Petroleum Investment in the Arabian Gulf

54 Pages·2004·1.53 MB·English

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.
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Figure 1
Capital Expenditures for the Middle East Petroleum Industry
LNG-PLANTS
I
OIL b GRS
EXTRRCTION
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1'1
REFINERIES
PIPE LINES
CHEHl CRL
PLRNTS
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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.
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