Saudi Aramco Review

The Empty Quarter ... challenging

The Empty Quarter ... challenging

Empty Quarter gas faces price hurdle

Aramco has tried to lobby for a change in gas price, particularly as it develops non-associated gas fields, but the government has dismissed those requests

SAUDI ARABIA will not be able to develop the known gas resources in the Rub Al Khali (Empty Quarter) desert until the government raises the domestic gas price, according to Saudi Aramco CEO and president Khalid Al Falih.

“One challenge we have is the pricing of gas is very low in Saudi Arabia and does not make unconventional gas or tight gas in the Rub Al Khali economic,” the Aramco boss says.

Aramco and its international partners drilled 27 wells in the first exploration phase carried out in the vast desert in search of gas, but with few positive results. China’s Sinopec found deep, tight gas, Royal Dutch Shell appraised a known sour gas field, and Russia’s Lukoil announced a find, but none of the ventures have declared commerciality.

This has not stopped the Shell-led South Rub Al Khali (Srak) venture and Sinopec’s Sino-Saudi Gas (SSG) from signing up to a second exploration phase. Lukoil’s Luksar declined a second drilling campaign, but opted for an appraisal programme on two discovered structures. Eni and Repsol’s Enirepsa venture intended to pull out of the country years ago after drilling dry wells, but the government gave it more time to finish its four-well drilling programme out until at least 2011.

Srak is confident that – together with its partner Aramco – it can find a way to commercially develop the Kidan sour gas field, despite the remote location and huge logistical challenge of stripping out tonnes of sulphur to make the gas usable. The government mandated gas price is 75¢ per million British thermal units (mmBtu), but development of Kidan will cost many multiples of that, say the partners.

The decision to change the fixed domestic gas price lies with the most senior members of the Saudi leadership. Aramco has tried to lobby for a change in gas price in recent years, particularly as the state company develops nonassociated gas fields, but the government has dismissed those requests. There were indications that the top leadership was considering a rise in gas prices in 2010 in response to alarming local consumption trends, but that was before the Arab Spring rocked the Mideast in 2011 and forced government priorities elsewhere.

Al Falih says he hopes the gas price issue “will be addressed by the government in due course” but does not give a timeline. Unlike Shell, Sinopec is not focused solely on the commercial value of its upstream stake in the kingdom. “We are not just looking at the project level, we are looking at the strategic level,” says Sinopec chairman Fu Chengyu. Fu was in town to sign the joint-venture agreement for Sinopec and Aramco to build a 400,000 barrels-per-day refinery on Saudi Arabia’s west coast.

Al Falih defends Aramco’s gas development schemes, which have lagged domestic demand for gas to fuel power stations. “We have been growing our gas at an extremely rapid pace. The problem is that the demand grows faster than our extremely rapid supply growth,” he says.

Its 2.5 bcfd Wasit development will process gas from two offshore fields, Hasbah and Arabiyah, by 2014, he adds. More will come from debottlenecking existing facilities.

“We have a major exploration programme for unconventional gas. We are drilling a number of wells in the northwest of Saudi Arabia,” he says. The company has already made small finds at Midyan and Sidr.

Meanwhile, Sino Saudi Gas plans to drill again in Saudi Arabia’s Empty Quarter but gas prices are still too low for companies exploring there, Al Falih says.

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