implementation 16

Contingency Planning 16

References 17

Executive Summary

Saudi Aramco is a Saudi Arabian multinational oil corporation. The company is reputed as the global leader in oil production and distribution. The company has maintained its leading position in oil production and distribution since 1988. Saudi Aramco is a fully integrated worldwide petroleum enterprise that owns the world’s most prolific oil reserves with about 260 billion barrels. The company also manages huge gas reservoirs making it the 4th largest natural gas producer. Founded in 1933, the corporation is headquartered in Dhahran, Saudi Arabia. Saudi Aramco is a National Oil Corporation (NOC). Its major operations include exploration, production, refinery, distributing, shipping, and marketing oil and petroleum products. The corporation has over 54, 000 employees and has subsidiaries in Egypt, China, Japan, Greece, Philippines, Netherlands, Singapore, United Arab Emirates, Korea, and the US.

The company enjoys several strengths such as having the largest spare production capacity, access to cheap oil and gas production resources, sophisticated upstream technologies, and excellent relations with the government. The company also enjoys a huge opportunity ahead of the skyrocketing crude oil prices, and the country’s accession to the World Trade Center (WTO). However, the company also faces a threat due to the upsurge in local fuel consumption, and the sour nature of its crude oil. The company is also faced with the weakness of overreliance on crude oil as a sole revenue source. Therefore, the company is faced with the challenge of diversifying revenue sources.

The company’s major markets are in Asia which has a greater market share than Europe and North America combined. Currently, the company has embarked on selective partnering as a strategy of diversifying its revenue sources. The company has also resorted to upstream development strategies with major focus on non-producing regions such as the Red Sea, Nafud basin, North and Western Saudi, and the North of Riyadh. Saudi Aramco has segmented its exploration activities into three areas: the South Ghawar region, the Northern parts of the country, and Rub al-Khali desert. The company has the world’s largest proven oil reserves at 260 million barrels with the world’s largest daily oil production. By 2010, the company had an annual income of $182 billion with 55, 441 employees. So far, the company is experiencing an annual employee growth of 4.50%. In response to the soaring local demand, the company projects to increase gas output by almost 50% to reach 15 billion cubic feet/day within the next 5 years. Accordingly, the company seeks to increase its production cost from $12 billion to $15 billion in the next five years. If the current expansion plans work out perfectly, the company could increase its annual revenue by up to 20%.

Company Description

Saudi Aramco is a Saudi Arabian Oil refinery and distribution company. The company is reputed as the world’s oil producer and exporter. According to Petroleum Intelligence Weekly, the company has maintained the first position since 1988 being ranked as the world’s most powerful and influential oil corporation. The company is a fully integrated worldwide petroleum enterprise that owns the world’s most prolific oil reserves with about 260 billion barrels. The company also manages the world’s 4th largest natural gas reserves. Headquartered in Dhahran, Saudi Arabia, the company engages in exploration, production, refinery, distributing, shipping, and marketing oil and petroleum products. The company has over 54000 employees operating in over 56 nationalities worldwide. 100% of the company is owned by the Saudi Arabian Government.

The company history traces back in 1933 when Saudi Arabia issued oil prospection rights to the Standard Oil of California (SOCAL) of USA. After several failed attempts to uncover significant oil reserves on the country, SOCAL ultimately located oil reserves in 1938. The discovery came as a crucial aspect in the Allied war effort in the advent of the looming Second World War. After World War II, the company would change its name to the Arabian American Oil Company (ARAMCO). Later, Saudi would experience a period of heightened Arab nationalism. The citizens were disgruntled over their tiny stake in the growing oil demand in the world wide economy. The precedents saw a recapture of half of the company’s stake by the Saudi Government in 1950. In 1973, Saudi Arabia would rationalize a further 25% of the company’s stake due to America’s support for Israel during the Yom Kippur War. By 1980, the Saudi government was controlling 100% of the company, and in 1988, the company acquired its current name, Saudi Arabian Oil Company (Saudi Aramco).

