Economic and Energy Development in the Middle East: A Time for Optimism

By Peter J. Robertson, Vice Chairman
ChevronTexaco Corporation

Middle East Petroleum and Gas Conference

Dubai, United Arab Emirates, Sept. 8, 2003

On behalf of all the conference participants, I want to thank our hosts, especially His Highness General Sheikh Mohammed bin Rashid al Maktoum, the Crown Prince of Dubai and the minister of defense of the United Arab Emirates.

Dubai is always a pleasure to visit and a great place to conduct business.

Over the years, ChevronTexaco has been gratified to take part in the progress of Dubai and the United Arab Emirates (UAE) generally. Our relationship dates back more than 20 years, when we were the only foreign company invited to participate in the retail sector.

At that time, we formed a joint venture with the government of Dubai. And together with our partner Emirates National Oil Co. (ENOC), we were able to expand our activities beyond retail into other areas, such as storage, lubricants and aviation fuels.

Today, Dubai is ChevronTexaco's regional headquarters for our downstream operations which market petroleum products in 10 Middle Eastern countries. Clearly, Dubai is a fitting venue to discuss the exciting energy developments that are happening in the Middle East. So, I thank you for your invitation to be here today to speak at this important conference.

In recent weeks and months, the media seems to be giving top billing to pessimists and naysayers about the Middle East. If you're expecting that from me, I'm going to disappoint you because I'm optimistic about the future of all the Middle East countries, especially those that are recognizing what Dubai discovered some time ago: how open markets, free trade and foreign investment lead to thriving economies and higher living standards.

In the energy business specifically I think a positive transformation is under way in the relationship between the international oil and gas companies and the energy producers of the Middle East.

I believe this transformation promises enormous benefits not only for producers and consumers but most important for the people of the region.

To help set the stage for this conference, I want to share with you the reasons why I think this is a time for optimism.

First of all, there's no question that the world's need for oil and gas is going to continue increasing over the next 20 years and that the Middle East will be responsible for satisfying much of this demand. By 2020, oil still is expected to provide about 40 percent of the world's total energy supply, and natural gas, 30 percent.

Certainly, renewables and other alternative forms of energy will grow in importance and contribute to the energy mix, but they'll meet only a fraction of rising demand. Indeed, the International Energy Agency estimates that – at best – renewables will provide for less than 10 percent of the world's energy needs by 2020.

Without question, oil from the Caspian, West Africa, Latin America and other nations that have opened their doors to foreign investment will help provide new sources of supply. But the Middle East will remain center stage. In fact, its contribution to global energy supplies will become even more critical.

The region holds more than 65 percent of the world's proven oil reserves and virtually all of the world's excess capacity. This is important as we saw during the Iraq crisis, the Nigerian disruptions and the Venezuelan oil strike.

As for natural gas, the Middle East contains some 36 percent of the world's gas reserves: a storehouse of energy that is virtually untapped. So, there is huge growth potential for this energy resource.

Although the region's gas was once considered a stranded resource, advancements in technologies for both liquefaction and gas-to-liquids are making it a viable part of the future energy mix.

It will take billions of dollars in new investment, the latest technologies and highly skilled human resources to unlock this region's full energy potential. It will be an enormous challenge but not one that the producing nations should have to meet on their own.

For years, self-imposed restrictions have limited the ability of many Middle East countries to involve foreign companies in the development of their energy resources. But there are encouraging signs that this situation is changing.

Across the region, governments are moving toward economies that are invigorated by the private sector. This trend is widespread. It's growing. And it's the fundamental reason for my optimism today and for my hope for positive outcomes from this conference.

Let me tell you about a few of the promising developments I see taking place:

Saudi Arabia

The Kingdom has adopted new laws to promote investment. And under Crown Prince Abdullah, it's moving toward opening its gas sector to new exploration and development. Less than two months ago, Saudi Aramco entered into a joint venture that will allow an international energy consortium access to natural gas acreage in the Rub Al-Khali desert. And it has invited other energy companies to explore other acreage as well.

These are landmark events that signal the Kingdom's desire to partner with foreign interests in a truly significant way.


The government has committed to a program designed to reduce the state's role in the economy, to increase the role of the private sector and to decrease subsidies and barriers against foreign competition.

Just recently, three international oil consortiums – including one led by ChevronTexaco – expressed their intent to bid on the opportunity to manage and increase production from oil fields in northern Kuwait.

