Posted on 08/14/2002 3:31:42 AM PDT by Prodigal Son
Saudi gas projects hang delicately in the balance as the kingdom weighs difficult options to decide the fate of the $25 billion investment, industry sources said on August 3.
Riyadh faces the dilemma of wanting to see the projects go through to open the door for much-needed foreign direct investments, but is unwilling to sign a deal that could be seen as wasting national resources, a Saudi economist said.
The eight foreign companies which signed a preliminary agreement in June last year with Saudi Arabia want to see that every component of the complicated projects is profitable on its own, the economist told AFP.
Several rounds of talks between the two sides have been held, culminating in a meeting in mid July between the ministerial committee and the CEOs of ExxonMobil and Royal Dutch/Shell, Lee Raymond and Phil Watts.
According to the Middle East Economic Survey, the ministerial committee, headed by Foreign Minister Prince Saud Al Faisal, was to hold a crucial meeting on Sunday to review the situation.
The committee was expected to study offers from foreign oil majors setting out their 'final position' and then make recommendations to the country's de facto ruler, Crown Prince Abdullah Bin Abdul Aziz.
Prince Saud has said an appropriate decision serving the interests of the kingdom will be taken on the basis of the offers, confirming that the projects will go ahead under all circumstances.
"I think that unless a major development takes place, the issue will have to go to the crown prince for a political decision," an oil executive told AFP.
Profitability, risks involved in the investments expected to last 25 to 30 years, and details about the rate of return from power plants, water desalination and petrochemical plants were at the core of the tough negotiations.
Companies have been offered some 10 to 12 percent as a rate of return, but are demanding up to 18 percent.
The investment is very complicated, including upstream, mid-stream and downstream projects in gas exploration, petrochemicals, water desalination and power generation.
Exploration of gas has been restricted to areas not under Aramco, the national oil company, which the foreign majors claim is not enough.
"They want enough territory in line with the large investments," an industry source said.
Two deadlines in December and March passed without agreement between the oil-rich kingdom and eight international oil firms. No new deadline has been fixed.
The Saudis are under pressure because the inflow of foreign direct investments has dried up, especially since the September 11 attacks in the United States.
Between April 2000, when the Saudi Arabian General Investment Authority (SAGIA) was established, and early September 2001, the kingdom agreed to projects for foreign investors worth $9.22 billion.
Between September and the end of June, the value of projects given to foreign investors was just $2.2 billion, according to SAGIA.
The oil majors are also under pressure since several other foreign firms have recently sought to join the projects.
This has prompted speculation that the whole affair may be restructured to take into account the new bids.
However, the industry source said: "The components of the projects might change slightly, but the kingdom is willing to keep the main framework unchanged."
ExxonMobil has the lead in two projects, while Royal Dutch/Shell leads a third, altogether requiring initial investments to the tune of $25 billion.
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