Today the company has joint ventures, affiliates, and subsidiaries in Egypt, China, Japan, Greece, Philippines, Netherlands, Singapore, United Arab Emirates, Korea, and the US. The company’s petroleum subsidiary Saudi Petroleum Overseas, Ltd based in London provides oceanic merchandise and marketing of petroleum products. Another subsidiary has a fleet of oil tankers that move oil to customers overseas. Through subsidiaries, the company also operates a large number of refineries across the world. Other than its headquarters in Dhahran, the company has offices in Beirut, London, Cairo, Rome, Korea, Sydney, and Singapore where it provides purchases and support services.

Company’s Strategic Focus

As a strategy of obtaining vertical integration, Saudi Aramco has maintained an industry trend to engage in strategic alliances and joint ventures. The strategy has been conceived as important in spreading risk as well as increasing competitiveness.

Saudi Aramco plays a critical role in the global oil markets; by the end of 2012 the company is estimated to have had the world’s biggest proven oil assets with 265.5 billion barrels - an equivalent of 16% of global oil reserve. Following the collapse of supplies in Libya, South Sudan and Syria and the subsequent sanction Iranian oil exports, the company has resorted to fluctuations to prevent a price spike for the past two and a half years. To put this further into perspective, the International Energy Agency (IEA) has estimated Saudi Arabia’s spare capacity at 2.23 mb/d adding up to 75% of OPEC’s effective spare production capacity. The huge spare capacity is a result of a capacity expansion program that aims to increase the production in barrels per day from 10 million to 12.5 million – a project that is projected to cost over $ 100 billion.

Saudi Aramco has also launched a key strategic vision which seeks that by 2020, the company will be the world’s leader in integrated chemicals and Energy Company, focusing on income maximization, sustainable expansion of Saudi’s economy, and enhancing a globally competitive energy sector in the Kingdom. The strategic vision is anchored upon three key pillars; development of gas resources, investment in petrochemicals, and building sophisticated refineries.

Saudi Aramco has also laid a series of strategies to respond to the surging domestic demand for oil. Already, the country consumes 2.92 mb/d which is projected to shoot to 3 mb/d in generating the targeted extra 20 gigawatts of power by 2020. In response to the soaring local demand, the company projects to increase gas output by almost 50% to reach 15 billion cubic feet/day within the next 5 years. Accordingly, the company seeks to increase its production cost from $ billion to $15 billion in the next five years. The cost is aimed at developing gas resources including drilling deep offshore waters. Meanwhile the company seeks to campaign for legislation that will ration demand by improving energy efficiency as well as tackling the generous fuel subsidies.

Situation Analysis

The following is Saudi Aramco’s situation analysis will be analyzed using the SWOT model. SWOT is a method of analyzing a company’s managerial and operational environment by capturing the company’s both internal and external environment. In the matrix, the company’s internal resources that have favorable impact on the firm will be categorized as “strengths” while those internal resources that have adverse impacts on the firm will be categorized as “weaknesses.” The external factors that have a favorable impact on the company will be termed as “opportunities”, while the external factors that have adverse effects on the company will be termed as “threats.” After preparing the matrix, it will be important to reflect upon questions such as how can Saudi Aramco increase its strengths? How can the firm overcome its weaknesses? How can Saudi Aramco minimize threats by capitalizing on opportunities?

|Strengths |Weaknesses |

|World’s largest in spare production capacity |Sour crude oil |

|Access to cheap oil and gas production resources |High dependence on crude oil as the sole commodity |

|Sophisticated upstream technologies as well as highly motivated employees |Relatively weak downstream capacity |

|Excellent relations with the government | |

|Opportunities |Threats |

|Skyrocketing crude oil prices and sufficient capital for investment |Soaring local oil demand |

|Soaring demand for oil especially in Asia |The crunch of potential gas supply |

|Accession of Saudi Arabia to World Trade Organization (WTO). |Potential decline in global oil demand due to high oil prices |

