Saudi's search for gas

The most powerful GCC economy, Saudi Arabia continues to look for more gas to fuel its growing population, but with what result…
By Jyotsna Ravishankar
Thu 22 Aug 2013 09:45 AM

With the onset of scorching summer heat, the air-conditioning in Saudi Arabia will be set up a few notches and around the clock - temperatures in the Kingdom of Saudi Arabia are known to regularly rise up to 50 degrees Celsius in the hot months. With the mercury rising, the chief worry for Saudi Arabia is power generation, which is why when the country, awash in oil, declared its push for the ‘golden gas’ – it was a relief.

The Kingdom of Saudi Arabia in early 2000 announced it had begun a search for gas to replace oil as the burning fuel to generate power in the country. This would also potentially free up the precious oil for shipment.

Saudi Arabia is the largest consumer of petroleum in the Middle East, particularly in the area of transportation fuels and ‘direct burn’ for power generation.

According to the US’ Energy Information Administration (EIA), Saudi Arabia was the world’s 13th largest consumer of total primary energy in 2009; 60 per cent was petroleum-based, with natural gas accounting for most of the rest.

Saudi Arabia has set a goal of producing almost half of its power from renewable fuels by 2020 in order to meet domestic power needs and to free up oil and natural gas for export.

Saudi Aramco’s CEO, Khalid Al-Falih warned that rising domestic energy consumption could result in the loss of 3 million barrels per day (bpd) of crude oil exports by the end of the decade, if no changes were made to current trends.

The Kingdom (including the Neutral Zone) had proven natural gas reserves of 288 trillion cubic feet (tcf) at the end of 2012, fifth largest in the world behind Russia, Iran, Qatar, and the United States, according to EIA estimates. About 5 tcf was added in 2012, and over the last decade, Saudi Arabia added over 60 tcf of natural gas reserves.

To meet growing domestic needs for additional production, the Petroleum Ministry and Saudi Aramco announced a $9 billion strategic push to add 50 tcf of non-associated reserves by 2016 through new discoveries (and potentially another 50 tcf of associated reserves).

The national oil company has focused heavily on major offshore gas developments in the Arabian Gulf. The most successful project has so far been the Karan gas project. Saudi Aramco began flowing natural gas from Karan field in the Arabian Gulf via subsea pipeline to the Khursaniyah gas treatment plant onshore in Saudi Arabia in 2011.

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The project was ahead of schedule and is today bringing two billion cubic feet (bcf) of gas to stream. (See page 45 for an indepth analysis of Karan gas field)

But Aramco has announced in its annual report that exploration and development for more gas fields was also due to commence in non-producing areas such as the Red Sea, northern and western Saudi Arabia, and the Nafud basin, north of Riyadh.

Everybody is talking ‘unconventional’

Saudi Aramco also launched its Upstream Unconventional Gas programme in 2011. According to Aramco’s 2011 report, the intention is to increase production of raw gas – unprocessed natural gas – to reach 15.5 bcf a day by 2015 from 10.2 bcf in 2010.

The international oil companies that initially participated in Saudi gas field’s were Shell, Lukoil, China’s Sinopec, Italy’s Eni and Spain’s Repsol.

But international enthusiasm has begun to wane with majors, like Shell negotiating for better prices at the Empty Quarter. So, with budgets allocated and state’s resolve in finding gas for its own growing power generation, why was there no rush in exploration?

“The Saudis need to raise prices to encourage new developments,” Kamel al-Harami, an independent oil analyst based in Kuwait told Bloomberg in a recent interview.

“But they need at first to find enough non-associated gas,” or fields where the fuel exists separately from oil.

The price of gas in Saudi Arabia is regulated and set at $0.75 per million btu.  Industry estimates suggest companies would need to receive around $5/mmbtu in order to produce technically challenging non-associated gas economically viable.

Arsalan Iqbal, senior consultant, Contax partner says the reason Saudi Arabia are pushed to looking for unassociated gas fields is because of the OPEC quotas. “If you have to extract associated gas, then you need to recover the oil, as well which maybe in excess of the OPEC quota, so that is the reason for Saudi’s push for unassociated gas and even unconventional reserves,” he explains.

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The problem with Saudi gas is that it is very sour and in hard to extract reservoirs, so international companies have little motivation to continue looking for them, especially with the current price points.

