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Opec paying price for ban on oil majors

The Business: Opec paying price for ban on oil majors

“Qatar, eager to catch up in the Middle East, has given Exxon Mobil, Total and Royal Dutch/Shell stakes in the North Field and used them to build liquefied natural gas schemes.”

By Richard Orange

19 Sept 04

TO Qatar it is the North Field, to Iran it is called South Pars. Whichever you choose, the reservoir beneath the Gulf, shared between the two countries, holds more natural gas than any other in the world and a significant amount of oil. How the countries have handled its exploitation demonstrates the importance of doing deals with the oil majors.

Last week the majors called on delegates at the Opec conference to open up their territories to investment. The main reason they gave was to beat the shortage of oil production capacity; cynics would say they are salivating at the prospect of new business.

Qatar, eager to catch up in the Middle East, has given Exxon Mobil, Total and Royal Dutch/Shell stakes in the North Field and used them to build liquefied natural gas schemes. Iran, still antagonistic to the oil majors 25 years after expelling them during the Islamic revolution, insists on keeping full ownership of the gas.

The result: Qatar is nearly a decade ahead, setting up its first liquefied natural gas scheme in 1996 and completing more expansion earlier this year. None of Iran’s four liquefied natural gas projects has been realised.

The split in policy runs right through Opec. In the 1960s and 1970s, the National Iranian Oil Company, in consortium with eight oil majors, was producing 6m barrels per day (bpd) with 40,000 staff. It is now producing 4m bpd with 150,000 employees. Kuwait, near 3.5m bpd in 1975 is now at just over 2m bpd. Saudi Arabia has managed to add just 500,000 bpd to the 10m bpd it had at the time of nationalisation in 1976.

Iraq, before sabotage and the second Gulf war laid it low, was producing about 3m bpd mark, the same as it was when it was nationalised in 1976.

Countries which have given companies stakes have seen production soar. Qatar and Algeria have doubled output over the past decade. Libya, which declined throughout the 1980s, has managed to grow production since attracting limited participation from foreign oil companies in the 1990s. The end to US sanctions this year, and the return of the US and UK oil majors, will see this growth accelerate.

Iran, Kuwait and Saudi Arabia have talked of opening up over the past decade, but oil ministry plans have been thwarted by conservative leadership.

Last month, Iran’s hyper-conservative parliament rejected the oil ministry’s attempt to offer a new type of oil development contract to the majors.

The Kuwait Petroleum Company will this December try to push through plans to bring back the majors through parliament one more time. In Saudi Arabia, bad feelings linger from three years of aborted talks between oil minister Ali Naimi and Exxon on an integrated gas project.

In the past, Opec could always argue it had no need to increase capacity. But it is pumping full-out without knocking down the oil price, and the spare capacity, at just 300,000 bpd last month according to the IEA, is amongst the tightest ever.

The Saudi national oil company, Saudi Aramco, argues it can solve the problem alone. It has proposals that will add as much as 800,000 bpd to it capacity this month and has plans to expand from today’s 10.5m bpd to as high as 15m bpd.

At a time when the oil majors are returning more than $25bn in cash to shareholders because of a lack of investment opportunities, perhaps it is time for the majors and Iran, Saudi Arabia and Kuwait to patch up their 30-year spat.

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