Gas Gives Oil Giants a Foot in Middle East's Door

, (From The Wall Street Journal via Dow Jones Newswires), Aug 14, 2007

Since the 1970s, major oil companies have been shut out of oil production in much of the Middle East. Now, the doors to foreign investment are opening again, this time for natural gas.

Last month, the massive Dolphin pipeline started moving gas from Qatar to the United Arab Emirates, where it will be used to generate electricity and feed a growing industrial base. Occidental Petroleum Corp., based in Los Angeles, and France's Total SA own a quarter of the project each and booked substantial reserves. The rest is owned by the U.A.E.'s national oil company.

Meanwhile, companies ranging from Royal Dutch Shell PLC, Russia's OAO Lukoil Holdings, Italy's Eni SpA and China Petroleum & Chemical Corp., or Sinopec, are involved in consortia drilling for gas in Saudi Arabia's Rub al-Khali, or Empty Quarter, in the kingdom's vast interior. Earlier this year, Britain's BP PLC signed a gas-exploration deal in Oman for two large fields that have sat undeveloped because of their complexity since their discovery a decade ago.

Several Western companies are jockeying to participate in a $10 billion project in the U.A.E. to tap sour gas, or gas with a lot of sulfur that has to be removed, near Abu Dhabi. Companies on the short list include Exxon Mobil Corp., Anglo-Dutch Shell, Total, BP, ConocoPhillips and Occidental.

The growing trend gives big Western energy companies opportunities to deploy their abundant cash and technology in a hydrocarbon-rich region, even as access to the world's new reserves of oil and gas gets tougher. Longer term, it could burnish their reputation with Middle Eastern companies and governments, should their oil industries ever open up.

It also gives the Western companies a toehold in a region growing by leaps and bounds economically, and where countries that produce a lot of energy are increasingly consuming more as well. Another attraction is that many Middle East nations have proven to be relatively stable despite war in Iraq, growing tensions with Iran and the threat of terrorism. Governments there haven't shown the nationalistic pushes seen in Russia or Venezuela, and many have shown they can keep the peace.

"Personally, I think investing in the Middle East is a hell of a lot safer than Africa," says Ray Irani, chairman and chief executive of Occidental. "In my opinion, the political stability is a lot more certain in the Middle East, and the financial stability is there. Their honoring of contracts is exceptional."

Dr. Irani also says Western oil companies can't afford to avoid the region. "That is where the oil and gas" are, he says. About two of every three barrels of oil yet to be pumped from the ground are in the Middle East, he says. He said last month on an earnings conference call that he was confident that the company would announce major new Middle East projects before the end of the year.

The need for natural gas as a fuel for electricity there is increasing, as is the desire to build more gas-intensive industrial facilities such as petrochemical plants. Bringing on these gas projects in a timely fashion is an economic necessity for some countries, says Leila Benali, an associate director of Cambridge Energy Research Associates who focuses on the Middle East and North Africa. Thus, countries such as the U.A.E., Qatar, Saudi Arabia, Iran and Bahrain, some of which have shunned outside involvement since the 1970s, are seeking foreign partners to expedite production.

Gas prices in the region are rising, improving energy-company returns. In the early part of this decade, gas sold for about $1 a million British thermal units in the Persian Gulf, Mrs. Benali says. Today, it can fetch between $2 and $4 a million BTUs, still below European and U.S. prices.

Qatar kicked off the trend in the late 1990s when it decided to invite in foreign companies to help it develop the huge North Field, beneath the Persian Gulf, and export it in the form of liquefied natural gas. Exxon and Shell have helped design and build a massive Qatar gas-export program, which increased that tiny nation's gas output from 484 billion cubic feet in 1996 to 1.75 trillion cubic feet a decade later, turning it into a global energy exporter.

Exxon Mobil, the world's largest non-state-controlled oil company by market value, has benefited from its links with Qatar. Earlier this year, Exxon reported that more than one-third of its total reserves -- or the equivalent of 8.1 billion barrels of oil that is economically and technically feasible to extract from the ground -- were in the Middle East and Asia. Five years ago, the company had less than one-sixth of its global reserves in the region. Outside of the Middle East and Asia, Exxon's reserves have fallen significantly. While the company doesn't break out its reserves locations more specifically, it has acknowledged that a large chunk of the growth has come in Qatar.

A wave of nationalization and appropriations swept across the Middle East in the 1970s. Western oil-company concessions were reclaimed by national oil companies, forcing Exxon and others to relinquish valuable properties. Booted from the region with the globe's largest oil reserves, the Western oil companies developed major discoveries in Alaska, the North Sea and elsewhere.

But in recent years getting access to reserves has become a critical issue for Western oil companies. Many reserves are now either off-limits because of government policies, or situated in nations with unstable political and fiscal regimes, making long-term investments difficult. Moreover, a recent trend has been for oil-rich countries to change contracts to increase the take for government coffers. As problems have mounted elsewhere, the Middle East has begun to look like an attractive place for investment again.

"In the U.A.E. or Qatar, there is less political risk than going to Russia or Venezuela, where people have lost their assets," says Amy Myers Jaffe, associate director of the energy program at Rice University in Houston.

Copyright (c) 2007 Dow Jones & Company, Inc.

Related Companies
 Company: Lukoilmore info


 - Lukoil Finds Oil at Iraq Well (Feb 22)
 - Lukoil: CEO, VP Sell $34 Million Worth Of Shares (Dec 30)
 - Sources: Russia's Lukoil Appoints New VP For Sales And Supplies (Dec 27)
 Company: Shellmore info


 - BP Says It Is Considering IPO of US Pipeline Assets (Jul 18)
 - Top Oil Market Summons Poseidon to US-Mideast Crude Fight (Jul 18)
 - Big Oil Sees Salvation in Gas, But What If It's a Wrong Bet? (Jul 18)
 Company: Total S.A.more info
 - Total, BP Unit, YPF Boost Investment in Argentina's Vaca Muerta (Jul 18)
 - Big Oil Sees Salvation in Gas, But What If It's a Wrong Bet? (Jul 18)
 - S.Korea's Hanwha Total Says Naphtha Cracker Shut After Lightning Strike (Jul 17)
 Company: ENImore info


 - Mexico Delays Next Oil Auction to Let Huge New Find Sink In (Jul 17)
 - Trump Administration Approves Eni Plan To Drill Offshore Alaska (Jul 13)
 - Total To Drill For Gas Off Cyprus Despite Collapse Of Peace Talks (Jul 12)
 Company: Sinopecmore info
 - Sinopec To Invest $5B In Gas Pipeline For New Economic Zone (Jul 25)
 - South Africa Wants Sinopec to Retain Refinery Capacity (May 25)
 - China's Unipec Will Keep Reselling Term LNG Cargoes -President (May 17)
 Company: Occidental Petroleummore info


 - Hess To Sell Permian EOR Assets To Occidental For $600 Million (Jun 19)
 - Occidental Profit Beats; Shares Fall On Weak Output Forecast (May 4)
 - US Shale Firms Go Back To Work Buoyed By OPEC Deal, Trump Victory (Nov 14)
Events  SUBSCRIBE TO OUR NEWSLETTER

Our Privacy Pledge
SUBSCRIBE


Most Popular Articles


Brent Crude Oil : $50.2/BBL 3.29%
Light Crude Oil : $47.89/BBL 3.34%
Natural Gas : $2.94/MMBtu 1.37%
Updated in last 24 hours