* Saudi Arabia last big oil producer to keep total control
* China may offer nuclear, shale gas options
By Daniel Fineren
DUBAI, Jan 18 (Reuters) - Saudi Arabia is unlikely to
reverse its decades-old policy of prohibiting foreign
involvement in oil exploration and production, despite a plea
from China for the world's leading crude exporter to open up.
Chinese Premier Wen Jiabao has called on Saudi Arabia to
open its huge oil and gas resources to more Chinese companies,
including its upstream oil industry, which has remained under
sole Saudi control for decades.
China is the kingdom's biggest oil buyer, and Saudi Arabia
is China's biggest supplier.
But Riyadh has little to gain from letting Chinese companies
into its crude production business and is likely for the
foreseeable future to keep Chinese involvement limited to
downstream oil ventures and so far unrewarding searches for gas.
"I am sure they will not do it," a Saudi industry source
said, when asked whether Saudi Arabia would allow any Chinese
involvement in crude oil production. "To Saudi Arabia this is a
sovereign matter."
China's first big step into the Saudi downstream industry
was confirmed over the weekend when Saudi Aramco signed a $10
billion deal during Wen's visit to build a 400,000
barrel-per-day (bpd) oil refinery in Yanbu with China's Sinopec
Group.
Riyadh has welcomed several foreign partners into its
growing refining sector and has invited foreign energy companies
including Sinopec to scour the vast, uninhabited desert in Saudi
Arabia's southeast for gas.
But the kingdom is unlikely to loosen its grip on the wells
that pump around 10 million bpd of crude at very low cost and on
which the rest of the Saudi economy depends.
"I don't see any prospect of Saudi opening up the upstream
for anyone," Jamie Webster, a Saudi energy industry analyst at
PFC Energy in Washington, said.
Gordon Kwan, head of energy research of Mirae Asset
Management in Hong Kong, said the odds of Chinese companies
playing a role in Saudi upstream projects might improve slightly
if the Yanbu joint venture is a great success.
"But in the short term, I believe we are still talking about
service contracts mostly," Kwan said.
U.S. oil companies were a driving force behind the Saudi oil
boom of the 1940-1950s, under the name Arabian American Oil
Company (Aramco). But the Saudi government took full control in
1980 and the company was renamed Saudi Aramco in 1988.
No foreign companies have been allowed back into the
upstream oil sector since, despite calls from some Saudi
political leaders to open it up.
Saudi Arabia is now the last remaining oil producer that
still bans foreign companies from having any involvement in
upstream oil fields after Mexico awarded its first-ever private
oilfield operating contracts last year.
Mexico is reluctantly opening up to foreign companies with
deepwater oil exploration expertise because it needs to revive
its rapidly declining output in the Gulf of Mexico. By contrast,
oil minister Ali al-Naimi said on Monday Saudi Arabia can
rapidly ramp up production at will.
With decades of Saudi experience in finding and pumping
crude from under its vast deserts, Naimi seems unlikely to see
any advantage in allowing Chinese oil companies try their hand
at it. And unlike cash-strapped Pemex of Mexico, Aramco has the
wealth and technical know-how to tap offshore fields in the
relatively shallow waters of the Gulf.
NUCLEAR, GAS
China's increasing dependence on imported oil and gas has
driven a worldwide drive by its oil companies - led by China
National Petroleum Corporation (CNPC) - to acquire upstream
assets from Latin America to the Middle East.
Growing Chinese experience in unconventional gas projects
and in building nuclear power stations may prove useful to a
Saudi economy that needs alternatives to oil-fired power
generation.
Sinopec, which has been searching for gas in Saudi Arabia's
aptly named Empty Quarter for years, is poised to buy U.S. shale
oil and gas assets, while China's own unconventional gas
projects could give its energy companies valuable experience
they could use to tap similar Saudi prospects.
But as long as Saudi industrial gas prices are fixed at just
$0.75 cents per million British Thermal Units - not enough to
cover costs even for the highly efficient U.S. industry - and a
ban on exporting gas remains in place, Chinese enthusiasm for
exploring for it is likely to be muted.
One potential area for growth is in nuclear power, which
Riyadh aims to develop to wean Saudi off oil for power
generation, which analysts say burns over a million barrels of
the kingdom's biggest export on hot summer days.
During Wen's visit, the two countries signed an agreement to
cooperate on the civilian use of nuclear energy as part of a
package of deals China signed to strengthen ties. For the
Saudis, it was one of several such deals signed with nuclear
energy powers as part of its plan to build 16 reactors by 2030.
(Additional reporting by Amena Bakr in Dubai and Aizhu Chen in
Beijing, editing by Jane Baird)
