DAMMAM — Rarely has any country received in world economic history as big a bonanza as what Saudi Arabia accomplished this month. The $25 billion joint venture proposal for a series of gas development projects is a dream come true.
The Saudi industry and trade, faced with a prolonged slowdown in economic activity, could not have asked for more. New rays of hope in the horizon not only for businessmen but also for people in general. The low-key Seventh Five-Year Plan (200-2005) has indeed changed the gear to a superfast track.
The Supreme Council for Petroleum and Minerals has given the green signal to eight international oil companies to launch mammoth gas development projects. Saudi Aramco is expected to hold equity in the new companies. The following are the new projects and the foreign companies participating in them:
— ExxonMobil, Royal DutchShell, BP and Philips get stakes in the biggest of three gas projects in offer, the $15 billion South Ghawar development in the Eastern Province, known as Core Venture One.
— Exxon secured the leading role in Core Venture Two, on the Red Sea and in the northwest, with Enron and Occidental also winning shares.
The MGS has so far been the major instrument of gas processing in Saudi Arabia. It comprises 42 mothballed gas-oil separator plants, three gas processing plants, four NGL fractionation facilities (at Yanbu, Ju’aynah, Abqaiq and Ras Tanura) and the East-West NGL pipeline. A new gas processing plant and associated facilities are now coming up at Hawiyah area of the famous Ghawar field.
Saudi Arabia has vast reserves of gas estimated at 213,238 billion cubic feet, the world’s fourth largest reserves. Currently, MGS processes 4.4 billion cubic feet per day of associated and non-associated gas. There is enormous scope for exploiting this natural resource.
I am confident that the $25 billion gas development plan is the beginning — and not the end of the fruits of the current drive for economic liberalization. The plan is a big breakthrough and this will hopefully be followed by new waves of foreign investment not only in the energy sector, but also in industries and infrastructure sectors.
It is essential for the government and the private sector together to utilize this opportunity to push through a renewed drive for industrialization. It is for the government to create conditions conducive to the growth of the private sector. The private sector, in turn, will have to re-double its efforts to mobilize resources and invest in new viable industries based on additional gas resources that will be made available for new projects. The Saudi Arabian General Investment Authority (SAGIA), which is now spearheading a bold program of industrial licensing, and the various chambers of commerce and industry dealing with the promotion of the private sector, need to work together to strengthen the private sector and make it contribute to the creation of an industrially powerful Saudi Arabia.
— Shell, TotalFinaElf and Conoco won stakes in Core Venture Three, for development of the Shaybah gas field and southeast of the Empty Quarter.
Some of the outstanding features of the new gas projects are as follows:
— The new proposals are a testimony to the success of the liberalized foreign investment policy introduced by the government in 2000.
— The foreign investment is in the nature of joint ventures, characterized by Saudi Aramco’s equity participation. Three leading foreign companies (Chevron, ENI and Marathon) have lost the race apparently because they insisted on full ownership.
— The new projects will create new jobs for the local youth. But it must be acknowledged that the projects are basically capital-intensive and numerically the new employment avenues would be limited. The infusion of new technology and job opportunities for those with specialized training are, however, important contributions.
— The local construction industry stands to gain from the new initiative. The “multiplier effects” of these massive projects will be felt in all sectors of industry, trade and services.
— The gas-based industrialization process which is a special feature of the Saudi economy will now get a big boost. Currently, fuel gas and NGL, produced from gas, support industrialization in Jubail and Yanbu and provide feedstock for the petrochemical industry. Natural gas also provides fuel for power generation and water desalination, apart from providing energy for oil production. The growing fears in recent times of shortage of gas, despite the on-going expansion programs within the framework of the Master Gas System (MGS), will now come to an end and in future we may have surplus.
(The author is secretary general at Chamber of Commerce & Industry, Eastern Province.)
