In February 2002 BP chief executive John Browne delivered a speech at the Royal Institute of International Affairs in London. He was asked about whether BP would stick with the Saudi gas initiative if the company did not get the right terms. Browne declared his priority was the return to BP shareholders. For some in the audience, this clearly signalled the gas initiative was doomed. The project was based on the principle that its benefits would be shared fairly between the kingdom and big oil, not according to the financial priorities of one party. The sceptics were proved right 16 months later, when the gas initiative in its original form was declared dead.
At the end of last month Lord Browne announced that BP had made a record $4,000 million profit in the third quarter and $12,600 million net income in 2004 so far. Every major company is reporting similar business results. Like Browne, their chief executives have been made richer by many millions of dollars in the process. Is there a lesson here for Middle East oil companies? Yes there is: be selfish. For three decades, OPEC countries have been at the receiving end of lectures about how they should run their economies for the good of the world economy. When oil prices rose, they were advised to open their doors to international oil companies (IOCs) that were said to hold the key to expanding production capacity. When prices fell, OPEC was told to sell assets to cover financial deficits. The profit imperative So Lord Browne's admirable devotion to the targets in his bonus scheme is an inspiration. Middle East oil corporations should emulate his approach to business and borrow the strategies that BP and other IOCs apply in pursuit of profit and shareholder value. Saudi Arabia is setting the pace for others in the region through the ambitious activities of Saudi Aramco and Saudi Basic Industries Corporation (Sabic). Saudi Aramco has turned its back on IOCs in upstream oil and is selectively working with majors in developing gas reserves only when there is a deal that makes business sense. In the biggest petroleum investment programme on earth, the company is acting to maintain its position as the world's leading energy exporter. It has confirmed that work is starting on the Abu Hadriyah reservoir, the first full-field development project since the mid-1980s, and is expanding its domestic gas gathering network. Aramco is also implementing at speed the complex and ambitious Rabigh refinery and petrochemical programme in partnership with a Japanese rather than a European or US oil major. Saudi dominance Sabic is on the move as well. In one of the most significant Saudi international investment initiatives since the kingdom bought into the American oil refining industry at the end of the 1980s, Sabic chief executive Mohammed al-Mady revealed in October that the company plans to invest in Mexico's petrochemicals industry. This is in line with a strategy, already expressed in Sabic's acquisition of DSM Petrochemicals of the Netherlands, to get inside the protective trade barriers surrounding North American and European markets. The goal, which Browne would surely applaud, is to become in world polyolefins what Saudi Aramco already is in oil: the dominant plastics supplier and a price setter rather than a price taker. Both corporations are prepared to work in each other's sectors. Saudi Aramco is developing polyolefins in China and Sabic says it is considering buying a refinery in the country. Together, they are mining opportunities in the entire oil and gas value chain from exploration to sales to final customers. Saudi Arabia's energy value chain vision echoes the principles behind the original gas initiative that was unveiled to an excited industry in 1998. The difference is that the kingdom is not going to rely on corporations tha