The hard push towards raising natural gas production in Saudi Arabia is relentless. Around the middle of November, Aramco signed contracts worth $5 billion (Dh18.3 billion) for the expansion of its domestic gas processing and distribution facilities.

The contracts cover the expansion and upgrading of the national Master Gas System (MGS), which was initiated in 1975 to transmit gas to major consumers in Saudi Arabia, including in the west of the country.

This has followed a contract worth $6.5 billion, also made in November, for the Fadhili gas processing plant (including sulphur recovery units). This will treat 2 billion cubic feet (bcf) a day of sour gas from the newly developed free gas offshore field of Hasbah in addition to 0.5 bcf from the onshore Khursaniyah oilfield.

The gas processing units, offsites and utilities were awarded to Spain’s Tecnicas Reunidas, while the six sulphur recovery units were awarded to UK’s Petrofac.

According to the “BP Statistical Review”, Saudi Arabia’s gas reserves at the end of 2014 were just over 288 trillion cubic feet (tcf), the fifth in the world. But because 70 per cent of these reserves are in associated gas, their production is largely dependent on crude oil production.

Therefore, the Saudi efforts to discover and develop free gasfields is imperative. Reserves have increased by about 20 per cent from 240 tcf at the end of 2005 to the current level.

Gas resource

Gas production and consumption, however, has increased from 6.9 tcf to 10.5 bcf a day in the period from 2005. Production and consumption are constrained by availability of gas resources, thus forcing Saudi Arabia to rely partially on direct crude oil burn in power generation.

Unfortunately, the “BP Statistical Review” does not include flared gas in its reporting. The World Bank Global Gas Flaring Reduction partnership estimates that in 2011, flared gas amounted to 131 bcf in Saudi Arabia. It should be the first priority of Aramco to salvage as much as possible of this wasted resource.

According to Saudi Aramco, natural gas demand is expected to almost double by 2030 from 2011 level of 3.5 tcf per year.

Aramco has developed the offshore gasfields such as the Karan, which was discovered in 2006 but came on-stream in 2012 producing 1.8 bcf a day (in addition to the fields mentioned earlier). The offshore Dorra field with 60 tcf of reserves remains idle awaiting a solution to the transportation problem between the joint owners, Saudi Arabia and Kuwait.

Exploration and development may also take off in non-producing areas such as the Red Sea, northern and western parts of the country and the centre-north of Riyadh.

In May, Reuters reported that Aramco discovered five gasfields and three oil and gasfields in the east of the country in 2014, the highest number of discoveries in the company’s history.

Unfortunately, the Saudi initiative to develop gas resources in the Rub Al Khali yielded nothing as the international oil companies — joint venture partners with Aramco — quietly abandoned their activities due to the high cost of development and the low gas price in Saudi Arabia of $0.75 per million British Thermal Unit. This is a fraction of gas prices in other markets.

But Aramco is confident that its unconventional gas programme, launched in 2011, will yield discoveries. In its “2013 Annual Review”, Aramco discussed the development of a 1,000 megawatt power plant that will use shale gas for power generation in the northern part of the country. However, the availability of water may hinder further development of shale gas, unless a solution is found.

Investing heavily

Aramco also plans to start natural gas production at a field near Jordan, next year according to Khalid Al Falih, its CEO, who said the “results are extremely encouraging”.

Considering the volume of direst crude burn for power generation, it is understandable why at this time of reduced expenditure the Saudis are still investing heavily in natural gas development. In a recent column, I said “In the period 2009-13, the average daily use of crude oil for this purpose [direct burn] was about 0.5 mbd, where the January consumption of about 0.3 mbd rises steadily to about 0.7 mbd between June to September.

“The peak is usually around 0.9 mbd during August. But in July 2014 crude burns were 0.9 mbd, the highest ever reported, according to EIA, because of rising electricity demand.”

This is close to $7.3 billion a year at today’s prices of oil.

Gas is welcome, but Saudi Arabia is also hedging its plans by going solidly for renewable energy driven electricity generation as well.

 

The writer is former head of the Energy Studies Department at the Opec Secretariat in Vienna.