JEDDAH, 4 June — Saudi Arabia yesterday signed preparatory agreements with eight oil majors for three giant gas projects in the southeastern, western and northwestern parts of the Kingdom. The projects are expected to attract an initial investment of $25 billion. The figure is projected to exceed $50 billion in future.
The signing at Al-Salam Palace in Jeddah was witnessed by Custodian of the Two Holy Mosques King Fahd, Crown Prince Abdullah, deputy premier and commander of the National Guard, and Prince Sultan, second deputy premier and minister of defense and aviation, and other officials.
The accords were signed by Foreign Minister Prince Saud Al-Faisal who led the ministerial team in the lengthy negotiations with the oil companies, and the chief executives of ExxonMobil, Royal DutchShell, British Petroleum, Phillips, Occidental Petroleum, Marathon, TotalFinaElf and Conoco. The three gas projects cover an area of 440,000 square kilometers (176,000 square miles), making it the world’s largest area for hydrocarbon investment.
King Fahd congratulated the oil chiefs wishing them success and continuity in the interest of both parties. He underlined the positive role of the agreements in consolidating the national economy, saying the signing of the accords is just a start for further industrial and commercial cooperation between the Kingdom and international companies. The agreement involves exploration and production. It will supply feed stock for petrochemical industries as well as power and water desalination plants. The projects are to be carried out in cooperation with Saudi Aramco on a long-term basis for up to 30 years. Saudi Aramco will play a role in each project. The Saudi oil giant has been working to double the capacity of the country’s gas network from the current 3.5 billion cubic feet per day to seven billion cubic feet by the year 2004.
The Kingdom’s Natural Gas Initiative (NGI) was launched by Prince Abdullah in late 1998 while on a visit to the United States when he invited international oil companies to submit proposals for investment in the sector. Negotiations with oil majors started last year, the first such move since the 1970s, to give international firms access to the Kingdom’s upstream projects.
Prince Saud announced the winners on May 18. The Kingdom with 264 billion barrels has one quarter of the world’s oil reserves. At 220 trillion cubic feet of gas it has a four percent share of the world’s proven gas reserves.
The Core Venture One project lying to the north of the Empty Quarter is led by ExxonMobil with Shell, BP and Phillips holding stakes. This is the largest of the three and the gem prize of the gas development initiative — a $12 billion to $16 billion development. Its exploration acreage lies south of Ghawar, the largest oil field in the world, and covers an area substantially larger than Ireland. Ghawar produces more than four million barrels per day.
The consortium undertaking the second project on the northern Red Sea is also headed by Exxon. Shell was awarded the lead of Core Venture Three, the Shaybah gas field in the Empty Quarter, to work alongside TotalFinaElf and Conoco. These two projects could reach $7 billion to $10 billion, according to Prince Saud.
A meeting of the Supreme Council for Petroleum and Minerals, chaired by King Fahd, preceded the signing. The Council approved the Kingdom’s gas strategy reflecting the government’s concern for current and future energy supplies at both the domestic and international levels with the aim of ensuring supplies from their hydrocarbon sources.
“These ventures are of unprecedented scale and they represent a new way of doing business in the Kingdom,” Prince Saud told a press conference after the signing ceremony. He said the oil companies would have to hand back any oil discoveries to Saudi Aramco.
“We would be very happy if the companies discovered oil but it would have to come back to us. They will get the compensation for their discovery.”
He said he expected the opening would lead to investments of about $20 billion in the near future, with possible further investments in the future bringing the total to $50 billion or more. Prince Saud said time was needed to define how the partnership would work and how it would deliver tangible benefits to the Kingdom.
The first venture focuses on the utilization of existing Saudi Aramco gas supplies, investment in power generation, water desalination and petrochemical production on both the east and west coasts, with a total capacity of 4,000 megawatts, 300 million imperial gallons of water per day and two million tons per annum of petrochemicals. The other two will develop known gas discoveries with power generation and desalination.
“The progress we have made today did not come easy. It was made possible by the unlimited support and encouragement of the higher authorities in the Kingdom, namely King Fahd and Crown Prince Abdullah. Both have taken personal interest in the progress of the NGI and have given their vital support at every phase of development. We studied the experience of other countries that have followed similar gas development programs and built out the associated infrastructure,” Prince Saud said.
He said studies indicate that the investment of $1 billion in a given year can create as many as 20,000 direct and indirect jobs. In the case of the Kingdom’s NGI, a substantial investment of at least $5 billion per year is expected during the early part of the program. It is also expected to present competitive opportunities for Saudi capital currently deployed outside the country.
“For BP, this is a new, exciting venture. We have never had a significant presence in the Kingdom before. We consider we have secured a tremendous prize and look forward to working with all concerned to make this a very successful project,” said BP Chief Executive, Sir John Browne, after signing the accord.
BP’s investment in the project near Ghawar would amount to a quarter share. “This may only be a start if we are successful in finding gas in substantial quantities,” said Browne. BP said it expects to confirm over the coming weeks a 25 percent interest in the venture.
Minister of Petroleum and Mineral Resources Ali Al-Naimi said that in fields rich in gas and liquids in the upstream it would not be uncommon for companies to have rates of return higher than 15 percent.
Prince Saud said the Kingdom wants each company to be involved in every step of the process including upstream, midstream and downstream.
