Production peek

Gas supply & demand

In November 2006, the Petroleum Ministry and Saudi Aramco announced a US $9bn long-term strategy to add 1416bcm of reserves by 2016.

In order to free up oil for export, all current and future gas supplies (except NGL) are reportedly earmarked for use in domestic industrial consumption and by desalination plants.

According to statements made by Aramco, the five-year plan will radically increase the rate of exploration and includes the drilling of 307 new development wells, including 67 exploratory wells primarily in non-associated offshore formations.

Also exploration and development will also commence in non-producing areas such the Red Sea and the Nafud basin, north of Riyadh. Currently, non-associated gas accounts for 40% of Saudi Arabia's total gas reserves.

The South Rub al-Khali Company (SRAK), a consortium of Saudi Aramco, Royal Dutch Shell and Total, is to invest an estimated US$2bn in the exploration of more then 210 000sq km in two separate concession blocks (Blocks 5-9 and 82-85).

The concessions surround the Shaybah and Kidan oil fields, abutting Oman and the UAE, and the Saudi-Yemeni border respectively. The consortium has been aiming to sell 5.2bcm per annum to the Ministry starting in 2009.

Total has withdrawn from the SRAK scheme. Failure to find gas has been cited as the basis for the move. Three wells drilled on the prospect's acreage have come up dry. However, Shell claims that it is still committed to the project, in spite of the apparent lack of success.

It leads the venture to explore for gas in Saudi Arabia's Empty Quarter, with a 40% stake - Total held a 30% share of the venture. Shell believes the initial three wells are not sufficient to assess the project's potential and is prepared to keep drilling.

Total will transfer its shares in SRAK to the other partners. The original agreement allowed for partners to reassess their involvement after three wells, then transfer their shares to the remaining parties.

In January 2004, Russia's Lukoil won a tender to explore for and produce non-associated gas in the Saudi Empty Quarter in Block A (29,000sq km), near Ghawar, as part of an 80:20 JV with Saudi Aramco, known as Luksar. Luksar drilled two wells and plans a third. Also in January 2004, China's Sinopec won a tender for gas E&P in Block B (38,000sq km).

Sino Saudi Gas, a venture of Sinopec and Aramco, has drilled two wells and reported that there would be another two by year-end 2007. The Eni-Repsol-Aramco consortium, LENIREPSA Gas, was granted a licence to operate in Block C (52,000sq km), and drilled its first well in September 2006.

The consortia have some 27 wells planned in total by 2009. The contracts cover a 40-year period, except SRAK, which holds a 25-year contract.

Our forecasts are for gas production of around 96.2bcm by 2012, matching domestic consumption. Risk here is on the downside, as activity levels and investment appear to be running behind schedule.

Exports are unlikely until beyond the end of the decade. Using gas instead of oil domestically will help free up additional crude oil for export.

Saudi Arabia has declared a target of 155bcm of gas production capacity by 2009, which seems ambitious when viewed against Aramco spending plans and the timetable for SGI projects.

To date, Saudi Arabia has not expressed great interest in exporting LNG, mainly due to doubts regarding economic viability and concerns that gas exports could compete with more lucrative oil exports.

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