Saudi Arabia Plans Conversion of Power to Natural Gas by 2002

By Sean Evers Bloomberg News | THE JOURNAL RECORD, October 2, 1997 | Go to article overview

Saudi Arabia Plans Conversion of Power to Natural Gas by 2002


Sean Evers Bloomberg News, THE JOURNAL RECORD


RIYADH -- Saudi Arabia, the world's largest oil exporter, plans to convert its domestic power usage from oil to natural gas by 2002, with private investors set to play a central role because of the great capital demands, said Saudi American Bank's chief economist Kevin Taecker.

The kingdom's blueprint for conversion to gas was presented last week at a Saudi Arabian conference on the use of gas for power and industrial development, being held in Yanbu, an industrial city on the Red Sea coast.

"The rising domestic consumption of oil cuts into Saudi's valuable export volume," said Taecker, a speaker at the conference, and whose bank is the nation's largest by market value. "There is no global market for gas and shipping it is way too expensive, so the more gas they consume domestically the more oil they will have to export." Foreign companies attending the conference include Eni SpA, Italy's state-controlled energy company and its engineering unit, Snamprogetti; Bechtel Group, a closely held U.S. engineering and construction company based in San Francisco; Mobil's liquefied natural gas unit, Mobil LNG; Royal Dutch/Shell Group; and Powergen Plc., a U.K. power generator and supplier. Saudi American Bank said the costs of fully developing the gas resources, building the pipelines and distribution grids needed to take gas to customers, and to convert, expand, and develop new electric power generation facilities will be enormous. Saudi Arabia, though, is starting to recognize the limitations of bank financing and the advantages of equity capital, analysts said. "Eni intends to participate in the development of different gas projects in Saudi Arabia through the establishment of different joint ventures," said Aldo Carbone, Eni's representative in Saudi Arabia. According to the International Energy Agency, world oil demand is set to grow by 30 percent over the next 15 years. Saudi Arabia consumes domestically about 15 percent of the 8 million barrels of oil it produces each day, and in terms of returns for units of energy consumed, natural gas will generate more electricity or desalinate more water than most other fuels, including oil. Saudi Arabia incurred a budget deficit for the 14th consecutive year in 1996, which has restricted its ability to underwrite infrastructure projects. Deep spending cuts, though, since 1992 has seen the budget deficit fall to about 3 per cent of national output from about 20 percent in the early 1990s. "The Saudi government will have to step aside and let the private sector into the energy and petrochemical industries, because it is not in a position to meet the great demands for capital in these industries," said Michael Frisby, counselor for commercial affairs at the U.S. embassy in Riyadh. According to official U.S. government figures, the native population of Saudi will more than triple by the year 2020. …

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Saudi Arabia Plans Conversion of Power to Natural Gas by 2002
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