RIYADH, 4 August — Saudi gas projects hang delicately in the balance as the Kingdom weighs difficult options to decide the fate of the $25 billion investment. But a high-level source close to the Saudi negotiating team said both sides were committed to concluding a fair deal.
The source told Arab News that the Saudi team had received final proposals from ExxonMobil on the first and second core projects. He expected final proposals on the third project by mid week.
According to a Saudi economist, the Kingdom faces the dilemma of wanting to see the projects go through to open the door for foreign direct investments, but is unwilling to sign a deal that could be seen as wasting national resources.
The eight foreign companies which signed a preliminary agreement in June last year with Saudi Arabia want to see that every component of the complicated projects is profitable on its own, the economist said.
Several rounds of talks between the two sides have been held, culminating in a meeting mid July between the ministerial committee and the CEOs of ExxonMobil and Royal Dutch Shell, Lee Raymond and Phil Watts.
According to the Middle East Economic Survey (MEES), the ministerial committee, headed by Foreign Minister Prince Saud Al-Faisal, is to hold a crucial meeting today to review the situation. The committee was expected to study offers from foreign oil majors about their "final position" and then make recommendations to Prince Abdullah, the regent.
The source said Middle East developments and the US plan to strike Iraq had contributed to the delay in reaching a deal between the Kingdom and the oil majors.
Prince Abdullah, the architect of the Kingdom’s Gas Initiative, as well as Prince Saud and Ali Al-Naimi, minister of petroleum and mineral resources, were preoccupied with regional developments, he said.
Prince Saud has said an appropriate decision serving the interests of the Kingdom will be taken on the basis of the offers, asserting the projects will go ahead under all circumstances.
"I think that unless a major development takes place, the issue will have to go to Prince Abdullah for a political decision," an oil executive said.
Profitability, risks involved in the investments expected to last 25 to 30 years, and details about the "rate of return" from power plants, water desalination and petrochemicals were at the core of the tough negotiations. Companies have been offered some 10 to 12 percent as a rate of return, but are demanding up to 18 percent.
The investment is very complicated, including upstream, mid-stream and downstream projects in gas exploration, petrochemicals, water desalination and power generation.
Exploration of gas has been restricted to areas not under Saudi Aramco, the national oil company, which the foreign majors claim is not enough. "They want enough territory in line with the large investments," an industry source said.
Observers believe Riyadh is under pressure because the inflow of foreign direct investments has dried up, especially since the Sept. 11 attacks in the US.
The oil majors are also under pressure since several other foreign firms have recently sought to join the projects.