While this is basically a contract for services, the winning bidder will have the opportunity to demonstrate its technical expertise and be rewarded for exceeding performance targets.

Bahrain, Qatar and Oman

We are seeing ongoing encouragement of outside investment in energy and in virtually all other sectors of their economies.

United Arab Emirates

Foreign investment in the energy sector has long been welcome here.

Dubai has earned the title "Singapore of the Middle East" by taking the lead in encouraging foreign trade and investment, while Abu Dhabi is spearheading the privatization of utilities here in the UAE. And your foreign partners in turn recognize that management, skilled employment and technology must go hand-in-hand with their investment.

The Al Maktoum family and Sheik Zayed, who brought the emirates together into one nation in 1971, deserve great credit for the progress we continue to see here.

Within the past several years, an increasing number of Middle East nations have been accepted into the World Trade Organization, with its commitment to free trade and open markets. It's my hope that Saudi Arabia and Oman will soon achieve their goal of becoming full members.

I'm also encouraged by steps being taken by the United States to work with the nations of this region to create a U.S.-Middle East Free Trade Area.


Again, I am hopeful. And I say that despite decades of tragedy and even though the task of rebuilding that country's oil output will be long and expensive. By some estimates, it will take between $30 billion and $40 billion to bring Iraq's oil sector up to modern-day standards and sustain output at 2 million to 3 million barrels a day.

At 2 million barrels a day, Iraq's annual oil income might total $15 billion. For the foreseeable future, that won't be enough to meet the essential needs of the Iraqi people while rebuilding and growing the country's energy sector.

Clearly, an infusion of external investment and know-how is needed if Iraq is to further develop its existing fields and find new ones. The international oil industry, teamed up with the capital markets, is equipped for that job.

We're prepared to make the investments once Iraq's new government takes root with popular support, a new legal system is established and its tax regime is defined.

Although the final decision for inviting foreign investment ultimately rests with a representative Iraqi government, I believe in due course the invitation will come.

In the meantime, my own company and others are providing immediate assistance to Iraq by setting up commercial arrangements for lifting and transporting current production and assisting with humanitarian aid.

ChevronTexaco has also offered its help in establishing new legal and tax systems, as we did in Kazakhstan with a consortium of experts. And we're ready to consider other proposals where we could help speed reconstruction.

Not long ago, the oil consultant Robertson Research International – I disclaim any family connection! – released its annual survey on the nations and regions most favored by international oil companies for new exploration ventures.

The results are surely welcome news for this audience: The region of the world viewed most positively for new ventures was the Middle East.

The survey report made special note of the fact that the companies were polled during January and February when the outcome of the crisis in Iraq was far less certain.

Clearly, the international oil companies understand the promise of this region's energy resources. And those companies are encouraged by the steps that nations are taking to grow their economies by engaging the capabilities of the private sector and the support of outside capital.

If Middle East attitudes about foreign investment and privatization are in transition, it's not a moment too soon.

Earlier this year, the United Nations released an exhaustive report on Arab Human Development, which was compiled by a group of Arab scholars.

In their report, the authors underscored the persistent problems in many Arab nations: high illiteracy rates, the deterioration of education, the slow-down of scientific research and development, poor production bases and competitive capacity, and mounting unemployment.

Jobs and a Healthy Economy

In particular, they noted the lack of job-creation opportunities in Arab nations. About 6 million individuals enter the labor force each year, but nowhere near that many new jobs become available. The average unemployment rate is about 15 percent across the Arab world and much higher in some individual countries.

More than half of the Middle East's population is under the age of 18. Economies of the region should be growing by at least 5 percent a year in order to absorb the currently unemployed as well as provide jobs for the millions of young people entering the labor pool. For that to happen, we need to:

  • give full rein to the private sector and to the vast wealth of human capital in the Middle East;
  • transform the region from one of the lowest internal trade areas to one of the highest;
  • transform the region from one of the lowest recipients of private investment to one of the highest.

Sustained job creation is fundamental to a healthy economy, and energy investments create jobs.

While the development of energy is traditionally viewed as a capital-intensive enterprise, its overall employment impact can be highly positive. Energy investments generate the need for dozens of various suppliers and services, many of which can be furnished on a local basis. The jobs provided in these industries in turn help create and support employment in the financial, retail and commercial sectors.

Within my own company, we see job creation as much more than a secondary effect of our presence in a host country. We believe that providing quality employment is part of our responsibility as an active partner in furthering the well-being of the nations where we operate.