Fig. 1. SWOT Matrix of Saudi Aramco

With the company having inherited technological acumen from the old company Arabian American Oil Company (Aramco) and being endowed with the world’s largest oil reserves, Saudi Aramco enjoys diverse strengths as compared to its competitors. Some of the other strengths that the company enjoys include the fact that it has access to low cost production a well-organized decision-making process, and highly motivated employees. Saudi Aramco enjoys low cost production majorly because the largest portion of oil fields in the country is free flowing with reservoir pressure without the need for pumps; this lowers production cost to as low as $3 per barrel, making it the lowest in the world. The company’s excellent relations with the government should also be mentioned as strength. Being fully owned by the state, it commands a huge national control as an essential instrument of the government. Unlike other National Oil Companies, (NOCs) the company has a huge stake in policy formulation including the country’s OPEC policy and domestic oil prices (Valerie, 2006). Therefore, the company enjoys operational autonomy that shields it from political interventions, thus enhancing its stellar business performance.

Despite the myriad strengths, the company has a number of weaknesses. One of the most crimpling weaknesses is the high-sulfur (sour) grade crude. Of the five different grades of crude produced in Saudi Arabia, many have sulfur levels exceeding 1%. Sour grades are sold at a discount compared to low-sulfur grades. In the advent of tight specifications for petroleum products, the future demand for petroleum products is a huge concern in the company’s marketing strategies. The other weakness rests in Saudi Aramco’s huge reliance on a sole commodity – crude oil. The product dominates the company’s export portfolio; this further deepens the company’s volatile revenue sources, and its need for revenue diversification.

With regards to Saudi Aramco’s opportunities, the globe’s increasing demand for oil and the unexpected low price elasticity pose as great opportunities. Estimates by the IEA, (2006) the world’s oil demand is expected to increase in the next quarter century, as oil remains as the most important energy source. These estimates instigate the growing market for Saudi Aramco’s huge oil resources. Due to the recent increase in oil prices, Saudi Aramco has the potential of securing funds for its capital investments (IMF, 2012). The cash flow windfall has enabled the company to launch a number of investment programs that cover the entire value chain ranging from oil exploration, to refining, to shipbuilding (Azzam, 2006). The admittance of Saudi Arabia into the WTO in 2005 also opened a rosy opportunity in the petrochemical business. The accession to the WTO also enables the company’s entry into lucrative overseas markets for its petrochemical products, and non-oil commodities thus also aiding in diversifying the company’s revenue sources (IMF, 2012).

Although there is no imminent threat for the company at the moment, the soaring local demand for gas poses a threat to the company’s export capacities. Lately, Saudi Arabia has experienced a vast economic growth which has amounted to a huge power and desalination demand. The high number of gas-based petrochemical projects will further frustrate the tight balance in Saudi’s gas supply. The huge local gas supply soon be substituted by Liquid Petroleum Gas (LPG) thus presenting a looming crunch in Saudi Aramco’s LPG exports.

Marketing Product Focus

The strategic focus of Saudi Aramco is upstream investment which aims at improving the general understanding of subsurface rock/fluid system, while developing the appropriate technologies to cost-effectively meet business targets of discovering new resources and diversifying revenue sources. Saudi Aramco’s marketing initiatives are anchored on four key objectives:

1. To improve the insight into regional distribution of gas and oil fields and reservoirs

2. To lead and possibly overcome product demand

3. To optimize downstream portfolio

4. To grow the downstream business through selective partnering

Market Segmentation

Saudi Aramco is proud to be a fully-integrated worldwide petroleum company and a global leader in the production, exploration, refining, shipping, distribution, and marketing of gas and oil. Due to the structure of the economy, Saudi Arabia’s exports are concentrated in major oil consumers. Currently, Saudi Aramco exports more oil and petroleum products to Asia than North America and Europe combined. According to latest statistics by Saudi Arabian Monetary Agency, (SAMA) almost two-thirds of Saudi Aramco’s exports go to the Asian countries such as China, India, South Korea, and Japan. In 2012, Japan was the largest export market, China being second, followed by India, USA, and South-Korea. However, the company projects that China’s market will overtake Japan in the next two decades, citing that since 1999, exports to China have grown from zero to more than a million barrels per day.

