2003 Speech

Speech of Oil Minister Ali Al-Naimi on occasion of signing of natural gas agreement

Your Highnesses, Your Excellencies, Honored Guests:

I am pleased to welcome you on this blessed evening of this blessed month to celebrate an historic occasion, an occasion that will occupy a prestigious place in the rich record of our national development and our world-class petroleum industry.

This evening we witnessed the signing of the Kingdom's first natural gas investment agreement, which is being implemented in response to the initiative of Deputy Prime Minister and Commander of the National Guard Crown Prince Abdullah bin Abdulaziz, to encourage international oil companies to invest in the Kingdom's gas sector.

The South Rub' Al-Khali Upstream Partnership Agreement signed today not only forms an important strategic alliance between the Kingdom and major petroleum companies such as Shell, Total, and Saudi Aramco, but also serves as an indicator of confidence in the strength and solidity of the Saudi economy. This agreement also represents a significant advance in the wise and far-reaching strategy to develop gas investments and achieve a number of vital national goals, such as:

- supporting existing efforts to develop an integrated gas industry and encourage the exchange of technical expertise, development programs and technological applications to maximize this important natural resource;

- continuing to provide gas to support infrastructure projects and help expand the nation's industrial development over the long term and ensure its global competitiveness;

- providing more training and career opportunities for citizens through gas projects, supplemental projects and support operations for which gas is the catalyst; and

- supporting the Kingdom's efforts to improve investment conditions, to attract capital to finance vital projects, and to encourage local and foreign investments.

This integrated approach towards comprehensive reforms in various state sectors is undertaken in line with the directives of the Custodian of the Two Holy Mosques King Fahd bin Abdulaziz, and of the Crown Prince. These reforms will aid the Saudi people in realizing their aspirations today, and help to satisfy future generations' requirements tomorrow.

Dear Guests:

The Saudi gas industry has made tremendous progress since its inception more than a quarter of a century ago. In my opinion, the Saudi gas industry can be characterized in three major phases. The first stage was based on associated gas and began with the shift from the flaring of associated gas to the construction and operation of a massive integrated natural gas network- the Master Gas System. This system acted as a foundation for a huge industrial base, built on a reliable and competitively priced supply of associated gas for fuel and feedstock.

The second stage came with the expansion of the Master Gas System to harness non-associated gas, beginning in the mid-eighties. This stage has undergone renewed impetus in recent years with the increased exploitation of non-associated gas, the commissioning of the Hawiyyah Gas Plant in 2001, and the construction of the soon-to-be inaugurated Haradh Gas Plant. As a result of this growth, the gas system has been expanded beyond its traditional operational area and has now reached the Riyadh region.

Today, with great confidence and satisfaction, we enter the third stage with the signing of this landmark agreement. This third stage will bring increased industrial and economic development, the opening up of the gas sector for investment, and the creation of long-term strategic partnerships. This stage also envisages the increased integration of all stages of the gas industry, from exploration and production, to transportation and manufacturing, through fractionating and distribution. In addition, there will be growth in supplemental operations, the development of critical support services, the encouragement of technological development programs, and a greater exchange of technical expertise. As a result of these efforts, we will be able to maximize the gas sector's added value to the national economy and achieve the highest returns for the Kingdom through efficient investment in this vital God-given resource.

These three stages of development demonstrate the vital role played by gas in the past, and the role it will play in future economic and industrial development. The proportion of gas to the total energy consumed in the Kingdom, which increased from 35 percent in 1990 to more than 40 percent at present, is the highest in the world. Gas consumption is set to increase further over the coming five years due to an expansion of economic activities which depend on reliable gas supplies, particularly in the petrochemicals, power generation, and water desalination sectors. Such economic and industrial growth is closely connected with the government's overall development plans and strategies, which are designed to bolster the progress of Saudi citizens, provide better living conditions for the Kingdom's people, and create new jobs to accommodate the needs of a growing population.

Therefore, one of the most important aims of the Kingdom's gas initiatives is to assist in creating jobs for citizens, either directly or through related support services and activities. The Kingdom's gas industry presently provides around 35,000 direct jobs, and a total of 150,000 indirect jobs. This figure will grow steadily with increased investment in the gas sector, and the resulting acceleration of gas related support services in the Kingdom.

It is worth noting that the companies signing this agreement tonight have undertaken to employ Saudi nationals in various jobs according to their qualifications, skills, and expertise, up to 75 percent of their employees. The companies will also develop and implement training and qualification programs for Saudi employees and give priority to Saudi contractors and service providers, who will, in turn, work to create additional new career opportunities for Saudis.

Dear Guests:

The project we are launching tonight is the first of a series of energy projects based on the new investment environment in the Kingdom. We have worked closely with the various ministries and government agencies in the Kingdom to develop and sustain this environment, not only to make the Kingdom an exceptionally attractive location for investment, but also a model of an effective and competitive investment climate in the gas domain.

During the past five years, since Crown Prince Abdullah invited the oil and gas companies to invest in the Kingdom, many efforts have been undertaken to reach a comprehensive understanding of the best ways to exploit the Kingdom's gas wealth, and to attract international investment. We also explored the experiences of other countries thoroughly, and benefited from our negotiations with the various international companies as we developed all of the appropriate investment regulations. To this end, the Kingdom took the following steps:

First, we laid the foundation for an attractive, clearly-regulated investment environment, to enable the expansion of the nation's gas activities. A number of legal and financial frameworks were issued, and new rules and regulations governing non-associated gas exploration and production operations were introduced, including gathering, operation and transportation activities; third party access to shared facilities; and licensing local distribution systems. New Gas Investment Regulations were introduced, providing a flexible and attractive legal climate for this vital sector. The new gas sector regulations are designed to facilitate and guide activities, not to restrict them. All concerned parties now enjoy access to the necessary procedures and tools to suggest their views to the ministry for adoption in developing new upstream regulations, and in designing adequate processes for the settlement of disputes.

Next, we developed a clear vision of the future structure of the gas industry that facilitates the participation of private sector investor in the entire gas value chain, including exploration, production, and development, as well as the construction of pipelines, recovery and fractionation plants, and distribution systems.

Third, we entered into long-term agreements characterized by transparency and balance between the Kingdom's interests and the rights of investors. These agreements, based on appropriate regulatory and financial framework, crystallized the opportunities provided by the government to local and foreign investors.

Finally, I would like to emphasize that the project being signed today is only the beginning of a series of investment projects, all of which are designed to further develop the nation's precious natural gas resources. These projects will promote the Kingdom's increasing industrialization, bolster economic development, and enable the formation of lucrative and mutually beneficial long-range business partnerships. To this end, the Ministry of Petroleum and Mineral Resource has, according to a specific time schedule, invited international petroleum companies to present bids for other promising areas in North Rub' al-Khali. These bids will be assessed on a clearly competitive basis and in utmost transparency as provided for in the governing regulations; will enjoy attractive investment terms in line with international standard; and will promote the best interest of the kingdom in exploring, producing and processing natural gas. The results of this bidding process will be announced within the coming months upon completion of the relevant process and procedures.

Before closing, I want to congratulate Shell, Total and Saudi Aramco on tonight's signing and to wish them success in this new project. My deep appreciation goes to all my colleagues in the Supreme Council for Petroleum and Minerals, and the staff of the Ministry of Petroleum and Mineral Resources and other government agencies. It was their wise guidance and continuous efforts that built this historic landmark along the path of prosperity traveled by our beloved country.

Thank you.