RIYADH: Saudi Arabia’s decade-long ‘Gas Initiative’ is unravelling — with considerable impact on global energy balance — as galloping domestic consumption seems eating into the exportable crude surplus of the Opec kingpin — Saudi Arabia.

Launched by the then crown prince, and now King Abdullah ibn Abdul Aziz, way back in September 1998, when during an hour long private meeting with senior executives of seven US oil majors he invited them to help develop the kingdom’s energy resources. But things have turned ‘sour’ since.

Initially, the three mooted gas projects focused on a $15 billion scheme to develop gas reserves in South Ghawar field and two minor $5bn ventures that involved gas production for petrochemical, power and water desalination projects.

However, internal opposition and drawn out negotiations, as well as questions about the Aramco reserve estimates, stifled the early euphoria.

The initiative ended up with only a handful of projects, led mainly by Russian, Chinese and European firms. US oil majors, who had originally negotiated for participation, interestingly abstained. The revised gas projects entailed exploration and processing of the non-associated gas found in designated blocks in the Rub Al Khali (Empty Quarter).

In October 2003 Royal Dutch/Shell and France’s were awarded the Shaybah gas project, covering a 200,000 square kilometre. In May 2004, Russia’s Lukoil was awarded stake in 29,900 sq km Block A and China’s Sinopec was awarded stake in 38,800 sq km Block B. Italy’s ENI and Spain’s Repsol-YPF, were awarded the 52,000 km, Block C.

The entire scheme is now in doldrums.

Early last month, Shell announced ending investments in the project. ENI, Repsol and Total — have also abandoned gas search. China’s Sinopec too had reportedly suspended operations in the Empty Quarter.

The relatively high cost of developing challenging deposits while gas sales prices fixed at a fraction of probable production costs were discouraging Shell and others, industry sources were quoted by Reuters as saying.

Low domestic gas pricing has been an issue here. Saudi Aramco corridors in Dhahran have been abuzz with voices calling for changes in the price regimen. The country will not be able to develop the known gas resources in the Empty Quarter desert until the government raises the domestic gas price, Saudi Aramco CEO and President Khalid Al Falih was quoted in press as saying.

“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,” he argued.

Al Falih says he hopes the gas price issue “will be addressed by the government in due course.” However, he refrained out from providing any timeline.

The focus is now shifting to unconventional resources. Saudi Oil Minister Ali al-Naimi had estimated the country’s unconventional gas reserves at over 600 trillion cubic feet, more than double the proven conventional reserves of 288 trillion cubic feet.

Saudi deserts may hold as much as 645 trillion cubic feet of technically recoverable shale gas, the world’s fifth-largest deposits, estimated Baker Hughes Inc.

Russia’s Lukoil was reportedly interested in tapping unconventional gas deposits in the Empty Quarter. “This is tight gas. The negotiations are under way,” a spokesman for Lukoil Overseas said.

And in order to make unconventional gas economically viable, Saudi Aramco is endeavouring to reduce the cost of producing natural gas from so-called tight rock formations, targeting Saudi Aramco, is now targeting a cost of $2 to $3 per thousand cubic feet of tight gas, Adnan Kanaan, of Aramco’s Gas Reservoir Managing department said.

With domestic gas demand to almost double by 2030 from 2011 levels of 3.5 trillion cubic feet per year, finding new resource is a key challenge to the energy managers of the kingdom, today.

Published in Dawn, August 3rd, 2014

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