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Fig. 2. Saudi Aramco’s Exports by Destination

In response to the growing Asian market, Saudi Aramco established Saudi Aramco Asia Company Ltd. (Aramco Asia) which underscored the strategic significance of Asia to the company, and deepened the company’s presence one of the globe’s fastest growing regions. In 2012, Aramco Asia opened new regional headquarters in Beijing; this office was viewed as crucial in unifying business operations in the region in carrying out the company’s vision for all of Asia. Further, Aramco Asia will help strengthen Saudi Aramco’s corporate transformation to a global leader in energy and petrochemicals by 2020.

Upstream Development and Strategies

Although the bulk of natural gas reserves in Saudi Arabia are in associated gas, the country is unlikely to step up its gas production from associated gas in the future since it has already completed the recent phase of oil developments – shifting attention to downstream petroleum activities and natural gas. Saudi Aramco has ignited a heavy focus to major offshore gas investments in the Persian Gulf. Exploration and development has also been launched in non-producing regions as the Red Sea, Nafud basin, North and Western Saudi, and the North of Riyadh. Saudi Aramco has segmented its exploration activities into three areas: the South Ghawar region, the Northern parts of the country, and Rub al-Khali desert. The company also launched an upstream unconventional gas program to access the country’s unconventional gas resources. Moreover, in its 2013 annual review, the company announced the development of a 1,000 MW power plan that would use shale gas in power generation.

In its upstream developments, the company has laid a significant focus on offshore fields in the Persian Gulf along with its 5-year strategic plan of expanding production of natural gas. The company targets three non-associated gas fields (Arab Oil and Gas Journal, 2014):

1. Karan gas fields discovered in 2006. By 2012, the gas field would produce 1.8 billion cubic feet (Bcf/d) of gas per day.

2. The Arabiyah offshore gas field with a projected production capacity of 1.2 Bcf/d

3. The Hasbah offshore gas field with a projected production potential of 1.3 Bcf/d.

Marketing Mix

The marketing mix will be presented as product strategy, price strategy, place strategy, and the promotion strategy as portrayed by Kotler et al (2006).

Product Strategy

Saudi Aramco trades in products such as petrochemicals, oil, and natural gas. As far as petrochemicals are concerned, the company has eight local refineries with a collective crude capacity of 1.8 million bbl/d. The company continues to integrate its refinery projects with huge petrochemical complexes in a move that has been dubbed as creation of petrochemical cities. To expand on the petrochemical market, the company has resorted development of refineries. Yanbu Aramco Sinopec Refining Company (YASREF) Ltd is one of the joint ventures that are projected to process nearly 400,000 bbl/d of heavy crude oil by the end of 2014. The company is also developing the 400,000 bbl/d Jazan refinery plant in Southwestern parts of the country which is expected to be completed by 2016. The company is also researching on the development of its integrated Petro Rabigh refinery joint venture which has a capacity of 400, 000 bbl/d. The company has also initiated clean fuel projects to offer ultra-low sulfur diesel fuel to downsize the effect of high-sulfur crude oil. The company also targets to increase its natural gas supplies to cater for the increasing local demand and maintain its export potential for natural gas. The company has also shifted attention to downstream petroleum activities. Saudi Aramco has ignited a heavy focus to major offshore gas investments in the Persian Gulf. To diversify its revenue sources, the company has resorted to other services such as ship building.

Price Strategy

Due to domestic supply shortages, Saudi Aramco faces international pressure to subsidize its local natural gas prices which happen to be among the lowest in the entire Persian Gulf. The low prices were set during an era when production of associated gas was very cheap; however, these prices are now inconsistent with the high-sulfur gases from offshore fields. As of 2013, local prices for natural were set at $.75 per million Btu as compared to $3.75/MMBtu in the US and US and $10.51/MMBtu in the UK. Therefore, the company is proposing local legislation to increase the local prices for gas. Saudi Aramco is responsible for determining the official selling price (OSP) depending on the quality of the crude oil and the location of the consumer. The OSP is determined by adding differentials to specific benchmark price. For oil shipped to Asia, the OSP depends on the average of crude oil prices in Dubai and Oman as published by pricing agency Platts. The OSP for crude oil exported to the Mediterranean and Europe is based on a Brent Weighted Average set by the Intercontinental Exchange. For the oil exported to North America, the OSP is determined by the Argus Sour Crude Index (ASCI).

