Hard talks begin on gas initiative

26 October 2001

As the 16 December deadline for signing implementation agreements on the Saudi gas initiative approaches, the bargaining over details is in full swing. Sources close to the discussions say that the deadline is still expected to be adhered to, although the agreements may have some loose ends. The sources say there are a number of issues of substance to be resolved relating to the availability of gas and the commercial terms of downstream investments, but the negative noises emanating from some of the international oil companies (IOCs) should be seen as part of the negotiating process.

One of the fundamental issues is the amount of gas that will be available for the three core investment groups, and the commercial risks of developing these reserves. 'The companies are in serious negotiations about this point, and are hoping that they will eventually be offered expanded access to additional gas reserves,' says one industry source. This might take the form of alterations to the geographical structure of the three core venture blocks, or granting access to some of the gas reserves of Saudi Aramco, which are estimated at around 220 trillion cubic feet. However, the source emphasises that this is a long-term objective, and the whole process is still in its early stages.

The IOCs have also been carrying out detailed studies on the downstream elements of the estimated $25,000 million programme, including power stations, desalination plants and petrochemical schemes. The recent progress towards the creation of an electricity regulator and the establishment of a dedicated water ministry has been welcomed by the IOCs, but it is clear that further discussions will be necessary after the 16 December signing to arrive at final project structures.

Core Venture 1, the largest in terms of projected investment, is led by ExxonMobil Corporationof the US, and covers the South Ghawar region. The other partners are the Royal Dutch/Shell Group, the UK's BP and the US' Phillips Petroleum Company. ExxonMobil is also the lead investor in Core Venture 2, involving a largely unexplored tract in the Red Sea area. It partners are Marathon Oil Companyand Occidental Oil Company, both of the US. Shell is the leader in Core Venture 3, covering the Shaybah and Kidan regions. Its partners are Conocoof the US and France's TotalFinaElf.

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