MAJOR SAUDI INDUSTRIALIST OPTIMISTIC ON EP ECONOMY

S E C R E T SECTION 01 OF 02 RIYADH 001660

NOFORN
SIPDIS

DHAHRAN SENDS,
STATE FOR NEA/ARP, EEB/ESC/IEC

E.O. 12958: DECL: 11/03/2018
TAGS: ECON EFIN EINV EPET SA
SUBJECT: MAJOR SAUDI INDUSTRIALIST OPTIMISTIC ON EP ECONOMY

REF: RIYADH 00867

Classified By: DHAHRAN CG JOSEPH KENNY FOR REASONS 1.4 (B),(D)


1. (C) Summary: On October 22, Consul General Kenny made an
introductory visit to Mr. Abdulla al-Rushaid, an influential
and prominent industrialist in the Eastern Province (EP) of
Saudi Arabia. Al-Rushaid is strongly optimistic about the
future of the oil-rich EP economy. He indicated that the
global slow down may actually help the region move forward
with its ambitious large scale petrochemical and other
industrial projects, citing the sharp drop in the cost for
raw materials and skilled workers. Al-Rushaid's own business
ventures lend concrete support to his overall positive
outlook, as he continues to launch several new large scale
projects in the midst of the economic crisis. Though he
acknowledges vulnerabilities in the region's bourgeoning
petrochemical industry, he remains hopeful that it will ride
out the storm. End Summary.

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The al-Rushaid Group
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2. (C) The Dhahran Consul General met with Abdulla R.
al-Rushaid, a well-connected and prominent businessman in the
EP, at his al-Khobar office. The Commercial Attache and
EconOff also attended the meeting. Al-Rushaid is owner and
chairman of the al-Rushaid Group, an umbrella organization
consisting of various interests in and partnerships with over
40 companies worldwide. He has partnered with many major oil
and gas services companies active in the region and employs
28,000 people in the Eastern Province (EP) alone. His
business is heavily focused on the hydrocarbon industry, in
particular oil exploration, extraction and petrochemicals.
(Comment: As a former fifteen-year employee of Saudi Aramco
and longtime oil and gas services provider to the company,
al-Rushaid is widely considered to be a well-connected
insider in senior Saudi Aramco executive circles. End
Comment.)

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The Economic Outlook is Bright for the EP
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3. (C) Al-Rushaid is bullish on the economic outlook for
Saudi Arabia, particularly the oil-rich EP. However, he does
not share the same optimism for Europe, the US or even other
Gulf countries like the United Arab Emirates or Qatar. In
his estimation, Saudi Arabia will be shielded from the brunt
of the global financial crisis because of the Saudi Arabian
Government's (SAG) recent liquidity and bank guarantees, a
reference to the Saudi Arabian Monetary Agency's (SAMA)
October 16 announcement that it would guarantee the liquidity
and deposits of Saudi banks. SAMA held true to their word
when a week later they infused more than two billion USD into
the Saudi financial system. In addition, al-Rushaid cited
the sharp drops in the demand of industrial inputs such as
steel and skilled workers resulting from the current global
economic downturn. He believes that these lower costs bode
well for the types of large-scale industrial projects
prevalent in the EP, where recruitment of qualified workers
has been a constant challenge. In fact, companies have had
to extend their recruitment reach deep into the Asian
subcontinent and Asia for positions that ordinarily would
have been filled by western personnel.


4. (S/NF) The oil services tycoon was quick to offer his own
business projects as proof positive that his optimistic view
of the EP holds water. For example, earlier in October 2008,
al-Rushaid was in Kansas City visiting WireCo, the leading
manufacturer of wire rope and cable, finalizing a joint
venture (JV) to manufacture wire cables in the EP. Despite
the recessionary fears and the plummeting price of oil, they
signed the JV and will go forward with the project.
(Comment: This JV has not been made public yet and al-Rushaid
was deliberate and cautious in what information he shared
with the CG. Please protect. End Comment.) He also hinted
that he is in the process of signing two other JVs that will
establish operations in the EP, though he was not forthcoming
with details. He noted that he preferred entering JVs with
western companies because they often supply effective
managers, which, in his opinion, is a difficult human
resource to come by in the Gulf.


