Saudi Arabia to join US as shale gas producer

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A drilling rig exploring for shale gas of oil company Chevron on June 11, 2013 in a village of Ksiezomierz in south-eastern Poland. (For illustrative purposes only)

A drilling rig exploring for shale gas of oil company Chevron on June 11, 2013 in a village of Ksiezomierz in south-eastern Poland. (For illustrative purposes only)

OPEC heavyweight Saudi Arabia is preparing to be among the first countries outside North America to use shale gas for power generation and thereby save more of its crude oil for lucrative exports.

Inspired by a shale gas boom in the United States, which has transformed the country from the world's largest gas importer to a budding exporter, Riyadh plans to take its first steps to commercialise its own large unconventional deposits.

"We are ready to start producing our own shale gas and unconventional resources in various types in the next few years and deliver them to consumers," Saudi Aramco Chief Executive Khalid al-Falih said on Monday at the World Energy Congress in South Korea.

"Only two years after launching our own unconventional gas programme, in the northern region of Saudi Arabia, we are ready to commit gas for the development of a 1,000 megawatt power plant which will feed a massive phosphate mining and manufacturing sector," said Falih.

The Saudi Arabian Mining Co (Maaden) plans to invest in a phosphate project which is part of a new industrial city called Waad al Shimal City for Mining Industries, with production expected to start by the end of 2016.

By unlocking its gas reserves, the world's top oil exporter could use the fuel to power its domestic economy and allow more room for oil sales to world markets.

Saudi Oil Minister Ali al-Naimi has given an estimate of over 600 trillion cubic feet of unconventional gas reserves, more than double its proven conventional reserves.

That would put Saudi Arabia fifth in a 32-country shale gas reserves ranking compiled for the US Energy Information Administration. China tops the list and has already signed production-sharing deals and awarded exploration blocks as it targets output of 6.5 billion cubic metres a year by 2015.

But Riyadh - hampered by scarce water and prices fixed far below production costs - is unlikely to produce much shale gas this decade.

Neighbouring Oman is likely to lead the way with development of tight gas that could start commercial production by 2017 and yield up to 30 trillion cubic feet.

Saudi Aramco meanwhile has been mapping unconventional reserves in the hope it will help meet an expected doubling of demand by 2030 in a country that bans gas imports.

It has carried out appraisal drilling and piloting of three prospective areas for unconventional gas in the northwest, in south Ghawar and for condensate-rich shale gas in the Rub' al-Khali.

The gas will feed a proposed power plant in Jizan, which will be connected to a 400,000 barrels-per-day (bpd) refinery.

The Saudi state oil giant hopes to complete the project by early 2017, Falih said.

Industry sources have said this could be delayed by up to a year because work on associated infrastructure is running behind schedule.

The Aramco chief said Riyadh is making massive investments to maintain the world's largest spare oil production capacity of more than 2 million bpd.

"As part of our drive to become the world's most integrated energy company, we have increased our annual capital budget tenfold from $4 to $40 billion in the last 10 years," the Aramco boss said.

"In the past two years alone, we have swung our production by more than 1.5 million bpd in order to address market supply imbalances," Falih said.

Saudi Aramco is also on track to increase the average recovery rate of its conventional oil to 70 percent - more than double the current world average, he said.

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