Petroleum Investment in the Arabian Gulf PDF
Preview Petroleum Investment in the Arabian Gulf
OXFORD INSTlTUTE = = FOR ENERGY STUDIES Petroleum Investment in the Arabian Gulf Goran Bergendahl Oxford Institute for Energy Studies F5 1985 The contents of this paper are for the purposes of study and discussion and do not represent the views of the Oxford Institute for Energy Studies or any of its members. Copyright 0 1984 Oxford Institute for Energy Studies ACKNOWLEDGEMENTS Many persons have given valuable comments to the author concerning the content of this report. Special thanks go to John Mugno, Citibank; Lakdasa Wijetil leke, Michael Pearson and Isaac Sam, World Bank; Jens Mb1 lenbach, Leo Drol las, Marshal 1 Hal 1 and John Borkowski, British Petroleum. 1. PETROLEUM INVESTMENTS IN THE MIDDLE EAST 1 2. INVESTMENTS IN KUWAIT 4 3. INVESTMENTS IN QATAR 10 4. INVESTMENTS IN SAUDI ARABIA 16 5. INVESTMENTS IN THE UNITED ARAB EMIRATES 26 6. CONCLUSIONS 34 MOTES 45 REFERENCES 46 FIGURES FIGURE 1 CAPITAL EXPENDITURES FOR THE MIDDLE EAST PETROLEUM INDUSTRY 3 2 FLOW OF GAS PRODUCTS IN QATAR 12 TABLES TABLE 1 CRUDE OIL PRODUCTION AND PETROLEUM REFINING IN KUWAIT 37 2 INVESTMENTS IN KUWAIT 38 3 CRUDE OIL PRODUCTION AND PETROLEUM REFINING IN QATAR 39 4 INVESTMENTS IN QATAR 40 5 CRUDE OIL PRODUCTION AMD PETROLEUM REFINING IN SAUDI ARABIA 41 6 INVESTMENTS IN SAUDI ARABIA 42 7 CRUDE OIL PRODUCTION AND PETROLEDM REFINING IN TRE UNITED ARAB EMIRATES 43 8 INVESTMENTS IN TIIE UNITED ARAB EMIRATES 44 In 1974 the thirteen OPEC countries suddenly received record oil revenues of $114 billion. The disposal of that income was as follows: 35% was used to finance imports of goods - mainly - - consumer goods and the remainder the current account surplus was placed abroad, mainly in the form of bank deposits (see statistics in Bergendahl 1984). When a second, even larger wave of oil revenues ($279 billion) reached the thirteen countries in 1980, a larger proportion (some 64% or $179 billion) was used directly for imports. But this t i m e a substantial part of the remainder was placed into longer-term assets, such as stocks, bonds and real estate. Two years later oil revenues f e l l slightly to a level of $200 m i l l i o n and the current account surplus almost disappeared. What had happened? Did the OPEC countries choose to direct their surpluses into domestic consumption or into domestic investments? The answer is not a simple one for at least two reasons. First, there is an enormous difference between the four low-absorbing OPEC countries and the other nine. Kuwait, Qatar, Saudi Arabia and the UAE accounted for o i l revenues of $62 billion in 1974, $206 billion in 1980 and $104 billion in 1982, with more and more spent on domestic consumption and investments (39% in 1974, 68% i n 1980, and 86% in 1982). Secondly, since the "low-absorbers" by definition are unable to consume most of their oil revenues, they therefore had substantial opportunities for investment from 1974 t o 1982. Figure 1 shows how the four low-absorbers have taken advantage of this situation by letting petroleum investment grow from $700 million in 1971 to more than $14 billion in 1981. This implies a growth rate of 35% per year, a very high rate in comparison t o other OPEC countries and the rest of the third world. The present study w i l l investigate the activities behind these statistics. The purpose w i l l be to fol low up actual investments made by the four low-absorbing Gulf countries during the ten year period 1973-82. The emphasis w i l l be on petroleum- related investments. However, other large-scale investments w i l l also be included. The outline is as follows. The analyses of actual investment alternatives are i n Sections 2-5, with one section each for Kuwait, Qatar, Saudi Arabia and the United Arab Emirates. Finally, conclusions and areas for further study w i l l be presented in Section 6. 2 Figure 1 Capital Expenditures for the Middle East Petroleum Industry LNG-PLANTS I OIL b GRS EXTRRCTION ;I 1'1 REFINERIES PIPE LINES CHEHl CRL PLRNTS 3 The small kingdom of Kuwait, with about 1.45 m i l1 ion 2 , inhabitants in an area of 17,000 km has one of the highest per capita incomes in the world. Though the country is quite young - - it became independent in 1961 its o i l history stretches back over several decades. In 1933, the Anglo-Persian O i l Company (today British Petroleum) and the Gulf O i l Company applied for a concession. One year later they formed the Kuwait O i l Company (KOC) which started to explore the concession area in 1936. In 1938 o i l was discovered in Burgan in Southern Kuwait. After the Second World War Burgan was developed, and exports started in 1946. O i l was discovered at Margwa in 1951 and at al-Ahmadi in 1952. After 1955 KOC started to d r i l l in Northern Kuwait. O i l was discovered at Raudhatain in the same year, at Bahra in 1956, a t Sabriyah in 1957, at Minagish in 1959 and at Umm Gudair in 1962. In 1974, the Government took over 60% of the assets of KOC including a refinery and an LPG plant at al-Ahrnadi. The f ol lowing year the Government acquired the remaining 40% equity. BP and Gulf O i l were guaranteed liftings of 500,000 b/d and 450,000 b/d respectively at a discount of 15 cents/barrel and with 60 days’ credit. 4
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