söndag 4 oktober 2009

Saudi Arabia: Kingdom fears fuel shortage

Published: October 2 2009 15:53 Last updated: October 2 2009 15:53

Endowed with the world’s fourth largest proven gas reserves, Saudi Arabia would appear to have ample resources of the sought after commodity.

But as the kingdom’s economy and population have expanded questions are mounting about whether it will have to face up to the unthinkable – a gas shortage.

The kingdom is now pursuing an urgent multibillion dollar search for gas that stretches from the Gulf to the vast, remote desert of its Empty Quarter. Gas consumption is growing at 7 per cent a year and this appetite is unlikely to slow in the near future.

The kingdom’s plans to diversify its economy by utilising its hydrocarbon resources to attract energy-intensive industries is putting pressure on energy consumption, which is already growing through increasing demand for electricity and water desalination plants.

Colin Lothian, analyst at Wood Mackenzie, says the gas issue is similar to that being faced by other Gulf countries that failed to predict the sharp rise in demand. He says: “Saudi Arabia desperately needs additional sources of gas – the country was importing fuel oil for use in its power generation this year.”

He adds that historically, gas has almost been treated as “a by-product rather than a valuable commodity”.

“Pre-2000, gas prices were very low and consequently the focus wasn’t really on gas exploration to satisfy domestic demand, but as time has gone on, all of these [Gulf] countries have realised their gas requirements are far in excess of what their short term plans can deliver,” Mr Lothian says.

Citing forecasts from Aramco, the state oil company, the US Energy Information Administration says that natural gas demand in Saudi Arabia is expected to double to 14.5bn cubic feet a day by 2030, up from an estimated 7.1bn cubic feet a day in 2007.

The country is already using liquids to fuel power plants and the surge in energy demand could impact global markets by affecting the kingdom’s oil exports, as well as future industrial projects.

The Saudi petroleum ministry has adopted a policy of approving gas supplies to new industrial projects, such as petrochemicals, to ensure their products are not already manufactured in Saudi Arabia, or that they add value by going further downstream than others.

Ali al-Naimi, the petroleum and mineral resources minister, said this year: “The energy consumption pattern in the kingdom will, if it continues, have an impact on both the volume of exports and the kingdom’s income.”

He adds: “This requires us to proceed forthwith to institute a national programme for rationalisation of energy consumption that will take into consideration the kingdom’s condition, the growth phase it is passing through and the need to optimise utilisation of energy in the various sectors.”

The kingdom’s discovered gas reserves have increased from 184,000bn cubic feet in 1990 to 267,000bn cubic feet in 2008.

The problem for Saudi Arabia, however, has been that much of its gas is associated gas – gas linked to oil reservoirs – and so extracting it is tied to oil production.

Mr Naimi said in his speech that the share of non-associated gas out of total gas production had increased from 25 per cent to about 58 per cent. The kingdom’s efforts to develop more gas have been continuing for years with mixed results.

The petroleum ministry announced a $9bn strategy in late 2006 to add 50,000bn cubic feet of non-associated reserves in 10 years through new discoveries, according to the EIA.

Aramco is also spending billions of dollars on a series of mega-projects to increase its gas processing capacity from 9.3bn cubic feet to 12.5bn cubic feet.

The kingdom has been boosted by discoveries in its Karan field, the nation’s first non-associated offshore field, and Aramco began awarding contracts for the project earlier this year.

It hopes the field will produce 1.8bn cubic feet a day when completed, with the first phase of production planned to produce 400m cubic feet a day in 2011.

A 110km sub-sea pipeline will transport gas to processing facilities at the Khursaniya gas plant.

The state oil company also announced three other discoveries, including Arabiya and Hasbah, which are also offshore at the beginning of the year.

Another project, however, has borne less fruit so far.

In an effort to get more non-associated gas on tap, the kingdom awarded international companies exploration blocks in the vast Empty Quarter, outside the area reserved for Aramco. These include Shell, Repsol, ENI, Lukoil and Sinopec. But last year, Total pulled out after drilling three exploration wells that produced disappointing results.

Mr Lothian says that, as exploration licences are nearing expiry, it is possible that companies may not extend their contracts.

“Gas exploration in the Empty Quarter has failed to live up to expectations. The only block to report any sign of commercial quantities is Contract Area A [Lukoil’s block], but overall the exploration results could be classed as a disappointment.”

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