The Athlone Group Blog

June 26, 2010, 11:34 AM EDT

By Mourad Haroutunian

June 26 (Bloomberg) — Petrochemical and retail companies lifted Saudi Arabian stocks from an earlier loss on the week’s first day, as oil prices advanced to a seven-week high.

Saudi Basic Industries Corp., the world’s largest petrochemical maker, Savola, a Saudi food producer, and Arab National Bank helped the Saudi Tadawul All Share Index to rise 0.2 percent to 6,352.89. The gauge had earlier slid as much as 0.6 percent, led by declines in real-estate companies.

“It was a buying opportunity for petrochemicals on the back of strong oil prices as well as the retail sector,” said John Sfakianakis, chief economist at Banque Saudi Fransi in Riyadh. “Global markets were jittery over the Saudi weekend and it is translated in the Saudi stock market today.”

Brent crude oil for August delivery gained $1.65, or 2.2 percent, to $78.12 a barrel, the highest since May 5, in London yesterday. The contract gained 2.2 percent last week.

In Europe, the Stoxx Europe Index fell 0.6 percent to 248.33 yesterday, the lowest close in more than two weeks. The MSCI Emerging Markets Index, which tracks developing-nation equity markets, retreated for a fourth day, the longest losing streak in seven weeks, dropping 0.5 percent to 947.56.

Sabic rose 0.3 percent to 91.5 riyals. Savola increased 1.7 percent to 35.9 riyals and Arab National soared 1.4 percent to 42.4 riyals.

Dar Al Arkan Real Estate Development Co., Saudi Arabia’s biggest property company by market value, dropped as much as 1.6 percent to 12.6 riyals, the lowest intraday price since March 18, 2009, before recovering to close unchanged at 12.8 riyals. The company swapped $225 million of its fixed-rate Islamic bond into floating-rate notes to cut borrowing costs.

Taiba Holding Co., a real-estate developer in Medina, fell 1.2 percent to 16.35 riyals, its steepest one-day drop in a month, after the company said it won’t pay a second-quarter dividend because of a payment delay from the kingdom’s Ministry of Finance.

Saudi Arabia’s index is the only Arab Gulf index tracked by Bloomberg that trades on Saturday.

–Editors: Paul Jarvis, Andrew Noel.

To contact the reporter on this story: Mourad Haroutunian in Riyadh at mharoutunian@bloomberg.net

To contact the editor responsible for this story: Claudia Maedler at cmaedler@bloomberg.net

By Anne Penketh in Jeddah

Monday, 16 June 2008

REUTERS

UN secretary general Ban Ki-moon, left, with Saudi foreign minister Prince Saud al-Faisal at Jeddah airport

* Photos enlarge

Saudi Arabia will raise oil production to record levels within weeks in an attempt to avert an escalation of social and political unrest around the world. King Abdullah signalled the commitment to the UN secretary general, Ban Ki-moon, at the weekend after the impact of skyrocketing oil prices on food sparked protests and riots from Spain to South Korea.

Next month, the Saudis will be pumping an extra half-a-million barrels of oil a day compared to last month, bringing total Saudi production to 9.7 million barrels a day, their highest ever level. But the world’s biggest oil exporters are coupling the increase with an appeal to western Europe to cut fuel taxes to lower the price of petrol to consumers.

Saudi Arabia, which has called an emergency meeting of oil producers and consumers in the port city Jeddah next Sunday, says the energy crisis has not been caused purely by market pressures but by a speculative bubble. Saudi Arabia and Opec believe there are no shortages to justify the sudden surge in prices.
Mr Ban held talks with King Abdullah at the royal palace in Jeddah on Saturday evening for more than an hour which were dominated by the energy crisis. The Saudi monarch shared his concern that the oil price was “abnormally high” although he blamed “national policies” in the West, Mr Ban told The Independent yesterday. “He was also suggesting that consumers should play their own role,” Mr Ban added.

Just before his departure for London yesterday, he had a telephone conversation with the Saudi oil minister, Ali al-Naimi, who told him that Saudi Arabia had raised production this month by 300,000 barrels per day at the request of consumers, and next month would raise output by a further 200,000 barrels per day. Mr Ban said: “He told me they will respond positively whenever there is a request for an increase in production. So there will be no shortage of oil.”

