On December 13, Sir Mark Moody Stuart, the chairman of Royal Dutch/Shell, signed a letter of intent (LOI) signaling his group’s interest in participating in the long-awaited opening by the government of Saudi Arabia of its natural gas sector. On the same day a similar LOI was signed by BP-Amoco.
The two conglomerates were the first oil majors to publicly declare their interest in investing in a range of projects, estimated to be worth $100 billion, in the kingdom’s oil and gas sectors. In so doing, they responded to specific invitations sent to them by the Saudi authorities.
Furthermore, there are a number of other foreign groups, which also intend to become heavily involved in the country.
Saudi Arabia first declared its intention for economic liberalization back in 1998, declaring that the goal of the undertaking was to more jobs in the country and to raise the level of foreign investment.
Then, in July 2000, the Saudis earmarked a number of specific projects, and among them three that were connected specifically to the prospecting, development and production of natural gas.
The areas of the country that were chosen for development are remote to say the least. They include the Kidan/Shaybah gas development in the Empty Quarter, bordering the UAE; the South Ghawar Core Area No.1; and the Red Sea Core Area No 2.
All these initiatives are to include gas exploration, field development and downstream investments, together with power generation and/or water desalination.
According to industry sources, the Saudi invitation for bids were directed to several oil giants, all of which possess the finances, expertise, and capability to cope with the complicated tasks at hand.
The United States was represented by ExxonMobile, Chevron/Texaco, Conoco, Philips, Enron and Oxy. The European contingent included ElfTotalFina, E.N.I, BP-Amoco and Royal Dutch / Shell.
It is appears the majors will be divided to several groups: Elf is considering bidding for all three initiatives, Exxon and its rival BP probably will bid for core areas 1 or 2, and the other companies will probably bid for only one area.
For their part, the Saudis have made it clear that the interests of the national oil company Saudi Armco will not be jeopardized. Indeed, at least one project—not named at this stage—will be executed by Saudi Armco in cooperation with foreign companies.
So, to recap, what is it possible to conclude about the Saudi moves at this stage?
While Saudi Arabia’s nationalization of its oil industry in the 1970s helped redraw the economics of the oil business in favor of the producer states, it was not able to fulfill all of Saudi Arabia’s goals.
To do that, especially in the global economy of the early 21st century, the Saudis have become acutely aware of the necessity of liberalizing their economy, in order to attract vitally needed foreign investors.
IT is impossible to regard this latest strategy by the Saudi government as an across-the-board opening of the Saudi economy to international competition. The process itself will be slow and carefully monitored. All the companies that have been invited in are oil giants, which are well equipped to cope with tasks ahead of them. Also, all the companies are known to the Saudis from times gone by. The interests of the local company–Saudi Armco—will not to be harmed. All the investments will be made in remote and under-developed areas of the kingdom. Saudi Arabia is evidently is planning to introduce economic changes and pursue its social agenda at the same time.
— (Albawaba-MEBG)
