1999 Speech

Natural gas development in Saudi Arabia
Full text of speech by Minister of Petroleum and Mineral Resources Ali Al-Naimi at the Institute for International Energy Studies in Tehran, Iran

Excellencies, distinguished delegates and friends: it is indeed a pleasure to be with you today. I am honored to be among so many prominent petroleum industry leaders. I would like first to express my deepest thanks and appreciation to His Excellency Bijan Zangeneh the Minister of Petroleum of the Islamic Republic of Iran for inviting me to speak to this distinguished audience. I would like also to express my appreciation to the Institute for International Energy Studies for their high level organization.
My friends: I am happy to be in Iran, a country for which we have great respect. The mutual cooperation and friendship between Saudi Arabia and the Islamic Republic of Iran have proved to be highly fruitful for peace in the region and its economic growth and prosperity. In the field of oil, the common interest between the two countries, as well as other oil producing countries inside and outside OPEC, has restored stability to the international oil market, which we all enjoy today.

I believe this mutual respect and friendship will continue by consistent consultation, exchange of ideas, strict adherence to key decisions when they are taken, and making sure that any future initiatives or actions will be made collectively.
Today, I would like to discuss with you the Saudi gas industry, keeping in mind that our entire region has a deep interest in developing all our hydrocarbon resources.
I believe that oil and natural gas are firmly placed as the preferred fuels of the future. Moreover, their elemental properties make them ideal as feedstock for petrochemical industries.
The emergence of natural gas as an important hydrocarbon supply source has brought a new dimension to the future of Saudi Arabia. For many years gas was seen largely as a disposable by-product of oil. We might ask in retrospect how a natural resource of such great abundance could once have been flared to the atmosphere. The answer is simple practicality: at the time, it had little usefulness or economic value.
By that I mean that in the early days of our oil activities, in the 1940's, '50s and '60s, natural gas found with oil had few commercial outlets. Aside from the occasional gas-fired turbine or as a pressure-builder for re-injection, gas had only nominal value.
There were no major industrial customers to speak of, hence no ready market. And even if there had been such customer’s pipelines and other facilities were lacking for efficient distribution of gas. Therefore, the existing industries burned liquid fuels, such as fuel oil or kerosene.
Like roaring campfires at night, the flare stacks were perpetual symbols of "hydrocarbon hyperventilation," expending power potential while the far more valuable oil was being recovered. Prudence, of course, dictates that wasting natural gas was imprudent. And the tide eventually started to turn.
Saudi Arabia fully recognized the potential of natural gas. Invoking the principles of five-year planning, the Kingdom embarked on one of the most ambitious gas projects ever undertaken by a single nation: the Master Gas System.
Throughout the 1970s, the Kingdom's landscape was transformed into a bustling project site, crowded with contractors and engineers building a coast-to-coast gas gathering system. Links from wells to separation plants tapped into the field sites, channeling associated gas to the first of many gas treatment plants in the recovery process. Gone were the flare stacks, replaced by a surging new resource for economic development.
The incredible transformation of gas as a by-product to gas as a value leader was far more than just the building of a system. In the process modern industrial cities in Yanbu' and Jubail were launched providing the seeds of diversification, essential for domestic economic growth.
I mention these accomplishments because they are living proof that careful management of a nation's resources is both a responsibility and an opportunity. Consider the benefits accruing today as a result of decisions taken a quarter-century ago.
First, our abundant gas reserves are no longer flared. Instead, they're captured and distributed to where their value is capitalized. Second, a vast infrastructure of power generation plants and water desalination centers has supplied Saudi Arabia with vital utilities for both private and commercial consumers. And third, the development of gas-based businesses is being vigorously advanced by the Government.
The Saudi model for success has thus been harnessing all its promising natural resources -- not just its dominant one, oil -- to open up opportunities for its citizens, now and in the future.  Hardly three decades have passed since the advent of natural gas. But this short period was decisive in helping to change our economic fortunes dramatically. How important that time has been!