Mr Naimi said Saudi Arabia was responding to requests from between 30 and 60 consumer countries. Finance ministers from the Group of Eight nations meeting in Tokyo yesterday added to the chorus urging Saudi Arabia to increase production.

The UN chief said he had asked the Saudi minister whether the additional output would be enough to help stabilise the market, adding: “He said the consumers and others should play their own role.”

Mr Ban, who flew to Saudi Arabia after a meeting in London with Gordon Brown at Downing Street on Friday as Britain was in the grip of a protest by lorry drivers, conveyed the concerns of world leaders about the impending oil crisis. The South Korean secretary general said: “Unless we properly manage these issues, this may create a cascade of all other challenges and prices, affecting not only social and economic issues but also creating political instability.”

But it appears the Saudis are just as worried that record prices – on Friday oil was being priced at just under $135 a barrel – could dampen growth in the industrialised West and lower demand, which would in turn hurt the kingdom.

As well as the protests in Britain, which continued with a go-slow by lorry drivers on the M6 on Saturday, oil-related protests have swept Europe and Asia in recent weeks. Violence has erupted in Spain, riot police were deployed in Malaysia, several Indian states have been hit by fuel-related strikes and most of South Korea’s main ports have been paralysed by blockades.

Mr Ban said the King shared his view that the prices of oil and food were intricately linked to the issue of flooding and drought caused by climate change and needed to be dealt with comprehensively.

“But while he acknowledged this concern, he also expressed his own concern that common effort and co-ordination are required, particularly from consumer countries,” Mr Ban said.

Saudi Arabia, which is the only Opec member with spare capacity, has been under pressure from the Bush administration to increase production, with petrol now costing a record $4 (£2) per gallon in America. But the Saudis argue that although the barrel has jumped as high as $140 recently, they are earning less in real terms owing to the decline in the value of the dollar. Until now they have hesitated to announce a large increase over a sustained period, sticking to the Opec line which blames Western speculators for the increase.

Opec countries generally follow the Saudi lead on raising levels of production, although the cartel’s president, Chakib Khelil, has said it will make no new decision until a September meeting in Vienna.

Gordon Brown is to attend the unprecedented meeting of oil producers and consumers in Jeddah, and the Energy minister, Malcolm Wicks, met Mr Naimi in Riyadh on Saturday.

The US, the world’s biggest oil customer, which has expressed considerable frustration with the Saudi position, will be represented at the meeting at ministerial level. Yesterday’s Arabic-language newspapers had dampened down speculation about an increase in Saudi production.

The Al Riyadh newspaper quoted oil ministry sources who said that if there had been no increase in demand, there was no need to increase supply. A commentator in Al Watan newspaper said: “Why should we please consumers and increase production?” pointing out that the value of the dollar was in decline.

Saudi Arabia is keenly aware of the political and economic effect of the oil market on the upwards spiral of food prices, and contributed $500m to the World Food Programme ahead of the food summit in Rome to enable the UN agency to cope with escalating problems in feeding the world’s poor. Mr Ban thanked King Abdullah for that gesture.

Mr Ban’s talks in Saudi Arabia also focused on regional Middle East issues, including Lebanon, Israel/Palestine and Somalia, where a UN-brokered process backed by the Saudis has just produced a peace agreement.

Greg Flakus | Houston 18 June 2010
A work boat, right, operates next to a rig that is drilling a relief well in the Gulf of Mexico at the site of the Deepwater Horizon disaster Wednesday, June 16, 2010. Oil is still leaking from the wellhead.
Photo: AP

A work boat, right, operates next to a rig that is drilling a relief well in the Gulf of Mexico at the site of the Deepwater Horizon disaster, 16 June 2010
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As the oil continues to leak from the BP well in the Gulf of Mexico, hundreds of boats are working in the area around the spill trying to keep the noxious slick from reaching shore. Frustrated citizens in the Gulf region have been calling for more effective measures and one expert believes a better solution could be provided by the oil-rich nation of Saudi Arabia, which he says contained a similar oil leak in the Persian Gulf in 1993 using supertankers.

