RIYADH, 14 July 2003 — All eight of the foreign oil majors involved in Saudi Arabia’s failed natural gas initiative (NGI) are among 50 oil companies that have been invited for talks in London this month to discuss restructured gas projects, industry sources said yesterday.
ExxonMobil and Royal Dutch Shell, which had the lead role in the three NGI projects, and their partners will join oil companies from China, India, Norway, Taiwan, and several other countries for the July 22-23 meeting. The Ministry of Petroleum and Mineral Resources will provide an overview of gas projects available in the Kingdom after scrapping the integrated form of NGI, the sources said.
A last-ditch effort to rescue the third NGI project led by Royal Dutch Shell failed although recent talks focused on gas exploration only, after dropping the associated power, water and petrochemical plants.
The ministry informed Shell and its partners, Total and Conoco, that their last offer made in mid-June was not acceptable. This followed scrapping talks earlier last month with ExxonMobil over the first $15-billion project. The Kingdom suspended talks over the second project in March.
The collapse of the integrated form of the NGI came more than two years after Riyadh signed preliminary agreements with IOCs for the three NGI projects which required investments of about $25 billion.
The NGI was launched in 1999 by Crown Prince Abdullah, deputy premier and commander of the National Guard, to boost the Kingdom’s production of non-associated natural gas which would be used as fuel for power, water and petrochemical plants.
But the Kingdom and the companies repeatedly missed deadlines to sign final deals, because they failed to agree on commercial terms and gas reserves.
The quantity of gas on offer remained the principal unresolved issue as foreign companies demanded larger acreage to ensure more gas in order to offset the risks involved in the investments.
International energy experts long predicted the collapse of the integrated NGI because of a clash in what each party wanted.
Oil companies were not interested in running utilities but were prepared to do so if they could obtain a risk-free return on their capital equivalent to returns from their projects elsewhere, they said. Experts also partly blamed the US-British war on Iraq, saying foreign majors will now have the option of investing in Iraq’s lucrative oil industry.
Saudi authorities have shown reluctance to opening the upstream sector by limiting the NGI concession to natural gas and kept the crude sector off-limit. The original NGI concept was for integrated packages of upstream, midstream and downstream projects, but the London meeting will focus on gas exploration only.
According to economists, the Kingdom needs investments worth $300 billion in petrochemicals, power and water projects until 2020.
Despite the failure of the third project, Royal Dutch Shell chairman Sir Philip Watts reiterated his company’s interest to invest in Saudi Arabia. “Our aspiration is to remain a trusted and valued partner, indeed the partner of choice. We believe our experience and appetite to continue extending that experience into new areas of business gives us much to offer to the Kingdom,” Watts told the July edition of Shell in the Middle East magazine.
