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INFORMATION
AND INSIGHTS ON MIDDLE EAST DEVELOPMENTS
THE NATIONAL COUNCIL ON U.S.-ARAB RELATIONS
AND
THE U.S.-GCC CORPORATE COOPERATION COMMITTEE
A
NEW FRAMEWORK FOR UNDERSTANDING THE "SAUDI CONSENSUS ON
FOREIGN ENERGY OPENING"
KEVIN
TAECKER, an economist
specializing in the Saudi economy, heads Enterprise
-- Saudi Arabia, a Washington-based consulting company and
is the 1999-2000 International Affairs Fellow at the National
Council on U.S.-Arab Relations and the U.S.-GCC
Corporate Cooperation Committee.
He was previously chief economist of Saudi
American Bank in Riyadh and the U.S.
Treasury Department's specialist for world energy markets
and the Arabian Gulf economies.
Saudi
Arabia's invitation for greater foreign participation in its
energy sector has generated considerable excitement in the oil
world, along with questions about how far this opening may
reach. The thought,
alone, that this might ultimately point to the opening of the
Kingdom's petroleum reserves for commercial development would
change fundamentally any expert's long-term outlook for global
energy markets.
For
now, however, it seems clear that Saudi oil development will
remain the prerogative of the state.
Rather, this initial step to opening Saudi Arabia's
energy sector is for natural gas development related to new
"value added" projects (as for electric power,
petrochemicals, or water).
A
Reuters article, that appeared in the Gulf News on November 6,
1999, related some disappointment that this opening was just
partial, not whole. Drawing
upon a study prepared by Mr. Nawaf Obeid, a Saudi national
Harvard PhD candidate and oil market commentator, the article
makes several observations about the nature and scope of
political consensus in Saudi Arabia for opening the energy
sector. Mr. Obeid
observes that the decisions to open more fully will depend on
assessments of the strategic value of bringing in international
interests, freeing capital for other projects, and the
advantages of bringing increased competition to the energy
sector.
Because
of the enormous size of Saudi Arabia's reserves and its
essential contributions to regional stability, that framework
for assessment -- bounded by strategic interest, capital, and
competition -- helps both to explain the past and forecast the
future of Saudi oil policy.
Indeed, it seems that such considerations will always be
important given the size of Saudi Arabia's reserves and the
importance of its contributions to regional stability.
Those
who would express disappointed, however, about the
"partial" versus "full" opening appear to
place a very low value on these considerations.
Given the recent trends both for Saudi economic
policymaking and for world energy markets, that conclusion could
be wrong. To the
contrary, the approach taken promises to do much to open a broad
spectrum of new economic opportunities for private sector
companies (both Saudi and foreign), while avoiding possible
consequences that could destabilize the world oil market and
impede Saudi Arabia's new economic progress.
With
joining the WTO as its practical centerpiece, Saudi Arabia's new
Supreme Economic Council has embarked upon adopting and
implementing a full agenda for economic liberalization and
reform. A new
consensus has emerged between government and the private sector
which aims to promote true "private sector-led growth"
as soon as realistically possible, and for the long-term.
Against this important new framework for assessment, the
opening for integrated value added gas development promises to
make many positive and far-reaching contributions.
Using
more gas and less oil can make a big difference for the
long-term global competitiveness not only of Saudi industry, but
of the whole Saudi economy.
Beyond offering handsome returns to the owners and
investors, the building of this new generation of
gas/value-added projects will benefit a broad range of companies
for commerce, construction, and services.
With Saudi Arabia under the WTO, such new opportunity
will be of interest to both Saudi and foreign companies.
The decision does much to promote the role of the private
sector and to foster the higher levels of economic expansion
that are needed to accelerate employment growth without
over-reliance on oil prices and government spending.
On
the other hand, a decision for full opening of the energy sector
could have a variety of unwanted consequences.
What if international companies were able to produce
Saudi reserves as intensively as the reserves they control
elsewhere? At
current production rates, Saudi reserves represent over one
hundred years of supply. What
if Saudi production were to increase four fold to where current
reserves represented, say, 25 years of supply (still longer than
for many regions)? It
is hard to see how markets would cope with the prospect of a 20
million barrel per day surge in new supply?
Moreover, depending upon how rights were awarded, what
would it mean for competition and consolidation among global
energy companies?
Nor
is it clear that such a step effectively to increase the
importance of oil to its economy would help to achieve the
Kingdom's long-term economic goals.
While progressive openings of the energy sector clearly
have the potential to generate substantial new economic
opportunity across the private sector, a full opening could
represent a sharp turn away from the new economic consensus.
Indeed, such a step could threaten to upset the growing
momentum for broader liberalization and reform.
Thus,
the decision for partial rather than full opening appears less
as a disappointment and more as a step that builds both economic
capabilities and confidence.
If this step goes well (as appears likely) there is ample
room still short of full opening for continued progressive
liberalization of the Saudi energy sector.
For all of Saudi Arabia to meet the competitive
challenges of the global marketplace under WTO rules-based
trade, the approach taken promises to develop a wide range of
productive strengths (for better use of resources, capital, and
manpower), rather than a narrow few (in and around the oil
patch). Indeed, the
wisdom of this approach appears to be that it builds consensus
for the new economic agenda while offering to enhance the
private sector economic opportunities for many, rather than just
for a few.
Related
Sites:
Enterprise
- Saudi Arabia
Kevin R. Taecker
Globalization Consultant
Enterprise -- Saudi Arabia
4442 Ellicott St, NW
Washington, DC 20016-4047
Office: 1 202 248 8016
Home: 1 202 237 6858
Fax: 1 202 237 0743
Email: kevintaecker@starpower.net
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****************************************************************************
National Council on U.S.-Arab Relations
President and CEO: Dr. John Duke Anthony
U.S.-GCC Corporate
Cooperation Committee
Secretary: Dr. John Duke Anthony
1140 Connecticut Avenue, NW
Suite 1210
Washington, DC 20036
Tel: 202.293.0801
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PATRICK W. RYAN
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mailto:gulfwire@ArabiaLink.com
C. R. TRISDALE
Deputy Editor, GulfWire
mailto:CRTrisdale@ArabiaLink.com
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