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Fig. 3. Pricing for Saudi Aramco

Place Strategy

Saudi Aramco’s oil is moved through pipelines, tankers, and ships. Some of the company’s shipping subsidiaries include the Vela International Marine Ltd., and the National Shipping Company of Saudi Arabia also called the Bahri. To increase its fleet operations, the company has proposed the merger of both Vela companies and Bahri, which is projected to have begun by the end of 2014. The major shipping ports include: Port of Ras Tanura in the Persian Gulf with an average handling capacity of almost 3 million bbl/d; Ras al-Juaymah facility; and Yanbu terminal in Red Sea. The company pipes its oil through a domestic pipeline spanning a length of almost 12,000 miles. The two major pipelines include the East-West Pipeline popularly known as Petroline, and Abqaiq-Yanbu NGL pipeline which runs parallel to Petroline. The company also transports its oil in international petroleum pipelines such as the Trans-Arabian Pipeline, and the Iraqi Pipeline.

Promotion Strategy

To take the marketing plan to yet an alternate level, we will conjure up a few tactics to really meet the objectives we set in the past segment. Common marketing tactics incorporate promoting (print, on the web, radio, and so forth.), exchange show or occasion attendance/participation, advertising, grassroots and viral marketing crusades and email marketing (Kotler, 2009). The low product prices at the company drive demand. The company capitalizes on vast distribution channels, and exceeds customer’s expectations with regards to delivery of products. The company’s current plan to increase product knowledge and awareness enables the brand to grow as the market learns more about the products, enabling future growth as a hedge against future competition.

Financial Data and Projections

The company has been estimated to be worth over US$10 trillion by financial times. This makes the company one of the world’s most valuable companies. The company has the world’s largest proven oil reserves at 260 million barrels with the world’s largest daily oil production. By 2010, the company had an annual income of $182 billion with 55, 441 employees. So far, the company is experiencing an annual employee growth of 4.50%. In response to the soaring local demand, the company projects to increase gas output by almost 50% to reach 15 billion cubic feet/day within the next 5 years. Accordingly, the company seeks to increase its production cost from $12 billion to $15 billion in the next five years. If the current expansion plans work out perfectly, the company could increase its annual revenue by up to 20%.

Implementation

To realize the goal of the entire marketing effort, the company requires activities outside the traditional scope of marketing plans, and that of Saudi Aramco. First, an implementation committee will be formed to work in coordination with marketing managers in oversea subsidiaries in executing the overall plan. This process partly includes designating the necessary agents to non-marketing activities such as sourcing finances. A forum will then be formed to monitor successes of each marketing objectives as per pre-determined benchmarks. A marketing executive will be chosen, and shall be assisted by a member of a committee.

Contingency Planning

The contingency plan will be a complementary effort to the marketing plan. The planning committee shall devise a lightweight risk management plan to periodically review and mitigate the potential risks within the strategic marketing plan. The objective of the risk will be to ensure that the company captures the greatest benefits from the marketing initiative as possible. The risk management tasks will include: periodic risk assessment, prioritization of risks, and risk mitigation (Barney, 2009).

References

Valerie, M. (2006). Oil Titans: National Oil Companies in the Middle East. London: Chatham House.

Azzam, Y. S. (2006). Saudi Aramco’s Initiatives in Export Refining & Integrated Petrochemical Projects. Presentation to MEED Conference, 10-11

International Monetary Fund, (2012). International Financial Statistics.

Saudi Aramco. (2014). "Karan Gas Program" Arab Oil and Gas Journal. Accessed November 28, 2014 from of-energy/gas-development/karan-gas-program.htm

Kotler, P., P. Foertsch, W., & Michi, I. (2006). B2B brand management. Berlin: Springer.

Barney, H. (2009) Strategic Management and Competitive Advantage, Concepts. 3rd ed. Upper Saddle River, NJ: Prentice Hall, 28-63.

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