Let me now turn to another compelling picture. If you were to visit Jubail and Yanbu' today, you'd find more than ample evidence of progress.
First, there would be the obvious: large industrial complexes with extensive infrastructures.
You'd see petrochemical plants producing hundreds of different products, competitive in quality and value to the world's best.
This transition is still taking shape in Saudi Arabia. Today, we are pressing forward to develop further the bases and uses of our natural gas. While we currently have natural gas reserves well in excess of 214 trillion cubic feet, our efforts are centered on non-associated gas, or gas produced entirely independent of oil.
Our goal is to virtually more than double the existing capacity of the Master Gas System, through a year-by-year development program that will expand the entire gas network by the installation of new processing facilities, transportation and distribution systems to meet the economy's growing demand.
Major new gas recovery and handling projects at Hawiyah and expansion of the existing gas plants are underway. In addition NGL and ethane recovery plants underway in Berri. These are capital-intensive projects with long-range effects. The net benefit will be a stronger and more fuel-efficient base from which the Kingdom will enter the next millennium.
What are the expected returns? First, we believe optimal, readily available fuels like natural gas will enhance our nation's ability to encourage private sector growth. While the cost of energy should certainly be pegged to recover the investment required to produce it, it should also remain economically competitive enough to ensure a steady market.
The price of natural gas was thus increased in Saudi Arabia in beginning of 1998 to reflect its growing demand and the high costs associated with future expansion. Yet over the long term, it will remain a truly efficient and economic choice in running our plants and industries.
Gas as a commodity retains the desirable qualities of efficient production and distribution, and an absolutely essential feedstock in the production of petrochemicals. It is this last area where high interest is drawn, because the plentiful supply of gas, along with its fractionation into numerous commercial products, make it more than a desirable choice.
So Saudi Aramco is today busy with multiple projects to double our gas production and distribution capacities. This is expected to take time, planned carefully over a number of years, but steadily enhancing the Kingdom's position as a major user of gas.
Successes are being recorded without delay. Last year, for example, Saudi Aramco added nearly 8 trillion cubic feet of non-associated gas reserves, along with more than 3 billion barrels of crude oil and condensates.
Significantly, these new gas reserves increased our non-associated total to some 78 trillion cubic feet -- more than 36 percent of our total gas reserves. So it should be no surprise that continuing our efforts to find and secure non-associated gas is one of our main priorities.
So today, my friends, Saudi Arabia is steadfastly engaged in broad new efforts to develop our natural gas industry. We are currently active in building the new gas processing facilities, natural gas liquids plants and pipelines designated to serve more domestic customers including those in Riyadh's province.
We fully recognize that any foreign investments in joint ventures need to be assured of sustained fuel and feedstock supplies. That is why the lion's share of our current exploration efforts is in this area.
Further, the Saudi Government has taken steps to streamline its industrial base, promote privatization and open more avenues for entry of entrepreneurs. Our Council of Ministers, for example, has recently announced the establishment of a new private joint-stock utility company serving both Jubail and Yanbu' with Saudi Aramco, Saudi Basic Industries Corporation and other major shareholders as partners. The new utility will carry out the full management of a variety of essential systems.
They include water cooling, desalination, water supply and electricity supply systems -- all essential elements for an effective industrial base. Meanwhile, the Saudi public will be invited in due time to become shareholders in this new enterprise.
These are all open-ended, on-going initiatives active right now in Saudi Arabia. We are indeed moving forward boldly in our five-year planning efforts to expand an already stable economic base. While oil will most definitely be the dominant revenue-driver for the Kingdom now and well into the future, natural gas is taking on a solid role, and building its position yearly.
In closing, I would like to reaffirm the importance of cooperation between Saudi Arabia and the Islamic Republic of Iran for the achievement of stability in the International energy market for the joint benefit of oil producers and consumers. This cooperation can be expanded to cover the area of natural gas where we can exchange ideas and share experiences through meeting at conferences like this one.

Thank you.