Saudis seek $623 billion in foreign investments

May 23, 2005
Saudi Arabia, by 2020, plans to invest $50 billion in natural gas production projects, $92 billion in petrochemical expansion projects, and $90.

Saudi Arabia, by 2020, plans to invest $50 billion in natural gas production projects, $92 billion in petrochemical expansion projects, and $90.7 billion in electric power grids, said members of the Saudi Committee for the Development of International Trade during a trade mission to the US May 9-18.

The US Departments of Commerce and Energy and the National Association of Manufacturers also backed the forums, which were scheduled in New York, Atlanta, Houston, Chicago, and San Francisco.

The investments are part of an overall $623 billion package of opportunities the Saudis are calling “the largest call for foreign investment in decades.”

Saudi Aramco said it is “allocating feedstock (for refining, power generation, and petrochemicals) to 24 expansion projects totaling $30 billion in investment” that are expected to come online during 2006-10. The oil industry provides 35% of the country’s nominal gross domestic product, 75% of government revenue, and 85% of export receipts.

Among oil and gas projects are five increases in crude oil production, a new natural gas liquids recovery plant and expansion of the master gas system, and expansion and upgrading of refining and distribution facilities.

The work will include the design and construction of more than 20 offshore platforms, gas and oil separation plants, and 2,300 km of flowlines and long-distance pipelines, Saudi Aramco said.

Future expenditures on materials and services for activities including engineering, pipelines, and equipment for oil development are expected to exceed $44 billion within 5 years, the company said.

Downstream, Saudi Aramco is expected to announce plans for a new $5 billion refinery at Yanbu and another $5 billion for upgrading its Ras Tanura refinery and adding a petrochemical facility.

The current value of nine major upstream and downstream projects now under way exceeds $8.3 billion. The current work includes two joint venture projects to explore and develop the nonassociated gas resources of massive Ghawar field in the country’s Empty Quarter (OGJ Online, Jan. 28, 2005; July 16, 2004).

Saudi Aramco also is moving forward on two natural gas liquids megaprojects for the Khursaniyah Oil and Gas Program and the Hawiyah NGL Program (OGJ Online, Mar. 21, 2005).

Enticement reforms

Saudi Arabia is privatizing 20 major state enterprises, establishing 14 regulatory authorities to carry out reforms, improving foreign investment laws, revising commercial laws, and implementing intellectual property rights to foster innovation, the US-Saudi Arabian Business Council said.

Although the US already provides 16-20% of all Saudi imports, Saudi Arabia wants to increase the partnerships it has with established US and other companies, particularly as it seeks membership in the World Trade Organization (WTO) in 2005.

The country has initiated a series of reforms designed to encourage participation by non-Arabic companies and plans to offer more than $800 billion in privatization opportunities within the next 10 years.

Saudi Arabia has devised a new “business-friendly” tax code and reduced import tariffs, removed currency restrictions and import barriers, introduced new services and advanced technologies, and lifted currency restrictions. It also has restructured the water and power sectors and modified insurance and banking regulatory frameworks.

“For both the US and Saudi Arabia, a firm set of rules regarding trade in services is more important than ever before,” reported the council. It added that Saudi Arabia “should continue to implement the final economic reforms necessary to join the WTO” and that “it is imperative for the US to stand by its long-held commitment to Saudi accession and assuage the Saudi concerns that the goalposts are being moved further out by the Americans in the negotiations.”

Security threats are being addressed, especially in the wake of attacks in the kingdom in 2003-04. In 2005, the US Department of Homeland Security is spending an additional $10 million to improve overseas visa facilities in Saudi Arabia and other countries in the region, while Saudi officials reportedly increased security spending 50% from $5.5 billion in 2003.

Trading partners

Saudi Arabia has been the US’s largest trading partner in the Middle East for more than 4 decades, and US companies are the largest foreign investors in Saudi Arabia. Bilateral trade between the countries increased to more than $26 billion in 2004 from $160 million in 1970.

According to the council, Saudi Arabia reclaimed its spot as the largest crude supplier to the US in January at 1.6 million b/d, reversing last year’s trend of lower Saudi volumes.