The solution to the gas conundrum in Saudi Arabia now may very well lie in its Shale reserves.

Roaa Ibrahim, an analysts with Manaar Energy says the Kingdom has already began its efforts to search for unconventional hydrocarbons in the country.

Shale gas exploration progammes have begun in the north-west targeted at the Silurian (Qusaiba) shale; tight gas is being searched in southern Saudi Arabia in the Rub’ Al Khali (Empty Quarter) and south Ghawar field with tight sand and carbonate potential.

“Hydraulic fracturing has greatly improved gas production rates and recovery rates from moderate to tight reservoirs,” she adds.

American oilfield services company, Baker Hughes puts Saudi reserves of potentially recoverable shale gas at 645 trillion cubic feet, which would make them the world’s fifth largest deposits.

Ibrahim says in the north-west, Saudi Aramco has already begun drilling shale gas wells;  however, to date, only one of the shale gas wells has been fracked, she adds.

Aramco is planning on adding 30 more rigs in 2013 to be deployed in the Tabuk basin and the Midyan basin in the Red Sea. Tight gas is the targeted resource play in Rub’ Al Khali, notes Ibrahim.

The difficult terrain and little-known geology in the Rub’ Al Khali area prompted 3 joint ventures between IOCs and Aramco: South Rub’ Al Khali (Shell and Aramco), Sino-Saudi Gas (Sinopec and Aramco), Luksar (Lukoil and Aramco).

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“For Saudi Arabia, gas is a big priority as they have to keep exporting oil. The country is very strategic in its thinking, and has made it clear that heavy oil will run the refineries and gas will used for power generation. Saudi Arabia will aggressively go on looking for gas. If it’s shale gas, they will be looking for international partnerships. Shale gas will be Saudi Aramco’s outlook for gas, is my take,” notes Iqbal.

Drilling for gas

A Barclays report on drilling reaffirms the push for gas in the Kingdom. It said the number of rigs active in the Kingdom, climbed to 150 at the start of June, from 134 at the start of the year. Further a report on Financial Times said Gulf industry officials expect the Saudi rig count to top 200 this year or in early 2014.

While the escalation could be owing to the large Manifa fields, it also means that many wells are being drilled for gas. Ali Al Niami, the Saudi oil minister and the most vocal spokesperson from the gulf countries, has also reiterated that Saudi Arabia will focus in shale this year. Reports suggest that Saudi Aramco has asked Halliburton and Schlumberger to begin carrying out feasibility studies for the production of shale gas. Seismic surveys are currently being carried out in the northern desert area close to borders of Iraq and Jordan.

2012 – Year in focus

The Aramco 2012 annual report says the year was marked by three major finds. Discoveries included one oil field — Aslaf – and two gas fields – Sha’ur and Umm  Ramil — bringing Aramco’s total oil and gas field discoveries throughout history to 116.  Sha’ur was the company’s first discovery in the marine portion of the Red Sea. Aramco’s gas plants now have a gas processing capacity of 13.23 billion scfd. In 2012, as the company continued to pursue new energy sources - The Unconventional Gas Initiative will contribute to the company’s strategic intent in many ways. Saudi Arabia’s supplies of unconventional gas will supplement its supplies of conventional gas resources and help meet the Kingdom’s energy demand, the report says.

The report argues that although the cost of delivered unconventional gas is higher than most conventional gas, it is an important strategic and economic choice for the company.

Saudi Aramco is investing in innovative technologies to reduce the higher cost of producing unconventional gas, which offers opportunities to more efficiently manage domestic demand,” the report clearly outlines. So, while the unassociated gas exploration may not have yielded favourable results, the company is making a determined push with is shale gas exploration.

Will hydraulic fracking be possible in Saudi Arabia is the next logical question, with the need for huge volumes of water in the procedure. But as a country that remains on the global energy map as one of the most important oil exporters, it will not be long before Saudi Aramco finds a way around this problem. As a senior executive from Schlumberger, recently told delegates at a Bahrain conference, “It’s here in Saudi Arabia where we are developing our best technology. We are trying to find solutions to produce shale gas in Saudi Arabia with the least amount of water,” Aaron Gatt, characterization group president at Schlumberger told the audience at a Manama conference, earlier this year.

The growth of its petrochemical industries and sustainable power generation hinges on the discovery of more gas and it must be found at any cost, is the industry consensus.

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