The United States should ask the Kingdom of Saudi Arabia for a supertanker or two to clean up the oil in the Gulf of Mexico, according to Nick Pozzi, a former pipeline engineering and operations manager for Saudi Aramco. He says he helped that state-run company deal with a similar disaster in 1993.

Pozzi says an accident caused millions of liters of crude oil to spill into the Persian Gulf. He was on the team that developed a plan to remove the crude using Saudi-owned supertankers.

“The supertankers in Arabia have the ability to suck or discharge, so they can pump or suck,” he said. “What we could [what amounts of oil we could extract] we ran through a centrifuge to separate the oil from the water. We put the water back in the Gulf, because we wanted to get the oil out first, get it out of the water.”

Pozzi says the operation cleaned up 85 percent of the total oil spilled. His idea to use supertankers in the Gulf of Mexico has been endorsed by a number of prominent figures in the oil-and-gas industry, most notably John Hofmeister, the former president of Shell Oil, who has urged the Obama administration to pursue it.

BP officials cite logistical problems with the proposal since it would be difficult to maneuver such a large ship into the area near the leaking deepwater well site, but Pozzi says there are ways of working around that. The other problem is the Jones Act, a part of U.S. maritime law that prevents foreign vessels from working in U.S. waters, but the president has the power to waive that law in the case of an emergency.

Another problem is that the Saudi operation in 1993 involved a spill that was limited once the source of the leak had been plugged, whereas the BP well is leaking vast quantities of oil every day and the best hope of stopping it could be months away, in the form of relief wells that are to be drilled nearby.

Nick Pozzi is skeptical about the relief well plan, because he says the flow of oil is so strong.

He says the pressure of the outflow at the well head is so great that BP engineers have not been able to overcome it. Pozzi says he and other experts have examined video from the site to calculate the pressure.

“We estimated that coming out of that well head is approximately 72 million pounds per square inch and we do not have a device in the world that basically can stop that,” he said.

Among the more exotic proposals to stop the leak is the use of explosives, including nuclear bombs. The Russians reportedly have used small nuclear devices to cap runaway wells at least four times. But Nick Pozzi says he does not believe such a measure would work at the BP site because the pressure of the outflow would prevent the proper placement of the explosives in the opening.

Nick Pozzi has launched a private company called WOW Energy Solutions and is working with people along the Gulf coast in Alabama to prevent oil slick damage to their beaches and fisheries. He says if either the US government or BP calls him, he is ready to do what he can to help them contain the catastrophic oil spill.

An oil pump in Venezuela
Venezuela holds the largest oil reserves outside the Middle East

A new US assessment of Venezuela’s oil reserves could give the country double the supplies of Saudi Arabia.

Scientists working for the US Geological Survey say Venezuela’s Orinoco belt region holds twice as much petroleum as previously thought.

The geologists estimate the area could yield more than 500bn barrels of crude oil.

This assessment is far more optimistic than even the best case scenario put forward by President Hugo Chavez.

The USGS team gave a mean estimate of 513bn barrels of “technically recoverable” oil in the Orinoco belt.

Chris Schenk of the USGS said the estimate was based on oil recovery rates of 40% to 45%.

Petroleos de Venezuela SA (PDVSA), Venezuela’s state oil company, has not commented on the news.

However, Venezuelan oil geologist and former PDVSA board member Gustavo Coronel was sceptical.

“I doubt the recovery factor could go much higher than 25% and much of that oil would not be economic to produce”, he told Associated Press news agency.

Venezuela holds the largest oil reserves of any Opec country outside the Middle East. Saudi Arabia has proven reserves of 260bn barrels.

Plans are in the works for Saudi Arabia’s first freehold city, opening the door for foreign ownership in the country’s real estate market. King Abdullah Economic City is slated for completion in 2025. The Economic Cities Act is the Saudi government’s ambitious initiative to improve infrastructure, and move away from a solely oil-based economy. See the following article from Property Wire for more on this.

Saudi Arabia is to allow foreigners real estate investors to own property for the first time in one of four cities under construction in the country.

King Abdullah Economic City will be the first freehold city in Saudi Arabia and is being built by government controlled Emaar Economic City at a cost of $27 billion with an expected completion date of 2025. It will cover an area the size of Brussels.

