For those that thought that Iraq would lead to a US hegemony with Uncle Sam dominating the Persian Gulf, here's reality.
Award for Saudi gas projects heralds new era
The recent culmination of Saudi Arabia’s four-and-a-half year quest for foreign investment in its natural gas sector was a far cry from the way it had been envisaged at its inception. Russian, Chinese and European firms were the winners, and US companies are out of the picture.
ChevronTexaco, the only US major to have been named as one of the top bidders for acreage in the reconstituted gas initiative, found itself in second place for all three of the Empty Quarter blocks awarded in Riyadh on Jan. 26-28.
Russia’s Lukoil and China’s Sinopec each won an 80 percent stake in the 29,900 square kilometer Block A and the 38,800 square kilometer Block B respectively. Italy’s Eni and Spain’s Repsol-YPF won a 50 per cent stake and a 30 per cent stake respectively in the 52,000 square kilometer Block C. The foreign firms have succeeded in filling the void left by big players such as ExxonMobil, BP and ConocoPhillips when the kingdom’s original gas initiative collapsed last year. State-owned Saudi Aramco will partner the winning foreign firms with a 20 percent stake in each of the three blocks.
Shell and Total were the only two companies to win a concession as part of the original gas opening before it was restructured and relaunched in July. In October, the two companies finalized agreements with Saudi Arabia for the Shaybah gas project, which covers a 200,000 square kilometer area of the Empty Quarter to the south of the three blocks awarded last month. Shell leads the consortium that will operate the concession and has a 40 percent stake. Total and Saudi Aramco each have a 30 percent stake. Operations are expected to start this quarter.
The winners of the latest three concessions all have a keen interest in building closer energy links with Saudi Arabia. Lukoil is seeking to develop overseas interests in a bid to evolve into an international major. Sinopec is under orders from Beijing to build up stakes in overseas production. And Eni and Repsol-YPF represent Mediterranean gas importers with a long-term eye on diversifying gas supplies.
Eni has long advocated the creation of a regional gas grid that would allow Saudi gas to be exported to Europe an idea Riyadh rejects. None of the gas produced from the blocks will be exported.
The focus of the three projects is exploration for nonassociated natural gas, and processing of any gas that is found. Returns will be slowly taxed at 30 percent until internal rates of return reach 8 percent. As the return rises above 8 percent, the tax will gradually rise, reaching 85 percent once a return of 22 percent on total capital is reached.
Lukoil says it will invest over $200 million during a 5 year exploration period, and expects a return on investment of at least 15 percent. Sinopec was the only firm to seek an exemption on royalties of 20 percent on condensate output. There will be no royalty payment on gas output. The downstream chemical, power and desalination elements of the original gas initiative are to be tendered separately.
Saudi Oil Minister Ali Naimi insisted that the winners had been chosen “in the clearest and most transparent of ways.”
The choice was based on four criteria: the size of the drilling commitment, the amount of seismic data collected, the size of payment for Aramco data and the volume of condensate output subject to a royalty exemption.
The message from Saudi Arabia was clear. The winners were chosen with complete impartiality and politics played no part in the selection of the winning firms.
It was not always so. In fact, the history of the Saudi gas initiative is indicative of the changing nature of Saudi-US relations, and of a new culture ascendant in the kingdom and in the Oil Ministry.
The process started out as an exercise in old-fashioned Arabian values based on patronage and the importance of long-cultivated relationships, and it ended as a markedly open bidding process based on purely commercial principles. This change reflects a generational shift that is altering the way the Saudi Arabian oil industry operates.
The world first learned of the Saudi gas initiative in the shape of leaks from a closed meeting between Crown Prince Abdullah bin Abdul Aziz and seven US oil firms in Washington in September 1998. The set of bidders was widened to include selected European firms.
Having accepted that foreign investment was needed to more fully explore and harness the country’s gas reserves, Prince Abdullah turned to his old relationships for help. The US companies proved the most unbending of the negotiating firms.
They might have hoped that the special nature of US-Saudi diplomatic ties especially with the process under the patronage of Prince Abdullah and Foreign Minister Prince Saud al-Faisal would be enough to steamroller the Oil Ministry into accepting their terms. But if they did, they were wrong.
When the Foreign Ministry finally threw up its hands and left the Oil Ministry to sort out the mess, Minister Ali Naimi was more than happy to restructure the gas initiative largest concession on offer and start from scratch. In the end, the old relationships counted for nothing. The original US participants withdrew, leaving the way open for Chinese, Russian and European firms to step in. The terms might not have been right for the larger US firms, but that in itself is telling.
Saudi Arabia was ultimately prepared to go to the open market to get the best deal. Ironically, US firms lost out because US commercial values brought to bear by a US-educated oil minister in the face of opposition from more traditional and more senior members of the government won the day.
The 70-year-old special relationship between Riyadh and Washington may have cooled in the wake of the Sept. 11, 2001, attacks; the US “war on terror;” and the Iraq war, but the absence of US oil firms from the Saudi gas projects was not politically engineered by the Saudis, even if the Chinese and Russian winners do represent new vital strategic partners for the kingdom. US companies will doubtless be free to bid when another tender appears, as the Oil Ministry says it will.
But they will have to compete with non-US firms. The history of the gas initiative to date shows that the days of special relationships are well over.
dailystar.com.lb
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Was this part of Cheney's '01 Energy Task Force plan?
Just wondering.
lurqer |
