Monday October 31 2011

Lessons from Saudi Arabia on managing the oil and gas sector

By Kenneth Kakungulu

Saudi Arabia is the leading country in oil production, reserves, exports, and refining capacity. It possesses a quarter of the world’s reserves, more than 20 per cent of the world’s oil market share, undiscovered estimated at 200 billion barrels. Its proven are 264 billion barrels and over 100 billion barrels probable and possible reserves.

The kingdom’s method is consistent with reputable agencies like the Society of Petroleum Engineers and the American Society of Petroleum Geologists. The kingdom’s current production could last for approximately 100 years. In the coming years, the kingdom’s production will increase due to demand as forecasts indicate an annual growth of 1.65 per cent, that is 1.5 million barrels per day.

Additionally, the dwindling production output in major oil zones like North America and the North Sea and the diminishing chances to discover an alternative to oil due to economic costs. So, the kingdom started gradually increasing its capacity with numerous upgrades on old and new fields to raise production as the demand for Saudi oil is to continue for many more years.

The kingdom’s petroleum policy is moderate and a balanced approach that considers the interests of all parties involved and balances the present and the future. This approach emphasises cooperation, peace, economic development and prosperity for the entire world. It also seeks to stabilise the international oil market by balancing supply and demand relying on its huge reserves.

In cooperation with OPEC and non-OPEC producers, it provides the market with adequate oil avoiding oversupply and severe demand. Though, OPEC cannot control prices - its limited role is to achieve a balance between supply and demand.

Prices are affected by conditions of petroleum markets, political situations in producing countries, winter temps, etc. Saudi Arabia has been able to build a distinguished oil industry that supports its growing importance as the world’s leading oil producer operating on commercial and technical principles that are vital to its success. It succeeded in doing this through four specific steps:

l Developing and qualifying Saudi citizens - starting with high school graduates in technical training programmes and after graduation, assigning them appropriate positions and financial morale. With this, the kingdom has been able to get a superior technical workforce comparable to those in developed nations. An example was during the Iraq invasion of Kuwait in 1990 and controlling the worst oil spillover .

l Focusing on oil and gas technologies as Saudi universities and research centres play an important role. Exp, Saudi ARAMCO is the leading company in the use of IT and communications to track production, transport, refineries, pipelines, etc.

l Effective management as a successful oil industry needs creative and flexible personnel. This is achieved through continuous training and development of specialised management.

l Establishing a productive and effective working relationship between the government and oil companies. The government fully trusts these companies and abstains from interfering in their daily operations, sales, appointments, explorations, or purchases. The companies pay taxes, returns, and profits to the government and are financially audited basing on clear and transparent principles.

Saudi Arabia has a strategic objective to decrease its dependence on oil from 60 per cent to 35 per cent or less. The industry was aware of the importance of the local private sector and took initiative to develop it, including water, electricity, labour, and commerce. Reform programmes are also in the issuance of a set of simplified regulations. These reforms are made in an environment of competency and increasing transparency with minimal government limitations and raising opportunity for foreign investors.

The reforms stress the adoption of the highest ethical and commercial standards representing a huge step towards the establishment of a solid economy. The economic growth of the kingdom has an impact on other countries through trade, movement of capital investment and recruitment of citizens. The kingdom has an expatriate workforce of about six million, which transfer over $18b.

So, the oil and gas which Allah gave to Saudi Arabia and the recently discovered oil in Uganda are gifts. We must handle with honesty and transparency and utilise it to serve our country Uganda at all levels while establishing mutually supportive ties with the world’s peoples and nations. Petroleum is a non-renewable resource no matter how long it lasts and also face competition from other energy sources.

Ultimately, the challenge we face is how to utilise a finite resource to establish sustainable development in a highly competitive and constantly changing world. For God and My Country.

Mr Kakungulu is an independent foreign languages consultant.