Foreign Correspondence

[Amaunet]

Saudi Opens Door to Russian, Chinese and European Investment

In the ‘Oil Wars’ a significant investment in the hydrocarbon supplies of a country is an incentive for the investing country to protect the territorial integrity or sovereignty of the country in which it has invested. Thus Saudi Arabia states that the Russian, Chinese and European investment will forge new political and economic alliances.

Two points:

1. Russia is Saudi Arabia's main rival as an oil producer, and the Saudis have had little success so far in winning its cooperation for OPEC's policy of keeping crude supplies tight and prices high. Saudi Arabia, with the world's largest oil reserves, is the most powerful member of the Organization of Petroleum Exporting Countries. They could conceivable conspire to keep the price of oil high enough to further erode our economy.

2. It is very difficult for our oil majors because of their size to show significant growth, this might have a future negative impact on our market especially so if the rest of the producers adopt a similar approach in reprisal for our occupation of Iraq and meddling in Venezuela, two OPEC countries. -Am



Saudi builds bridges with new foreign gas partners
Reuters, 03.07.04, 9:25 AM ET

By Peg Mackey and Dominic Evans

RIYADH, March 7 (Reuters) - Saudi Arabia opened the door on Sunday to fresh natural gas exploration, securing $800 million worth of Russian, Chinese and European investment that it said would forge new political and economic alliances.

Oil Minister Ali al-Naimi signed deals with Russia's LUKOIL , China's Sinopec and a consortium of Italy's Eni and Spain's Repsol YPF covering 120,000 square km of Saudi Arabia's Empty Quarter desert region.

Saudi Arabia, the world's biggest oil exporter and long-standing U.S. ally, wants stronger bonds with Russia - its chief rival outside the OPEC cartel -- and energy-hungry China, which promises to provide a market for decades to come.

"We already have strong relations with Russia and excellent cooperation in managing market stability," Naimi told reporters after the signing ceremonies.

"And there is no question in my mind that strengthening economic relations will strengthen other areas of cooperation."

LUKOIL's deal, which comes less than a year after Saudi Crown Prince Abdullah's landmark visit to Moscow, commits it to invest $200 million to explore a 29,900 square km area of southeastern Saudi Arabia.

Drilling in the kingdom's onshore gas fields should not prove technically difficult for LUKOIL, which has operated in Russia's harsh terrain. Company chief Vagit Alekperov said he expects a minimum rate of return on investment of 12.5 to 15 percent.

"For the first time in the history of bilateral relations, the doors to Saudi Arabia have been opened to the Russian petroleum business," Alekperov said.

He said LUKOIL could invest up to $3 billion in the Saudi gas sector if if were to find gas.



CHINA BOOMS

Analysts say Sinopec's presence is driven by Chinese concerns with its soaring energy needs and import dependence. The kingdom already ranks as China's top supplier exporting some 13.5 million tonnes of crude. And there is room to expand.

Naimi said the deal with Sinopec, "promises a brighter future for the special and ever-growing strategic relationship between the kingdom and China".

Commercial cooperation between the two sides has already begun with Riyadh's 25 percent stake in a planned $3 billion refinery and petrochemical venture in China.

Sinopec has pledged to invest an initial $300 million in drilling wells and shooting seismic surveys in a 38,800 square km block in the Empty Quarter.

The biggest block on offer, at 51,400 square km, went to Eni and Repsol. State-owned Saudi Aramco will take a 20 percent stake in all three ventures.

The contracts follow last year's gas exploration and production deal with European majors Royal Dutch/Shell and Total .

Notably absent from the small club of foreign investors have been U.S. oil majors who had negotiated for years for the more ambitious "Natural Gas Initiative" which collapsed last summer after prolonged wrangling.

Only one U.S. company, Chevron Texaco bid in the current round.

Saudi officials stress that economics, not politics, was the driving force in awarding the contracts, adding the smaller packages were more suited to medium-sized companies.

"A corollary of these gas deals is that it shows that the Western oil majors are not the only game in town when it comes to operating in Saudi Arabia," said Julian Lee of London's Centre for Global Energy Studies.

Saudi Arabia's current estimated gas reserves stand at 235 trillion cubic feet, the fourth biggest in the world. Riyadh can now pump up to seven billion cubic feet per day but says domestic demand could soar to 14 billion by 2025.

Naimi said the gas found and produced will be primarily meant for home markets. But its economic life-blood, oil, remained off-limits even if it was found in those blocks.

"The agreement today is very clear," said Naimi. "Any oil is a dry hole."

Sunday's agreement is only the second opening to foreign companies in Saudi Arabia's gas fields, which have been off-limits to international companies since nationalisation in the mid 1970s.

But Naimi suggested further openings were some way down the road.

"It's wise to know the results of this work first - then we can direct our efforts to other areas," he said.