Active Partnerships

I've emphasized how I believe the oil-producing nations of this region are in transition.

I also believe the international oil industry is in transition as it responds to environmental needs, the pursuit of sustainable development and the expectations of good corporate citizenship in the 21st century.

Speaking for my own company, we know our success in any country where we operate is no longer determined solely by traditional financial or operational metrics. Today, we're held to new standards for social responsibility, human rights, corporate governance and the environment – standards that are no less rigorous than the financial requirements of our shareholders and the investment community.

ChevronTexaco's objective is to be the "partner of choice" with host governments and communities. Partnerships of the kind I'm describing encourage local hiring and purchasing. They offer training and skills development and an opportunity for employees recruited and developed locally.

Active partnerships also provide the means whereby leading-edge technologies can be transferred so host country industries can be modernized, expanded and made more competitive in the global marketplace.

Just as important, active partnerships build trust and mutual respect. From that can come benefits that no single company or government could possibly achieve on its own. Indeed, everyplace in the world where we operate – from Kazakhstan to UAE to the United Kingdom – we have found that the power of partnership can help bridge social and cultural differences, develop common understanding and focus energies toward shared goals.

Here in the Middle East, our pursuit of partnerships is built upon a legacy of relationships going back to the earliest days of oil development in this part of the world:

  • ChevronTexaco and its predecessor companies have been in the Middle East on a continuous basis for more than 70 years. We operate under a number of brands stemming from our heritage ... including Standard Oil of California ... Gulf ... Getty ... Caltex ... Texaco ... FAMM ... Oronite ... and Chevron.
  • We discovered both the world's largest and second-largest oil fields - the Ghawar field in Saudi Arabia and Burgan in Kuwait.

Today, ChevronTexaco is one of the top five lifters of Saudi crude, and we're honored to be the only foreign producer operating on behalf of the Kingdom in the Neutral Zone, working in partnership with the Kuwait Oil Co.

In Kuwait itself, we've dedicated some of our finest technical people to assist that country's petroleum operations. As I noted earlier, we hope, together with our international partners, to help Kuwait develop its Northern Fields.

We have an equally strong Middle East presence downstream through Caltex, and we play a prominent role in the region's chemical industry through our Chevron Phillips joint venture.

Our experience in the Middle East gives us great confidence in the region's future. We've worked with your national and local oil companies through many difficult times. Together, we've weathered the volatility of the oil market, major social and political changes of some countries, even wars. Yet our relationships have endured.

Today, change is once again in the air. Speaking for my company, I can say we welcome the new attitudes and innovative approaches that are being taken by producing nations to more fully engage the international oil industry in the development of their resources.

The agenda for change has begun, and the expectations of a well-educated young population are high.

We must not disappoint them. We must pick up the pace of progress if we wish to attract not only the financial but also the intellectual capital needed to continue the region's growth.

We look forward to more partnerships that not only help nations maximize the benefits of their natural resources but also develop and strengthen their economies generally for the well-being of all their citizens.

Responsible Stewardship

Before I close, let me take a minute to talk about a vigorous discussion that's now taking place regarding when global oil and gas production will peak. It's been labeled ... the "depletion debate."

Some theorists claim that worldwide oil production will reach a high point within this decade and then begin a precipitous decline that will cause drastic dislocations in the world economy and create huge human suffering.

Others take a more moderate position and claim that peak oil production could be at least several decades into the future. Many in our industry, including myself, remain skeptical of either scenario.

Many, many times over the years, we've seen the industry revolutionized by advances in scientific knowledge, leaps in technology, and changes in government regulation and tax policies. My point in mentioning this debate is not to take a position but to remind us all that we are gathered here at this conference for several purposes.

First, we're here to further the interests of the companies and countries we represent by learning from each other, by strengthening our bonds with current associates and by developing new contacts and exploring new opportunities.

But I would like to suggest that our vision for the conference should be larger: No matter what our position might be on the depletion debate, we all recognize that our industry is built on a finite resource of indispensable importance. As the producers and providers of this resource, we have a tremendous obligation to the people of today and to future generations.

Let us work together in the spirit of true partnership to find and initiate the best ways to be responsible stewards of the Middle East's exceptional petroleum resources so that this region's energy wealth can be extended as long as possible, with its benefits shared with as many as possible throughout the world.

Updated: September 2003