‘A lot of people want to invest in the Saudi market and see it as a frontier for real estate investment because of the population explosion here,’ said Fahd Al-Rasheed, chief executive officer of Emaar Economic City, a company controlled by the Saudi Arabian government and Dubai’s biggest property developer.

The city, known as KAEC, is near Jeddah and designed to house two million people and generate a million jobs. The other three cities under construction are Knowledge Economic City in Medina, Jazan Economic City in Jazan and Prince Abdul Aziz bin Mousaed Economic city in Hail. Two more economic cities are planned in Tabuk and the Eastern Province.

KAEC is part of a $400 billion plan announced by the government in 2008 to invest in Saudi Arabia’s infrastructure and make the country less dependent on the oil industry as well as meet its population growth . Saudi Arabia’s population has more than doubled since 1986 to about 25.5 million.

Foreign investors, individuals and companies, will be able to buy under the new Economic Cities Act issued almost two months. Regulations putting the act into effect are expected soon and will cover issues such as foreclosures, repossessions and the creation of a land registry.

KAEC will have the Red Sea ’s biggest port and an industrial district where French oil company Total SA and US chocolate maker Mars will operate. The city will be spread over 65 square miles. ‘Over the next five years we expect to spend more than $4 billion developing infrastructure and assets in the city. This won’t be done by us alone, but with other partners,’ Al-Rasheed said.

About 40 families already live in KAEC and Emaar Economic City plans to hand over 470 houses to buyers this year in the project’s first phase. The second stage, including homes for 40,000, is scheduled for completion in 2014.

But the project hasn’t escaped the economic crisis. A shortage of houses has not prevented about 15% of homebuyers defaulting on purchases and the company was forced to delay construction of 16 towers as customers struggled to make payments.

Al Rasheed said he’s now seeing an increase in sales, mostly among middle income buyers, prompting the company to start its 22,000 unit Hawadi housing project a year earlier than planned. ‘We are going to hit our stride with Hawadi. It’s affordable and within the typical mortgage range. Anybody can invest in something like this,’ he added.

The 16 delayed tower development will be started again in six months after the project is redesigned and retendered to take advantage of declining construction costs, Al Rasheed said.

Saudi Arabia will develop an airport near Jazan Economic City to handle 3 million passengers a year, the General Authority of Civil Aviation said.

The airport will be tendered for developers next year after the design is completed, the authority said in an emailed statement today.

The facility, to be named after King Abdullah, will be 30 kilometers from the mega city being developed by Saudi Binladin Group and Malaysia’s MMC Corp that has attracted more than $31 billion in investments.

The authority plans to spend between $10 billion and $20 billion on developing and upgrading airports by 2020, with private investors set to contribute up to $10 billion

By KHALIL HANWARE | ARAB NEWS
Published: Jun 8, 2010 00:05 Updated: Jun 8, 2010 00:05

JEDDAH: The US-based Blumberg Capital Partners, which provides a full range of real estate investment management services, is exploring opportunities in Saudi Arabia and some of the GCC (Gulf Cooperation Council) countries to develop strategic relationships in investments. The Saudi real estate market, unlike many around the world, is poised for strong growth, Philip F. Blumberg, founder and chief executive officer of Blumberg Capital Partners, said.

Saudi Arabia was the only country in the region which was least affected by the global crisis because of its solid policies and strong economic fundamentals, Blumberg said in an exclusive interview to Arab News.

The Saudi real estate market is heading for strong growth. And this is not just a possibility; it is happening, he said.

Blumberg, who was in the GCC countries, said very conservative policies had paid off for Saudi Arabia.

Blumberg said the purpose of his visit to the region was two fold: Capital raising for our latest real estate fund, a $1 billion investment fund consistent with our previous fund’s investment policies which have been highly successful.

The second purpose of the visit is to explore investment opportunities in the Gulf region which we are quite positive about in the long-term.

“We are meeting with major financial institutions and investment houses throughout the Gulf. We are also in discussions with sovereign wealth funds in the region,” he added.

Blumberg said: “We believe both the vision and steady expansion of the Saudi markets provide very significant opportunity for global institutions and we welcome the opportunity to explore projects and strategic relationships in Saudi Arabia.”

