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Saudi Aramco Company’s Energy Strategy and Innovation Essay


Introduction

Saudi Aramco is a Saudi Arabian petroleum and natural gas company that is the largest in the world with a daily production capacity of 12 million barrels. The company’s strategy to ensure that it leads with regard to meeting the rising energy needs is viable because the company has the largest crude oil reserves. It is estimated that Aramco owns 260 billion barrels of crude oil. Moreover, the company’s daily oil production is the largest. The company can aim for the top position in the supply of energy because it has large oil reserves and has invested heavily in various aspects of the oil business. Saudi Aramco operates on the belief that energy is opportunity. Their strategy has five major focus areas that include reinforcement of its position in gas and oil production, integration of the business across the hydrocarbon chain, embracement of technology development and innovation, creation of employment opportunities that have global impact, and participation in the economic development of the kingdom.

Lead in Oil Gas Exploration and Production

One of the focus areas of Saudi Aramco’s strategy to meet the rising demands for energy is to reinforce its position in oil and gas exploration and production. As mentioned earlier, Saudi Aramco is the largest oil and gas corporation in the world. The company is very reliable with regard to supplying its products to customers and stabilizing the world petroleum markets. One of the company’s objectives is to streamline its upstream operations by embracing new technologies and innovation (“Strategy”). The use of leading-edge technologies in oil and gas exploration is giving the company a competitive edge and increasing its oil reserves through the discovery of new fields. The technologies are used in the discovery of new oil and gas fields and the recovery of products during the refining process (“Strategy”). In that regard, the company will continue to increase its capacity for oil and gas production. In order to remain the top oil and gas producer in the world, Saudi Aramco plans to maintain production capacity at 12 million barrels per day and improve its exploration efforts (“Strategy”). The production of unconventional gas is part of the company’s strategy to increase gas production.

Environmental Protection

Environmental protection is one of the challenges that oil and gas companies face in their operations. In order to become a leader in energy production and supply, it is important for Saudi Aramco to make environmental protection a priority. The success of the company has been primarily due to its efforts to preserve the environment for future generations. For instance, the company’s leadership has made a commitment to protect biodiversity within every operational area and promote policies that champion the effective use of energy (“Environment”). The company is planting mangroves along the shores of the Arabian Gulf and creating wildlife sanctuaries to protect the different animal species found in Saudi Arabia (“Environment”). Moreover, it has implemented several measures that are aimed at reducing the environmental impact of its operations. For example, innovation and technology are being used to lower greenhouse gas emissions. Carbon capture and sequestration is one of the strategies that are applied in the reduction of carbon emissions (“Environment”). Recently, the company successfully implemented a program to improve oil recovery by capturing and injecting carbon dioxide underground. Other programs include wastewater management, preservation of water resources, and minimization of waste disposal (“Environment”). The company is also on forefront of championing energy conservation. For instance, it uses LED bulbs in its offices and residential buildings. The company estimates that the energy saved by using the LED bulbs is equivalent to saving approximately 80,000 barrels of oil annually (“Environment”). Saudi Aramco is also part of the Oil and Gas Climate Initiative to conserve the environment.

Oil and gas companies are the largest contributors to global warming. As the largest oil company in the world, Saudi Aramco should be on the forefront of reducing greenhouse emissions and mitigating global warming. The company has a master plan to reduce its impact on the environment. However, its efforts are not sufficient to mitigate the impact of its operations. Creating wildlife sanctuaries, plating mangroves, improving wastewater management, and minimizing waste disposal are insufficient. Reduction of the release of greenhouse emissions is very important.

Integration of Business across the Hydrocarbon Value Chain

Another focus area for Saudi Aramco is the growth and diversification of business operations in order to ensure that value is created for all its resources (“Strategy”). The objective of diversification is to increase opportunities for organic growth and strategic partnerships with local and international companies. In addition, the company aims to strengthen business in local supply chains and increase employment opportunities (“Strategy”). It is important for companies to create competitive advantage in order to improve sustainability and increase profits. Saudi Aramco is creating sustainable competitive advantage by expanding its downstream activities in order to increase its presence in more countries across the globe (“Strategy”). I believe that this approach will augment the company’s integration strategy because it will facilitate the diversification of risk and open up new markets. Many oil companies are scaling back oil and gas production as their priorities shift to other markets and economic sectors. In contrast, Saudi Aramco is expanding and building new and bigger oil refineries (“Strategy”). In addition, it is expanding its chemical, trading, and marketing businesses. This integration of business across various value chains will give Saudi Aramco competitive advantage and position it as the leading oil and gas producer and supplier.

Supporting the Economy of Saudi Arabia

Saudi Aramco has diversified its business operations and ventured into different markets and industries. For instance, as the main driver of the Saudi economy, the company takes on government projects to build infrastructure such as airports, bridges, buildings, and pipelines (“Strategy”). The company pursues opportunities that support the economic development of the Kingdom. In that regard, Saudi Aramco facilitates the creation of jobs in the private sector, aid in the localization of Saudi’s energy services, and create opportunities for the people of Saudi (“Strategy”). In addition, it funds and conducts initiatives that encourage energy efficiency. The company’s operations are very focused on creating opportunities that grow the economy of Saudi Arabia.

