July 19, 2002	Friday	Jamadi-ul-Awwal 8, 1423

RIYADH, July 18: With the oil majors and the Saudi side failing to reach a conclusion on the nitty gritty of the $25 billion Saudi gas initiative, during the current round of deliberations, which ended in Jeddah on Wednesday, it has now been reportedly decided that a new round of negotiations will take place between the two sides in the coming weeks. A final decision on the issue would now be made after the next round of deliberations only, industry sources were quoted as saying here.

It has further been reported that differences still exist between the Saudi team responsible for negotiations and the global energy firms on the outstanding issues. A Western oil executive was quoted as saying, “the gap is still big. Both sides believe that their terms are reasonable.” Some industry sources believe that in case no agreements are reached even in the subsequent meetings, Saudi Arabia may decide to restructure the entire gas initiative. Saudi Arabia is firm in its endeavours to let this initiative go ahead as soon as possible and is not willing to abandon it. In case “worse comes to worst (no agreement between the two negotiating sides even during the next meetings), the Saudi side may decide to restructure the plan and open it for bids under a new model and under new terms,” one source was quoted as saying yesterday.

Some of the companies, who were left out in the initial selection are still eager to get back into the selected team, so as to get a slice of the share on offer, industry sources confirmed to the Saudi Gazette.

Key points of disagreements are the rate of return and that could mean a surge in the price of power and water for Saudi consumers and the cost of gas for private businesses, including petrochemical plants going up. This may in fact impact the competitive advantage the Kingdom’s petrochemical plants enjoy over its Western competitors. “The Saudi side is not willing to take a decision which could result in any undue increase in prices of these utilities which could ultimately affect the common man,” an observer keeping an eye on the developments told The Gazette.

“For the companies the rate of return they are after is fair to justify the investment, but the kingdom sees it higher than the international standards,” a source was quoted as saying.

Some sources were reported to be saying that the kingdom wanted its potential partners to invest in areas with “high gas potential” and not only aim for areas with established gas finds.”

One major complaint form the energy firms is that the kingdom, holder of the world’s fourth biggest gas reserves is not providing enough gas, specially in the most prized Core Venture 1, the $15 billion South Ghawar development, led by ExxonMobil.