As Saudi Arabia made plans to build massive economic cities, Blumberg said, often during crises that other markets were experiencing, this may be the best time to invest and grow. Particularly in your own market and infrastructure creation. He was referring to the Kingdom’s plans to build economic cities such as King Abdullah Economic city in Rabigh, the Jazan Economic City in Jazan, the Knowledge Economic City in Madinah and the Hail Economic City in Hail.

The Saudi plan which I believe is much broader in scope than the economic cities — which are important physical markets and provide infrastructure to focus growth around.

It also includes progressive plans for the securities markets and business development. This kind of comprehensive planning that makes us enthused about opportunities in Saudi Arabia, he said.

On the Gulf markets investment side, Blumberg said, we have been meeting with government representatives, hotel and major real estate companies concerning real estate and corporate investments.

When asked about the Dubai property market slump, Blumberg said all the dynamics that occurred in the US market occurred in Dubai as well. But the market, though growing very rapidly over the last 10 years, was investor fueled not demand or user based.

Further, high debt in the form of conventional leverage was also present.

But there was also “hidden” leverage in the form of deposits which were used as well to build projects.

That liability is part of the equation, while the law is very unclear with regard to responsibilities.

These factors if not addressed will bode for a slower recovery in Dubai, he added.

“Over the long-term the Dubai market should thrive, but that may well be years in the making.”

Blumberg was blunt in attacking the subprime crisis in the US which triggered the global housing market slump.

“What happened in the US, and the major factor in the financial crisis of 2008, was over leverage,” he said.

Abundant debt fueled high pricing in real estate. High prices fueled more residential development, though not in the office building sector where existing assets were the target of buyers fueling the highest prices ever recorded in the US.

When the subprime level of loans began to have trouble available debt began to constrain. This triggered a domino effect on debt throughout the system, he added.

The effect was initially a flattening of prices, rapidly turning into a drop in prices, a further severe credit tightening, fueling a market collapse and credit freeze.

This is a classic leverage/credit induced market failure, Blumberg said.

Blumberg, while assessing the state of property market in the US and Europe, said it’s varied by local market conditions – but in general the US economy and subsequently the real estate markets are in recovery. For example, particularly strong are markets in Texas like Dallas and Houston. While other markets like downtown Los Angeles, Phoenix and Las Vegas are still at bottom.

In Europe, we see the same thing but with more volatility. And the state of the European economic recovery is weaker and more fragile than in the US.

While London prices in some cases are rising with yields below 6 percent. That’s more of the irrational pricing, I think caused by short-term “chasing yield” decisions, misplaced in a long-term asset.

A 4-5 percent overall yield won’t look very attractive in a few years as markets get back into equilibrium.

And selling out that position later in the cycle will likely incur substantial losses, possibly more than eliminating the current yield returns.

We would not acquire commercial real estate in the London market at these very high prices and low yields, he said.

While talking about his company’s progress, Blumberg said: “We were considered very conservative too, in this recent real estate frenzy of 2005 — 2008. But it paid off for us as well, in strong returns in 2008 and among the highest returns in the US for 16 years.”

Saudi Arabia’s Aramco has invited companies to manage the construction of the Jizan refinery in the kingdom, Reuters has reported, citing industry sources. The refinery, with a planned capacity of 250,000-400,000 bpd is among new plants Saudi Arabia is planning to build as it looks to boost domestic refining capacity. Engineering firms will have to submit their prequalification documents, which also include the front-end engineering and design (FEED) and project management services (PMS) by June 12, the sources said.

Ali Saleh al-Barrak, chief executive of Saudi Electricity has said the company will increase tariffs for government, commercial and industrial users as of July 1, which would add SR3.2bn to its annual revenues and boost its profitability, Reuters has reported. “Revenues from electricity sales are not enough to cover operating costs and at the same time fund the investments required by the growth in demand,” he said.

The UAE’s central bank has said it foiled an attempt to siphon off $14.4bn from a local bank, state-run WAM news agency reported, citing an Abu Dhabi police official. Hammad Ahmed Al Hammadi, director of the Criminal Investigation Department at Abu Dhabi Police, said the attempt was the fourth case with the total money amounting to Dhs244.6bn ($66.6bn), according to WAM. The police have arrested an Iranian and an American of Iranian origin, the news agency said. WAM did not disclose the name of the bank.