US expects little delay for Saudi gas joint ventures with foreign firms

Oct. 25, 2001
The $30 billion US and European oil companies plan to invest in Saudi natural gas ventures is not at risk, the US State Department's top Middle East policy official said. US Assistant Secretary of State for Near East Affairs William Burns said the US war on terrorism is unlikely to delay the projects long-term.


Maureen Lorenzetti
OGJ Online

WASHINGTON,DC, Oct. 25 -- The $30 billion US and European oil companies plan to invest in Saudi natural gas ventures this decade is not at risk, the US State Department's top Middle East policy official said.

Speaking on the sidelines of the recent Middle East Institute annual meeting, US Assistant Secretary of State for Near East Affairs William Burns said concerns that the US war on terrorism may cause long-term delays in the projects are unfounded.

"There is every indication business will continue there," he told OGJ Online. "There could be perhaps some short-term pauses of a month or so but nothing that would suggest that business contracts won't move forward."

Burns remarks parallel what industry executives have told analysts. Before the Sept. 11 terrorist attacks on the US, industry and Saudi government officials said they expected the final legal contracts to be signed by yearend. Now the formal paperwork may take another month or so.

The delays do not represent cold feet by either the Saudis or US companies, American company officials have said. Rather the new schedule reflects the fact most decision makers had to shift their focus to security issues in the past 6 weeks.

The five US companies with a stake in the new joint ventures are ExxonMobil Corp., Conoco Inc., Phillips Petroleum Co., USX-Marathon Group, and Occidental Petroleum Inc.

ExxonMobil is leading two of the three available "core ventures." The first project, what the Saudis call the most attractive investment opportunity, will include drilling in eastern Saudi Arabia at South Ghawar and using the gas to fuel two planned petrochemical plants, two power stations, and four desalination plants. Initial investment is estimated between $12-to $16 billion.

The other ventures are on the west coast (Red Sea) and at Shaybah field in the southeast "Empty Quarter" near the United Arab Emirates border. Those two projects will require investments of $5 billion to $10 billion each, the Saudis say.

Other members of the gas consortium include TotalFinaElf SA, Royal Dutch/Shell Group, and BP PLC.

Keeping the gas initiative moving forward is of mutual benefit to the oil companies and the Saudi government. US companies face a tougher investment climate because of lower world oil prices but see the Saudi investment as a way to shore up their bottom lines, even if they are not allowed to export any oil. ExxonMobil expects a rate of return of "at least" 15% from the projects.

Meanwhile the Saudis need the US companies' investments and expertise. The projects will help meet increasing demand for clean drinking water and cheap energy. Already 60% of the Saudi population is under the age of 20, and the population explosion is expected to continue.