Magazine article Washington Report on Middle East Affairs

Jareer Elass Discusses Oil Production Issues

Magazine article Washington Report on Middle East Affairs

Jareer Elass Discusses Oil Production Issues

Article excerpt

JAREER ELASS DISCUSSES OIL PRODUCTION ISSUES

Jareer Elass, managing director and editor-in-chief of Oil Navigator Inc., discussed recent developments in Gulf oil production policy at a June 6 Middle East Institute briefing. Elass, whose Washington-based energy consulting firm has broad access to regional players and key energy officials in the Middle East and the former Soviet Union, discussed the rise in oil prices experienced by the U.S. oil market experienced in the first days of June.

Elass informed his audience that, at the March meeting of the Organization of Petroleum Exporting Countries, OPEC ministers had adopted a price-band mechanism by agreeing to maintain prices between $22 and $28 a barrel for basket crude from six OPEC countries. The price-band mechanism requires that, if the 20-day average price of crude oil either falls below $22 a barrel or exceeds $28 a barrel, OPEC adjust output by 500,000 barrels a day (b/d).

But, as Elass explained, some OPEC delegates, including Saudi Oil Minister Ali Naimi, suggested reviewing the mechanism, saying a question remained on how to automatically allocate 500,000 b/d coming into the market.

Speaking of possible crude oil and energy development in Saudi Arabia, Elass said that the idea of opening the Kingdom's state-held energy upstream sectors to foreign investments was initiated by the oil companies in September 1998, in meetings between Saudi Crown Prince Abdullah bin Abdul-Aziz Al-Saud and U.S. and European oil firms.

Elass said that one of the factors which encouraged opening up the upstream sector two years ago was the market situation at that time. Crude prices in the U.S. in September 1998 averaged between $15.50 and $16 a barrel, half of today's price. There was also a major concern as to whether the Kingdom would have the financial resources to develop and maintain its future crude production capacity. With the recovery of oil prices in 1999 and 2000 some of that pressure has been taken off.

"Today, when Saudi Arabia is sitting on 2.5 million barrel a day of its spare capacity, perhaps oil minister Naimi was able to convince the government that with the higher oil prices there was less of a need to develop the crude production capacity," Elass said. "As a result, today the Kingdom is focusing more on developing natural gas, petrochemicals and power projects."

The Oil Navigator director described a similar process of opening up to foreign investment in Kuwait. "The Kuwaiti project valued at $1,000 billion focuses mostly on the development of four fields in northern Kuwait," he said. …

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