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Reeling From Low Oil Prices, Saudis Look To Freeze Megaprojects

oil production

Saudi Arabia will start reviewing a number of multi-billion-dollar infrastructure and development project—remnants from a better past when crude oil prices were in three-digit territory. Some of these, according to government sources, will be shelved and others will be restructured.

The review is part of urgent reforms prompted by the oil price rout from 2014, which saw Saudi Arabia plunge into a budget deficit for the first time in its history. As part of efforts to reform the oil-reliant economy, last year Deputy Crown Prince Mohammed bin Salman removed from their positions the Kingdom’s long-serving oil and finance ministers, Ali al-Naimi and Ibrahim al-Assaf.

At the time, the Finance Minister defended these same megaprojects that will now be scrutinized by the Bureau of Capital and Operational Spending Rationalization, saying that when the investment decisions were made, the economic outlook was very different from where it was in 2016.

At the end of last year, the Saudi government calculated that the cost of completing all these projects would come in at $370 billion (1.4 trillion riyals). Now, those that are deemed still feasible will be retendered, the unnamed sources told Reuters, to be completed through public-private partnerships under build-operate-transfer contracts. This type of contract allows developers to complete a project and operate it for a set period, aiming to get some profit out of it before transferring ownership to the government. Related: Attack On Syria: U.S. Has Returned To “Business As Usual”

The Deputy Crown Prince who is in charge of turning the oil-dependent Kingdom around seems determined to do his job well, including through diversifying the economy into renewable energy with the extremely ambitious Vision 2030 plan, which stipulates that Saudi Arabia could start generating most of its energy from renewable sources as soon as 2030.

Meanwhile, however, sources from OPEC have confirmed that the Kingdom, along with other Gulf producers, are seeking oil prices of $60 to patch up their budgets and set aside some cash for new oil and gas investments.

By Irina Slav for Oilprice.com

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  • Harris Barlow on April 17 2017 said:
    Saudi Arabia seems to be in an untenable place; one where they are having to reign in production to support prices, while also needing to produce more to increase revenues. They will never be able to do both, so at some point....

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