5. (S/NF) Further bolstering the credibility of his
encouraging outlook for the region, he confirmed that two
large-scale Saudi Aramco projects will go forward despite the

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current economic turmoil: a 400,000 barrels per day (bpd)
refinery in Jubail (JV with Total of France) and construction
of a 600,000 square meter offshore oil platform near Dammam
(JV with Saipem of Italy). Though there have been rumors of
possible delays on these projects, al-Rushaid said he knows
for a fact that they will continue as planned since his
company is providing some of the metal fabrication and
construction services. He commented that the fabrication of
the oil platform alone would create tens of thousands of jobs.

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The Petrochemical Industry is Vulnerable
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6. (C) When the conversation turned to the petrochemical
industry, al-Rushaid admitted that the sector may be
vulnerable because of possible shortages of cheap Saudi gas
feedstock (reftel). Currently, the Saudi petrochemical
industry pays 0.75 USD per million British thermal units
(Btu),more than a 800% discount on the Oct 27 Henry Hub spot
price of 6.27 USD per million Btu. (Note: The Henry Hub spot
price is the internationally accepted benchmark for natural
gas prices. End Note.) He said that plans to construct 60
new chemical plants were halted because Saudi Aramco could
not guarantee delivery of enough cheap gas.


7. (S/NF) He also cited Saudi Aramco and its JV partners'
failure to find large deposits of non-associated gas in the
Empty Quarter (Rub al-Khali) (reftel),as evidence that the
days of highly discounted gas feedstock are numbered. He
predicts that the discounted price of gas for the Saudi
petrochemical industry will rise to between 3.00 and 4.00 USD
per million Btu. If al-Rushaid is correct, such a large
spike in the cost of gas feedstock would certainly slow
growth prospects for the industry. Furthermore, market
prices for natural gas have tanked in the past couple months
from highs above 13.00 USD per million Btu as recently as
July 3 to the current price of 6.27 USD (mentioned above in
paragraph 6). A continuing slide in market prices for gas
would further negate the cost advantage that Saudi
petrochemical projects currently enjoy over their foreign
competitors.


8. (C) Despite al-Rushaid's concerns regarding the
petrochemical industry, he still believes that the industry
holds "unlimited" potential. He specifically cited the
proposed JV between Saudi Aramco and US-based Dow Chemicals
to build a reported 26 billion USD petrochemicals complex in
Ras Tanura. Al-Rushaid excitedly commented, "If the Dow
project goes through, then there will be lots of work!"


9. (C) Comment: Though al-Rushaid is bullish on the EP
economy and appears to have the evidence to back it up, the
broader macroeconomic slowdown may hit the EP harder than
al-Rushaid or other regional business leaders would like to
concede. With the price of oil and gas nose diving, it is
difficult to imagine that the EP will not feel at least part
of the impact of the global recession. The petrochemical
industry may be most at risk as heavily discounted gas
feedstock will not continue indefinitely and global demand
for their products declines in large consumer markets like
the US, EU, and Asia.


10. (C) On al-Rushaid's own admission, his company is
dependent on the hydrocarbon industry. This fact likely
skews his optimistic outlook for the EP economy as his
business would be severely impacted by a major economic slow
down in the region. However, al-Rushaid claims that because
his company owns significant stakes in companies outside of
the Gulf (the UK, US and Asia) he has enough "geographic
diversification" to make up for his dependence on the
hydrocarbon industry. While al-Rushaid's assertion that the
EP's economy will fair better than most others over the next
few years may be credible, the looming global recession would
lead a savvy investor to hedge their bets. End Comment.

(Approved: JKenny)
RUNDELL