OPEC nations may link oil exploration to refining projects

May 21, 2005 02:00 AM

OPEC nations, holders of about three-fourths of the world's oil reserves, may link their most profitable oil-field developments to less attractive refining ventures to spur international companies to invest in new refineries, the group's president said.
"To make the downstream attractive to the international oil companies, maybe we can have this kind of cooperation," Sheikh Ahmad Fahd al-Sabah, the OPEC president and Kuwait oil minister, said at the World Economic Forum in Jordan. "If we can have a joint investment in petrochemicals, upstream, downstream, it will be interesting for everybody. It can be the main point to secure the supply for the market in the future."

Oil prices surged to a record $ 58.28 a barrel in April, in part as a lack of refining investment constrained production of gasoline and other fuels. No new refineries have been built in the US in about 30 years, leading to proposals for new plants in Saudi Arabia and other members of OPEC.
Oil companies make most of their money pumping oil, as opposed to refining and making fuels. BP, the world's second-largest publicly traded oil company, in the first quarter made $ 6.45 bn before interest and taxes by pumping oil, or 78 % of the company's total profit. Saudi Arabia and Kuwait, which refines about 40 % of its crude oil, have said they will allow the public for the first time to buy shares in refineries they are planning to build. The two refineries will have a joint capacity of about 1 mm bpd and cost in total almost $ 10 bn to construct.

Kuwait's parliament before the end of the year may approve a plan to allow international oil companies to invest in a $ 7 bn project to boost the country's output at its northern fields, the minister said. Once that is done, the process to choose the winning bidder may take four to six months, he said.
Chevron, the second-largest US oil company, is willing to consider combined investments in both oil exploration and oil refining, as long as the projects are linked, said James LeJeune,president of the company's business for the Middle East and North Africa.
"If there is a commercial link between the two, that is the issue," he said.

Saudi Arabia plans to invest in oil refineries in India and at home as part of its push to expand capacity in Asia, after failing to secure licenses to build new refineries in the US On a Texas trip last year, Saudi oil minister Ali al-Naimi offered to help build two 200,000-bpd refineries in the US No companies took up the offer, the minister said April 25.
Saudi Aramco, the state oil company, now is inviting international oil companies such as Chevron and Shell to join a $ 5 bn refinery project to help boost fuel supplies. The project is for a 400,000 bpd refinery that may be attached to a petrochemical complex. Saudi Arabia's oil reserves, the world's largest, are exploited by the state-owned oil company, as the country opens up to foreign exploration for natural gas.

Source: Bloomberg
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