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Reopening of Upstream
Oil & Natural Gas to Foreign Interests:

Views and Actions of Iran, Iraq, Kuwait & Saudi Arabia
(Second Edition - september 2004)

The widely accepted forecast is that the global demand for oil will increase at a steady rate from the current 79 million barrels per day (mbpd) to 120 mbpd in 2030. On the supply side, the major assumption has been that the key producers of the Persian Gulf region will meet most of the growth in future oil demand. Yet, a majority of these countries face stringent self-imposed restrictions on their ability to invite foreign companies to assist them in developing their hydrocarbon resources.

These restrictive policies, of course, are not limited to the Middle East or to OPEC countries. Mexico, for instance, remains firmly closed to foreign equity interests in its upstream oil sector. In addition, some of these countries are or have been for sometime subjected to vigorous economic sanctions by the United States or even by the United Nations. As a result, there has been no significant foreign investment in the Persian Gulf region’s oil and natural gas exploration and production for almost three decades.

Looking over the horizon, it becomes more and more apparent that there will be a serious supply/demand imbalance within the next two decades. Indonesia and Malaysia, Southeast Asia’s largest oil exporters, are expected to become net oil importers before 2010. In Latin America, Venezuela and Mexico may need several years before they have the will and the means to increase oil production and delivery capacity. In West Africa, oil companies are only focusing on offshore due to the constant struggle to do business onshore. Nigeria specifically has to grapple with internal strife, with a fairly solidly polarized rivalry between the North and the South, which will not go away soon. Finally, the hopes of exporting oil from the Caspian Sea region became mired in the politics of running pipelines through regions where the national interests of U.S. and other major players are often at odds with each other.

Over the past decade, however, for various economic and political reasons Iran, Iraq, Kuwait and Saudi Arabia, have been actively searching for mechanisms to facilitate foreign investment in their upstream oil sector. These four countries, collectively, possess over 53% of the world’s proven oil reserves, currently provide 23% of the world’s oil production and are expected to supply 31% of the global oil requirement by 2020.

We are now at a turning point. Despite widespread rhetoric of how diverse oil supplies are at the present time, the Middle East is still the “oil king” destined to play a much larger role on the world stage of energy. Meanwhile, the strategic choice that these resource-rich countries have to make involves the inclusion of foreign oil companies for capital, managerial capabilities, and cutting-edge technology to meet the world’s future energy demands as well as socio-economic and political expectations of their own increasingly youthful population.

This 200 plus page in-depth report is the result of an ongoing independent investigation and analyses of the thought processes, views, and actions of the original members of OPEC in the Persian Gulf region since September 2001 regarding reopening of upstream oil and natural gas to foreign interests. The report discusses the oil and natural gas situation in Iran, Iraq, Kuwait and Saudi Arabia and their respective experience with the concept of reopening; aspirations and requirements of the international oil companies (IOCs) related to opportunities in the region; risks; and a realistic outlook. Particular emphasis has been placed on two innovative, yet controversial, concepts that have attracted considerable attention worldwide for almost a decade: “buyback” and “Project Kuwait.” Access to relevant information selected from various sources and carefully evaluated such as those contained in this report is an essential prerequisite for a comprehensive understanding of the global energy industry; therefore, is highly recommended.


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