RIYADH, 19 July — The Kingdom’s gas initiative is expected to bring down the cost of power generation and water desalination, according to Floris Ansingh, president and chief executive of the Shell Companies in Saudi Arabia.
He said the Kingdom’s domestic gas demand was expected to grow by eight percent per year through 2007.
Ansingh was speaking to reporters at the company’s new regional office in Riyadh last night.
The Royal DutchShell, which signed two major agreements with Saudi Arabia under the gas initiative, will invest $25 billion in downstream projects such as power generation, water desalination and chemical facilities over the next five years as part of the Core Venture Three, which involves the development of Shaybah area in the Empty Quarter.
Shell will lead TotalFinaElf and Conoco, which together have a 30 percent stake in Core Venture 3. The Core Venture One for the development of South Ghawar Field, is led by ExxonMobil which holds a 35 percent stake, with Shell and BP each holding a 25 percent stake, and Philips 15 percent. This venture focuses on gas exploration and development, investment in power generation, water desalination and petrochemical production in the eastern and the western coasts.
Ansingh said the Shell Group would bring Intergen, a joint venture between Shell and Bechtel for handling the desalination part of the project.
According to Charles Watson, director of Shell Gas and Power, “at the end of the day we need to offer the Kingdom, its industry and people new supplies of economically priced power and water, which have been developed as quickly as possible by a world-class developer. And this is where Intergen comes in. Intergen is ranked the world’s second largest Greenfield power developer. I hope the company will play a key role in the Kingdom.”
Ansingh said gas exploration under the Saudi gas initiative was one component of the project that would be undertaken by international oil companies in collaboration with Saudi Aramco. The exploration area will be outside Aramco’s exclusive zone.
The second component involves the production of gas and power generation for desalination plants. “In that phase we see a role for the Saudi private sector which will form joint ventures with the consortia of international oil companies.”
The Shell executive said in the chemical sector, the oil majors would set up joint stock companies for attracting private sector capital. “We don’t want the big business families alone. We want (to give a chance to others) to participate in these power generation and petrochemical projects,” he said.
The project will move in stages beginning with the signing of agreements between the Kingdom and the oil majors by Dec. 16. By then the commercial, financial, legal and technical aspects of the scheme will be defined under the “project definition program.”
Ansingh said the designing and implementation of the projects would take at least three years. The Saudi private sector, together with world class international firms, would be involved in various phases of the program.
As for the sale of natural gas, its prices will be controlled by a regulatory authority to ensure that no consumer is overcharged. Gas will be used as a feedstock for the burgeoning petrochemical industry as well as for electricity generation and water desalination. In addition, using gas domestically instead of oil could help free up 200,000-300,000 bpd of additional crude for export within the next two years.
Asked about job opportunities for Saudis in the upcoming projects, Ansingh said Shell was committed to enforce the Kingdom’s Saudization program. He referred to Saudi Aramco Shell Refinery Company (SASREF) and the Saudi Petrochemical Co. (SADAF), where Saudis constituted over 90 percent of the work force.
“Our (Saudization) target for the new projects is to reach the same level,” said Ansingh. He pointed that the Saudi work force would be exposed to an international environment. In the Core Venture 3, the Dutch company’s partners are TotalFinaElf of France and Conoco of the US. Thus there would be a “fascinating mix’ of Saudi and other cultures, he added.
