2000 News Story
 

05/03/2000
Prince Saud's press conference on oil and gas investment

At a press conference in Jeddah today, Foreign Minister and Head of the Supreme Council for Petroleum and Mineral Affairs (SPMC) Prince Saud Al-Faisal predicted an investment in the Saudi economy of some $500 billion over the next ten years. This, he said, would result in positive changes in the nation's economy, through new job opportunities and a rise in the citizens' standard of living. He also confirmed that by 2002 Saudi Aramco could increase its gas production by more than 60 percent and ethylene by 100 percent.


Over the past two weeks the ministerial committee formed by SPMC has held a series of meetings with 12 of the 18 foreign oil and gas companies that had presented proposals for investment in Saudi Arabia following the invitation by Deputy Prime Minister and Commander of the National Guard Crown Prince Abdullah Bin Abdul Aziz. This positive response from the world's leading oil companies, he said, reflects confidence in the investment environment available in the Kingdom. Prince Saud went on to explain that some of the original offers had had to be turned down after study by the Ministry of Petroleum and Minerals and by the national oil company, Saudi Aramco. The Kingdom had, however, benefited from all the ideas presented in setting up its comprehensive strategy.
Prince Saud had special praise for the role of Minister of Petroleum and Mineral Resources Ali Bin Ibrahim Al-Naimi and his colleagues in the ministry and in Saudi Aramco in preparing this strategy, which is comprehensive, deliberate, precise, and realistic, and provides a sound basis for an effective oil policy. Part of the strategy, he explained, was discussion of the feasibility of foreign investment in gas and oil and its benefit to the national economy. There was consensus that the Kingdom possesses a unique historic opportunity due to its vast mineral reserves combined with an economic climate well suited to attract investments and enable it to achieve the highest possible returns on gas.
During the recent discussions with the oil companies, he said, three facts emerged:
Development of the sectors of oil, gas, electricity, desalination and petrochemicals would require investments of about U.S. $ 200 billion over the next 20 years.
There is an urgent need for the provision of gas in stable and economical quantities ensuring the establishment of a sound competitive industry. If the growth of gas supplies do not match the expected growth in the sectors of industry and services, this would limit the growth of these sectors and consequently affect the overall performance of the national economy.
A number of the major international oil companies presented serious offers of investment, to a value in excess of U.S. $ 100 billion and for the most part in the sectors of gas, electricity and desalination. These offers contain a self-financing mechanism by the companies themselves without resulting in any financial burdens for the kingdom.
Taking these into consideration, he said, the committee conducted a specialized financial study of the presented offers, making comparisons with investments carried out in other countries under similar conditions. It became clear that every dollar invested in the gas sector engenders between five and eight dollars invested in other sectors of the economy, a situation that is known among economists as "the aggregate factor". With this, around $ 500 billion dollars could well be invested in the Saudi economy over the next ten years.
Referring to the job opportunities expected to result from these investments, Prince Saud declared that after analyses based on similar experiences in other countries, it was found that each billion dollars invested in the gas sector is expected to create 2,000 jobs directly and 16,000 jobs in supporting areas such as operations, maintenance, services, supply, and transportation. All sectors of the economy, he said, would benefit from the returns of foreign investment, adding that it was, however, too early to talk about exporting gas, since this is being produced in the initial stages primarily to meet increased local demand.
Prince Saud reported that the foreign companies were informed that Saudi Arabia is looking for long-term partnerships with qualified firms, and aims at developing the gas sector in all its stages: exploration, drilling, production, transport and distribution, as well as developing downstream projects in the oil sector. The foreign investors were told that investment in the gas sector would be open for them as follows:
For areas where Saudi Aramco is currently producing pure gas, foreign companies would be given opportunities for investment in the post-production phases.
For areas where gas has been discovered but is not yet being exploited, foreign companies will be allowed to contribute in its development as well as participating in post-production phases.
For areas where gas has not yet been discovered, foreign companies will have the chance to invest in exploration, in addition to development, production, and post-production.
Prince Saud explained that the companies were offered two frameworks for investment in gas projects. The first involves major projects to extend from the production of gas to processing, transporting and distributing it, working with Saudi Aramco. The second involves support projects such as electric power stations, desalination plants, and petrochemical complexes, which would be implemented at a later date to coincide with the beginning of the major projects that will provide them with processed gas.
The assessment of the companies' offers, he said, is based on a number of considerations, most important of which are: a company's financial position, its technological standing, and its efficiency in managing projects; the intended size of the investment and the speed it would reach the greatest possible number of aspects in the national economy; the extent of the company's commitment to creating new job and training opportunities for Saudi nationals and attracting Saudi investors; the extent of dependence on local products, services and industries; and how far the company is committed to protecting the environment. He noted that Saudi investors would also have important supporting roles for these projects through the execution of secondary works such as services, maintenance, supply, transportation, and drilling. Qualified Saudi investors could participate in these directly or through partnerships with foreign companies.
Prince Saud made it clear that foreign companies will not be invited to invest in oil, since this area is reserved for Saudi Aramco. Nevertheless, opportunities will be available for investment in downstream operations. Saudi Aramco, he clarified, remains the representative of the government in supervising important aspects of any contract. Major investment projects would be in the hands of highly qualified foreign companies, but Saudi companies would be expected to participate in the future, and meanwhile in secondary projects. Saudi capital, however, can be involved, through the purchase of shares.  In fact, Saudi capital now overseas, is encouraged to return home.
Prince Saud emphasized the importance of transparency and direct dealing between the foreign companies and the government, with no middlemen or brokers. The weeks to come, he said, will see the bidders provided with full information, and complete bids will be received from them prior to the commencement of negotiations. At the moment, however, it is too early to delineate exactly the contributions of the government, the private sector and foreign investors.

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