19-08-04

Seeking to diversify the kingdom's dependence on oil revenue, Saudi Arabia has signed lucrative gas deals with some of the world's major energy players to develop the country's gas fields. Amid rapidly increasing profits from rising oil prices, Saudi Arabia seeks to diversify its economy.
The Saudi oil sector represents 80 % of the country's budget revenue, generating massive profits. For instance, the prime cost of extracting oil from the Shaybah field costs approximately $ 1 per barrel and it costs around $ 4 per barrel to ship oil from Saudi Arabia to the United States.

The field extracts some 600,000 bpd of oil; Saudi annual income can be roughly computed to approximately $ 4 bn. Meanwhile, a skilled worker at the field earns around $ 15,000 per month, according to Russia's Finansovye Izvestia.

Saudi gas deals could prove just as profitable. Saudi Arabia has a total proven gas reserve of approximately 9.2 t cubic yards, which places the kingdom fourth following Russia, Iran, and Qatar. The current volume of gas extraction in Saudi Arabia is 241 mm cubic yards per day.

This year, Saudi Arabia has divided gas concessions into three parts. The kingdom allocated block A to the Russia's LUKoil, block B to China's Sinopec, and block C to the Italian-Spanish consortium ENI and Repsol for geological prospecting and development of the country's gas in the Rub Al Khali, or Empty Quarter, desert.

The Saudi kingdom had initially considered rendering the gas concession to US and British companies ExxonMobil and BP, who already have a tight grip in the Saudi oil business. The three companies do not have as much experience as their US-British counterparts in implementing such projects in the Middle East but are actively trying to penetrate the region. For example, LUKoil already has contracts in western Iraq, Iran and Egypt.

LUKoil, Sinopec, and ENI and Repsol won bids earlier this year for rights to develop Saudi natural gas deposits.

"Saudi Aramco is very pleased to have another opportunity to partner with international oil companies," said the company's president and CEO Abdullah S. Jum'ah. "We look forward to putting forth our best efforts to leverage the kingdom's natural resources. We recognize the importance of natural gas to the future of the country, and it's gratifying to see ourselves participate in this endeavour," added Jum'ah.

Saudi Minister of Oil and Mineral Resources Ali al-Naimi and LUKoil president Vagit Alekperov set up a 40-year joint venture called LUKSar. LUKoil owns 80 % of shares and Aramco has 20 %; the company will invest $ 215 mm on prospecting in Saudi Arabia with a potential to increase the Saudi gas project to $ 3 bn, if the company yields positive results. LUKoil will drill and produce natural gas at Block A, covering 18,641 square miles.

Under the agreement China develops Block B covering an area of 24,109 square miles in the south of Saudi Arabia's Rub Al Khali province. The first phase of the project was set to be $ 300 mm. The two European partners will work at Block C, covering 32,311 square miles. Under the agreement, the three companies will each pay 30 % of profits to the Saudi government until domestic profitability of the projects has reached 8 %.

Saudi Arabia intends to double gas extraction within the next 20 years. The extracted gas will be used on the domestic market to generate electricity, desalinate water, and develop the metallurgical, petrochemical, and construction industries. Saudi Minister of Oil Ali al-Naimi does not rule out the possibility of gas export.

The entire kingdom depends on oil revenues. If gas is discovered it will be used on the domestic market instead of oil. The economized oil will replenish the state reserves and will allow the country to increase oil exports when necessary. Saudi Arabia seeks to use gas as a way to alleviate the country's dependency on oil.

Prior to this year's gas deals, Saudi Arabia had awarded Shell and France's Total deals to develop Saudi gas deposits. In the meantime, Saudi Arabia continues lucrative oil deals as a means to alleviate tensions in the region. Saudi Arabia supplies Iraq with 1.7 mm barrels of oil products daily.
According to the Saudi Chambers Council National Transportation Committee Member and Al-Jari General Director Hizam Zayid al-Qahtani, the Iraqi and Saudi Ministries of Oil agreed that the kingdom will cover part of Iraqi market demand, which is approximately 168,000 mm barrels of oil products daily.

The kingdom also assists Iraq's major trading partner, Jordan, who suffered the most since the majority of the country's economy and oil needs come from trade with Iraq. Saudi Arabia announced the kingdom's decision to extend the oil grant to Jordan for one year, according to Saudi Minister of State and official government spokesperson, Asma Khadr.

Following the war in Iraq, Jordan began obtaining half of the country's oil needs, which average 100,000 bpd of oil, from Saudi Arabia while obtaining the other half from the United Arab Emirates and Kuwaitin the form of grants.

Despite Saudi Arabia's lucrative oil and gas deals with foreign companies, terrorism may play a major role in foreign investment. The kingdom has endured a loss in foreign investment and a number of foreigners working inside the country have decided to leave after the spate of violence erupted last June.
Prior to the beheading of Paul Johnson in June, European engineering group ABB had five employees killed on May 1 in a gun attack at a Saudi oil facility at the industrial port of Yanbu on the Red Sea. Two Americans, two Englishmen, and one Australian were killed in the attack. Two local employees were wounded and a Saudi was killed. Four of the attackers also died.

"All remaining 90 ABB expatriate employees in Yanbu, along with about 30 family members, will leave the country in the next few days," a statement said. "Other ABB operations in Saudi Arabia are continuing their work, amid heightened security."

Units guarding economic facilities and residential areas area placed on high alert. The National Guard protects Saudi Aramco, its subsidiaries and enterprises.

The British Airways Company cancelled some long stopovers of its planes and a change of crews in Saudi Arabia; stopovers were moved to Kuwait. Lufthansa, the German airline did the same in May. The country could suffer a possible exodus of Western specialists from the country, according to a Saudi report.

Source: United Press International