Saudis may invite west to invest. Financial Times, October 8
Last week Prince Abdullah Bin Abdul-Aziz, Saudi Arabia's crown prince and acting head of state, did just that, when on a visit to Washington DC he asked the chief executives of eight US oil companies for ideas on how they might help in developing the Kingdom's energy sector. There was no direct reference to oil reserves, but the very fact that the meeting took place was enough to trigger speculation that Saudi Arabia may be contemplating a policy shift that might one day give foreigners access to a quarter of the world's proven oil reserves.
Such an outcome is the stuff of which oilmen's dreams are made. But are they about to pursue a desert mirage? Or is there substance behind the Saudi message?
Over the past week there has been a wide range of responses and interpretations. "The Saudis are very creative in being subtle," says Joe Stanislaw of Cambridge Energy Research Associates, an oil industry consultancy. He believes Riyadh is "testing the waters" in order to gauge international - and domestic opinion - about the possibility of deepening foreign involvement in Saudi Arabia's most politically sensitive economic sector.
Although the Saudi message was vague, European oil companies are keen to hear it directly. Last Saturday Franco Bernabe, head of Eni, the partially privatised Italian oil company, said: "Whatever Saudi Arabia does has an overwhelming influence on the world's oil industry." He said European companies are hoping that a similar invitation is extended to them.
Opinion differs as to what motivated the Saudi comments. Some believe it presages a big shift in attitude, and point to Saudi Arabia's growing need for large amounts of capital to develop its energy and industrial base at a time when real oil prices are back to where they were in 1973, before the first oil shock. The government, according to diplomats in Riyadh, is bracing itself for a budget deficit this year of about $13bn, 10 per cent of gross domestic product.
Meanwhile, the government's domestic debt, to commercial banks and state pension funds, has mushroomed to 100 per cent of GDP. "In order for us to expand even domestically, we need foreign partners," says Saudi economist Ihsan Bu-Huleiga. "This is a business proposition, part of Saudi Arabia's long-term strategic upstream development plan."
But does Saudi Arabia actually need foreign investment to maintain its position as the world's biggest oil producer and exporter? After all, Saudi Aramco, unlike other many other state oil companies, is among the most technologically competent in the world. It already knows where most of the oil and gas reserves are and can produce them at a cost similar to or less than that of an outside oil company.
As for access to new technology, it is increasingly developed not by the traditional oil majors - most of which have slashed research and development spending - but by the oil service companies, with which Saudi Aramco has long-standing links. And even though the government has used Saudi Aramco's credit-worthiness to borrow $4.6bn from international markets to help the finance ministry cushion the budget deficit, the company would have no problem borrowing additional funds for new projects, especially if they were export oriented.
Some of the US companies that attended last week's meeting warn about being too optimistic: "We don't think it signals a major shift in Saudi policy," said one senior US executive at the weekend. Saudi officials have recently said they are seeking "creative proposals" from foreign oil companies, and say they would look favourably on energy investment which would bring capabilities that Saudi Aramco does not have.
Although some companies are expected to include an upstream element in their package of ideas, they appear ready to be rebuffed. Others think there may be scope for foreign involvement in integrated projects aimed at developing the kingdom's domestic natural gas infrastructure. These could include some upstream participation, say analysts. Gas features prominently in Saudi industrialisation, both as a fuel for power generation - demand for which is growing strongly - and for the expanding petrochemical industry. |