Technology Development and Innovation

An important aspect of organizational growth and success is the embracement of technology and innovation. Saudi Aramco is committed to increasing access to reliable energy and conserving the environment by reducing carbon dioxide emissions. In addition, the company is working to improve the efficiency of fuel consumption in vehicles and create materials that make quality products for its consumers (“Strategy”). The company’s goals with regard to technology development and innovation are very demanding. Therefore, it has adopted an advanced and robust innovation model that encompasses different talents, ideas, and capabilities from researchers around the world (“Strategy”). I think the company will achieve its goals of becoming a leader in the production and supply of energy because of its focus on research. Saudi Aramco has several research centers in different parts of the world. The company achieves its innovation objectives by forming alliances with global research companies and creating centers globally (“Strategy”). The formation of research alliances increases the scope of innovation and technology development.

Creating Employment Opportunities

Employees are an important factor in the attainment of a company’s goals and objectives. Saudi Aramco provides numerous employment opportunities and ensures that employees are engaged in projects that have the potential to have a global impact. The company has the ability to attract and retain highly qualified employees mainly because of its organizational culture that revolves around empowerment, collaboration, accountability, and rewards (“Strategy”). The company’s culture of internal mobility and professional development attracts young and top talent in different fields.

The Strategy’s Shortcomings

Saudi Aramco’s strategic objective is to become the world’s leading energy supplier by the year 2020. The company’s efforts in the aforementioned focus areas have played key roles in propelling Saudi Aramco toward the achievement of its strategic objective. However, the management team focuses primarily on oil and gas production and ignores the increasing popularity of renewable energy. Its participation in alternative energy sources is minimal. For instance, in 2016, it partnered with other top oil companies including BP, Eni, Royal Dutch, Shell, Total, and Statoil to create an investment fund to explore renewable energy (Macalister). Saudi Aramco’s competitors have made great strides toward investing in renewable energy. For example, in 2011, Total acquired SunPower at a cost of $1.4 billion (Macalister). On the other hand, Total has a division titled New Energies that focuses on the development of low-carbon technologies (Macalister). Shell also has a New Energy division that has an annual budget of $200 million. I think it is critical for Saudi Aramco to invest heavily in renewable energy sources so that it can compete effectively with other top companies. Achieving the strategic objective of being on the forefront of providing energy in the world will require Saudi Aramco to complement its oil and gas portfolio. As population grows and economies expand, embracing alternative sources of energy is inevitable. Alternative energy sources such as hydroelectric energy, solar energy, wind energy, biomass energy, geothermal energy, and tidal power are growing in popularity and their use is increasing rapidly (Macalister). The renewable energy sector has grown significantly in the past ten years. Therefore, Saudi Aramco should take advantage of the opportunity and use its technology an innovation strategies to dominate the sector.

Conclusion

Saudi Aramco is the largest oil company in the world with a daily production capacity of 12 million barrels per day. The company’s efforts in the five core areas of its strategy to be the leading energy supplier are effective in the attainment of the goal. However, they are insufficient because of little investment in renewable energy. It is important for Saudi Aramco to increase its investment in renewable energy. Its rivals including Total and Shell have made considerable investments in renewable energy and created divisions to explore alternative energy. In order for Saudi Aramco to compete effectively, it needs to invest heavily on renewable energy and increase its environmental protection efforts.

Works Cited

“Environment.” Saudi Aramco, Web.

Macalister, Terry. The Guardian, 2016, Web.

“Strategy”. Saudi Aramco, 2017. Web.

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IvyPanda. (2020, September 16). Saudi Aramco Company’s Energy Strategy and Innovation. Retrieved from https://ivypanda.com/essays/saudi-aramco-companys-energy-strategy-and-innovation/

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"Saudi Aramco Company’s Energy Strategy and Innovation." IvyPanda, 16 Sept. 2020, ivypanda.com/essays/saudi-aramco-companys-energy-strategy-and-innovation/.

1. IvyPanda. "Saudi Aramco Company’s Energy Strategy and Innovation." September 16, 2020. https://ivypanda.com/essays/saudi-aramco-companys-energy-strategy-and-innovation/.


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IvyPanda. "Saudi Aramco Company’s Energy Strategy and Innovation." September 16, 2020. https://ivypanda.com/essays/saudi-aramco-companys-energy-strategy-and-innovation/.

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IvyPanda. 2020. "Saudi Aramco Company’s Energy Strategy and Innovation." September 16, 2020. https://ivypanda.com/essays/saudi-aramco-companys-energy-strategy-and-innovation/.

References

IvyPanda. (2020) 'Saudi Aramco Company’s Energy Strategy and Innovation'. 16 September.

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