Saudi Arabia Review

The Empty Quarter  ...  shale prospecting in progress

The Empty Quarter ... shale prospecting in progress

Aramco deploys rigs for shale

At present, Saudi Aramco is depending on the contracted services of Schlumberger, Halliburton and Baker Hughes in its search for non-conventional petroleum

SAUDI Arabia will be a shale gas producer in the Middle East from late 2019 or early 2020. The state-owned Saudi Aramco has fast-tracked exploration phase and will do the same in developing whatever will be discovered in the coming years.

This is in view of rapidly rising domestic demand for natural gas. The company is mobilising 40 rigs to speed up production. The E&P operations are to concentrate on all three main areas containing non-conventional gas. The Rub Al Khali (RAK, or empty quarter) desert in the south, South Ghawar in the east, and the northern desert of Jafurah.

The rigs are being partly purchased and partly leased. They are in addition to more than 120 rigs that are mostly in operation and partly to be delivered before March 2014. A big number of these rigs already are being used for the shale gas exploration phase.

Saudi Aramco has also expanded its exploration for conventional natural gas in new areas such as RAK and the Red Sea. It acknowledges there are challenges to overcome with shale gas deep below the surface and in the remote areas mentioned above. It has a number of studies to get to grips with their potential, to learn from the experiences of other firms and countries in developing non-conventional gas resources.

When it lacks gas for power plants, Saudi Arabia burns liquids fuels and crude oil which, unless more gas is made available for the electric power sector, would exceed 4 mbpd by 2020. Power plants on its west coast tend to burn liquid fuels, while those on the east coast burn natural gas. The three regions are rich in both shale gas and tight gas. Saudi Arabia’s recoverable shale gas resources have been put at 645 tcf.

Saudi Aramco’s general supervisor for Gas Reservoir Management Adnan Kan’an says the planned development of the kingdom’s non-conventional petroleum resources will be a great challenge. He says the depth of the related reservoirs and likelihood of very low permeability will make hydraulic fracturing (fracking) in this country very difficult.

In January 2012, Saudi Aramco CEO Khaled Al Falih confirmed that his company was hoping to begin shale gas production before 2020. He said at the time: “We are in the reconnaissance phase, shooting regional seismic programmes and drilling all over the country”.

Saudi Arabia’s drive for natural gas is motivated by its wasteful burning of crude oil for power generation. Over 1.95 mbpd of crude oil were used for domestic power generation in August 2013, up from 1.9 mbpd in August 2012. Petroleum & Mineral Resources Minister Ali Na’imi calls this crude oil burn a “shame”, stating: “We can add value to it rather than just burn it”.

At present, Saudi Aramco is depending on the contracted services of Schlumberger, Halliburton and Baker Hughes in its search for non-conventional petroleum, with special focus on natural gas. These companies have been heavily involved in the explosion of non-conventional oil production in the US since the late 1990s.

Even after rapid innovation in the US drove down shale gas production costs from over $13/m BTU in mid-2008 to around $3.5-4 now, they are still far in excess of the $0.75/m BTU fixed sales gas price in Saudi Arabia. Yet the American producers of shale gas are still making a profit out of the current price range in the US.

Alex Munton, a Middle East energy analyst at Wood Mackenzie in Edinburgh, says: “You don’t have market forces (in the Middle East) in the way of price signals, and private actors for these forces to be unleashed in the way that they were in North America.”

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