LONDON, 8 December 2003 — Talk about regional security and instability, and the quest for alternative forms of renewable energy, cannot do away with the reality of the dynamics of the world oil and gas sector, and the pivotal role of Saudi Arabia in it.
With OECD oil stocks at their lowest levels in years and high winter demand especially in Northern Hemisphere, oil prices and revenues are enjoying a flourish which is projected to continue throughout the coming year. Yes, OPEC has cut production by 900,000 barrels per day (bpd) in September, partly to sustain prices between $22 to $28 per barrel, but this has brought its total level back to the pre-Gulf War levels of 24.5 million bpd. Oil price forecasts for first quarter 2004 range between $22.5 per barrel to $26.5 per barrel, and for the whole year from $22 per barrels to $ 24.5 per barrel.
Saudi Arabia’s latest OPEC production quota from November 2003 is 7.963 million bpd. This compared to an average of 7.961 million bpd in 2001; 7.576 million bpd in 2002; a staggering 8.867 million bpd in first half 2003 with a record high of 9.465 million bpd in April at the time of Gulf War; and finally 8.51 million bpd in October 2003. The Kingdom is by far the single largest oil producer both in OPEC and in the world. In 2002, for instance, it accounted for 12.25 percent of world oil production.
In his yearly report in November 2003, Saudi Arabian Monetary Agency Governor Hamad Al-Sayari confirmed that the Saudi oil sector grew by 2.5 percent in 2002 due mainly to favorable oil prices. With the result despite the tension in the region and the adverse global and regional economic situation, the Saudi economy in terms of nominal GDP grew by a respectable 2.8 percent. “It is expected that in 2003, the national economy would make greater progress than that made in the previous year because of the stability of oil prices at favorable levels for both producers and consumers, and the government’s continuing process of introducing regulatory and structural reforms in the economy,” stressed Al-Sayyari.
The Kingdom’s pre-eminence in world oil and gas is further emphasized by Saudi Aramco, the world’s largest oil company. According to Saudi Aramco, the Kingdom has 25 percent of proven world oil reserves and the Gulf Cooperation Council (GCC) states a staggering 46 percent of world reserves.
In the natural gas sector, Saudi Arabia accounts for 4 percent of world reserves or 231 TCF (the fourth largest producer after Russia, Iran and Qatar), and the GCC accounts for 19 percent of world reserves. Saudi natural gas production in 2002 totaled just under 5.5 billion standard cubic feet per day.
Nevertheless, the Kingdom, whose major oil export markets are in Japan and the emerging economies of Korea, Taiwan, and especially China, is pushing ahead perhaps with the largest expansion program in the global oil and gas sector, in which inevitably and perhaps ironically American companies feature prominently. Not surprisingly, Saudi Aramco is upbeat about the opportunities in the sector especially to foreign investors.
A source of low cost and reliable feedstock and energy is a major driver of the Kingdom’s oil and gas sector.
But “the attractive investment environment and government support for private investments” is relative and must be viewed in terms of country and regional political and economic stability; the dynamics of the world oil market; the reform process in Saudi Arabia; the dynamics of change; and the efficiency of policy delivery and implementation.
Saudi Aramco has spent a staggering $34 billion in capital expenditures in the last decade. Over the next five years, it plans to bring onstream five new crude increments.
This expansion program, according to Saudi Aramco, will require more than 20 offshore platforms; several gas/oil seperation plants; processing plants; about 2,300 km of flow lines and long distance pipelines; and the associated infrastructure of roads, wellsites, and pipelines. Saudi Aramco’s projected expenditures on materials alone will exceed $9.3 billion through 2007. Its projected expenditure in services will total another $9.5 billion for the same period.
