Saudi On Verge Of Agreement Over Gas Fields

Saudi Arabia and a group of international oil giants are on the verge of reaching an agreement to launch a multibillion dollar gas project that has eluded the two sides for nearly a year despite its massive benefit to both, economists said yesterday.

The world's dominant oil power first floated the twenty five billion dollar gas initiative nearly five years ago when Crown Prince Abdullah bin Abdulaziz met chiefs of international oil giants and invited them to invest in the kingdom's massive but untapped gas sector.

There was a positive response and a preliminary agreement was reached last year between Riyadh and a consortium of eight global oil firms to develop gas fields for domestic consumption and associated industries.

"It is nearly five years since the idea was presented and it is time that a final agreement is signed not necessarily with those companies...time has become crucial and the window of opportunity will not last forever," Saudi economist Ihsan bu Hlaika said.

"But according to my information, there has been substantial progress and possibly a breakthrough in recent contacts I think they are about to finalise a deal."

According to recent press reports, the Saudi Government has notified those companies that if negotiations about carrying out the three core ventures do not reach a conclusion within two months, then the whole deal will be opened up to other bidders. The right of the eight companies involved in the negotiations exclusively expired in late March.

Gulf industry sources spoke about several major issues of differences between the two sides, mainly the internal rate of return assumed for specific elements and for the projects. The government is believed to have suggested a ceiling of ten per cent while the companies have been looking for at least 15 per cent.

Quoted by the Paris-based Oil and Gas magazine, an official Saudi source said there has been no official notification made to the eight companies.

"But we have made it clear that the negotiations can not go on for ever...we do not want the sites allocated for all the gas initiative projects to be kept indefinitely with no work going on...we need to know where we can stop and say 'let us find another way.'"

ExxonMobil won the lion's share in the initial signing, taking the lead of two consortia tasked with developing South Ghawar field, requiring an investment of around $15 billion, and the Red Sea field, needing $5 billion.

Royal Dutch/Shell was selected to lead a consortium to develop the desert Shaybah field expected to require an investment of around $five billion. BPAmoco and Philips Petroleum were chosen in the South Ghawar group while TotalFinaElf and Conoco were included in the Shayba group and Occidental and Marathon in the Red Sea group.

Bu Hlaika said Saudi Arabia was in a bad need for such investment, which he expects to trigger growth in the slackening domestic economy and provides thousands of jobs.

He said the deal means an additional annual investment of 10 per cent over 10 years and injection of all the funds would boost the gross domestic product by 1.5 to 2 per cent.

Bu Hlaika's figures showed Saudi Arabia had already attracted cumulative industrial investment of more than $60 billion, including around 60 percent in petrochemicals.

"This gas initiative will give tremendous support for the industrial sector..it has several advantages in terms of higher growth, new jobs and development of our infrastructure... other sectors will benefit including support services such as the communication, catering and transport sectors," he said.

"I think it is time that the government makes up its mind and get this initiative moving...we know those firms want the best terms but the most important thing now is to stop wasting time and put that initiative into action...it will largely serve our interests."