Oil majors line up Saudi plans

Foreign investors will be allowed to develop gas

The world's largest oil companies are due to submit final proposals for investments in Saudi Arabia's energy sector on Saturday, industry sources said.

Any projects receiving the go-ahead would be the first significant foreign investments in the Saudi energy industry since nationalisation in the 1980s.

"It is a major step," said a source at one international oil company, speaking on condition of anonymity.

The Gulf state is the world's largest oil producer and exporter, with output in July of about 8.4 million barrels a day.

Spending cutback

The submission of investment proposals marks the end of a process begun in late 1998 when Saudi Arabia's Crown Prince Abdullah invited ideas for developing Saudi energy.

Low oil prices in that year had forced a sharp cutback in capital spending by the national energy company Saudi Aramco.

But local energy demand was rising rapidly from new industrial projects and a soaring population rate.

After many years of underinvestment, the state's ageing utilities infrastructure was also showing signs of strain, with power cuts and water shortages not uncommon.

Saudi Arabia: proven energy reserves, 1999

Oil: 263.5 thousand million barrels

Oil: 26% of the world's total

Gas: 204.5 trillion cubic feet

Gas: 4% of the world's total

Source: BP's statistical review of world energy

The Saudi authorities are hoping to draw on the financial strength and technical expertise of the international oil giants and link new energy projects with a wider programme of infrastructure renewal.

With more than 100,000 young people entering the labour market each year and unemployment increasing, the government is also hoping that scores of new jobs will be created.

After consultations with Saudi authorities, the oil firms are thought to be proposing plans to develop natural gas reserves for use in specific power, water desalination or petrochemical projects.

Analysts say any investments by an international oil company - likely to amount to several billion dollars - would be significant not so much for their size but because they would leave the company well-placed should Saudi Arabia open to further foreign involvement later.

Real prize

Oil exploration and production is not on the agenda now, Saudi officials have said.

But this would represent the real prize for oil firms in the future.

Some 12 companies, including the major US and European players, were invited to propose investments.

The speed with which any plans would be developed is very hard to judge, the source said. "The process is evolving slowly but progress is being made," he said.

The submissions will be considered by a Saudi negotiating team which will pass its recommendations to the recently-created Supreme Council for Petroleum & Minerals Affairs, headed by the Foreign Minister Prince Saud al-Faisal.

Consortia approach

So far, the Saudi authorities have not indicated whether any projects would be carried out by firms working individually or in partnership with others, the source said.

"It would seem logical that eventually there would be consortia," he said.

This approach is being followed in Kuwait, where a group of oil firms is to be offered an operating service agreement for selected oilfields in the first foreign investment in the sector for 25 years.

Unlike in Kuwait, Saudi leaders have said little publicly about their precise intentions.

Analysts say this is partly because of disagreements among senior officials.

Saud al-Faisal - a former deputy oil minister - is enthusiastic about the prospect of international oil firms becoming involved and modernising Saudi energy, they say.

Petroleum & Mineral Resources Minister Ali Naimi is said to be less keen, being a loyal supporter of the capabilities of Saudi Aramco, of which he was formerly president.