Copyright 2004, Reuters News Service

http://www.forbes.com/business/energy/newswire/2004/03/07/rtr1289277.html



Firms reach deals to drill for Saudi gas

Sunday, March 7, 2004 · Last updated 8:19 a.m. PT


By BRUCE STANLEY
AP BUSINESS WRITER

RIYADH, Saudi Arabia -- In a milestone agreement, Saudi Arabian officials signed contracts with foreign oil executives Sunday to explore for natural gas in the country's vast southern desert known as the Rub al-Khali, or Empty Quarter.

Saudi Arabia boasts the world's fourth-largest deposits of gas, but the government had never before invited foreigners to make competitive bids for rights to explore for this resource. The four winning companies, including two from Russia and China, said they expected to invest several billion dollars to develop any gas they discover.

U.S. firms were conspicuous for their absence among the winners of these landmark deals. However, Saudi Oil Minister Ali Naimi played down any significance in that regard and instead stressed the advantages of working with a mixed group of what essentially are second-tier energy companies.

"We actually chose the best bidders, and we are in fact very pleased at this diversification," he told a news conference at a government conference center in the Saudi capital, Riyadh.

Saudi Aramco, the state-run oil concern, took a 20 percent share in each of the three contracts awarded. Its partners are Lukoil Holdings of Russia; China Petroleum & Chemical Corp., or Sinopec; and a consortium comprising Italy's Eni SpA and Repsol-YPF SA of Spain. Each partner has an 80 percent stake in its project.

Although Saudi Aramco announced the awards in late January, the deals did not become official until now. The contracts are to last for 40 years, with exploratory surveys and drilling to begin immediately.

Saudi Arabia wants to use its undeveloped gas as fuel for an ambitious range of planned industries, including plants to treat and desalinate water and factories to make petrochemicals, steel and cement.

Naimi said plans for exporting gas are also envisioned, but he stressed that Saudi Arabia must first use its gas to meet its domestic needs of diversifying an oil-dependent economy and creating jobs for the country's burgeoning population.

Saudi Arabia began opening up its gas industry to foreigners after abandoning in 2002 the so-called Saudi Gas Initiative, a huge and unwieldy investment scheme that would have coupled upstream gas exploration and production with downstream petrochemicals and utilities. In a much more modest deal last summer, the Anglo-Dutch Royal Dutch/Shell Group and France's Total SA won rights to explore for gas in an area of the eastern Rub al-Khali.

The Oil Ministry offered up for auction three areas in the northern Rub al-Khali in July. Although 41 companies expressed interest, only six placed bids, and of these only one - ChevronTexaco Corp. - was American. It placed second in the bidding for all three contracts.

Yahya Shinawi, the ministry's director general in charge of technical affairs, said he was surprised to see a U.S. "super-major" like ChevronTexaco participate even to this extent.

"You don't usually see super-majors in frontier areas. They usually come in later," after other, less cautious companies have already found gas or oil, he told reporters.

Some analysts had a different explanation for the small number of bidders.

"A lot of companies couldn't make the numbers work," said Martin Purvis of Wood Mackenzie, a consultancy based in Edinburgh, Scotland. Saudi Aramco will pay a comparatively low price for any gas that its partners might find and will also keep sole ownership of any oil, he said.

Purvis added that the auction's outcome appeared to be "a political play" concerning Russia and China. Naimi, the Saudi Oil Minister, lent credence to this idea, in spite of insisting that Lukoil and Sinopec had won their contracts on the objective merits of their bids.

Russia is Saudi Arabia's main rival as an oil producer, and the Saudis have had little success so far in winning its cooperation for OPEC's policy of keeping crude supplies tight and prices high. Saudi Arabia, with the world's largest oil reserves, is the most powerful member of the Organization of Petroleum Exporting Countries.

China, meanwhile, is a major buyer of Saudi crude. Its rapid economic growth will make it a still bigger market in the future.

Saudi Arabia hopes to build closer ties with both countries. There is, Naimi said, "no question in my mind that strengthening the economic relations will strengthen other areas of cooperation."

Sinopec Vice Chairman Wang Jiming agreed, saying his company's involvement in the Saudi gas business would "help further to promote the country-to-country political relationship" between China and Saudi Arabia.

To find gas, Saudi Aramco's foreign partners must each explore an area larger than Kuwait. Neither Lukoil nor Sinopec has had much experience exploring for gas outside their respective homelands, much less under such inhospitable desert conditions. Nonetheless, Lukoil president Vagit Alekperov said his company was prepared to invest $3 billion over the life of its contract, and Sinopec suggested that it would consider investing a similar sum.



http://seattlepi.nwsource.com/national/apmideast_story.asp?category=1107&slug=Saudi%20Gas%20Pion....