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Simon Watkins

Simon Watkins

Simon Watkins is a former senior FX trader and salesman, financial journalist, and best-selling author. He was Head of Forex Institutional Sales and Trading for…

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Is Saudi Arabia’s Gas Megaproject Jafurah Too Good to be True?

  • According to Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman last week, an extra 15 trillion cubic feet (tcf) of gas deposits has been proven at Saudi Aramco’s Jafurah gas field.
  • Saudi Aramco has a long history of suddenly finding new reserves, particularly at times when Saudi Arabia’s geopolitical position in the world looks to be in decline.
  • The likelihood of Jafurah enabling Saudi Arabia to become a greener energy supplier is slim to say the least.
Aramco

According to Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman last week, an extra 15 trillion cubic feet (tcf) of gas deposits has been proven at Saudi Aramco’s Jafurah gas field. If true, this would take the total reserves in the eastern Saudi field – which is the largest unconventional non-oil associated gas field in the country, and potentially the biggest shale gas development outside the U.S. – up to about 229 tcf, or about 6.5 trillion cubic metres (tcm). By comparison, total proven gas reserves for Russia stand at nearly 48 tcm, for Iran at nearly 34 tcm, and for Qatar at nearly 24 tcm. According to the Saudis, these additional reserves will allow it to become a greener energy country (by boosting domestic gas supply for power generation, thereby reducing the necessity to burn oil) and even to become a major gas exporter by 2030. The key question for those with experience of the Saudi oil and gas sector is simply: till what extent is this true?

Related: This Could Be A Gamechanger For Natural Gas In Europe

Saudi Aramco has a long history of suddenly finding new reserves, particularly at times when Saudi Arabia’s geopolitical position in the world – solely dependent on its hydrocarbons resources – looks to be in decline, as it is now, as also detailed in my new book on the new global oil market order. At the beginning of 1989, Saudi Arabia claimed proven oil reserves of 170 billion barrels but only a year later, and without the discovery of any major new oil fields at all, the official reserves estimate somehow grew by 51.2 per cent, to 257 billion barrels. Relatively shortly after that, Saudi Arabia’s proven oil reserves miraculously increased again, this time to just over 266 billion barrels, again without the discovery of any major new oil fields. Proven oil reserves increased once more in 2017, to 268.5 billion barrels, again with no new major oil finds being discovered. At the same time as these increases being announced, the country was extracting an average of 8.162 million bpd. Therefore, from 1990 (the year in which Saudi Arabia’s claimed proven oil reserves jumped from 170 billion barrels to 257 billion barrels), to 2017 (the year when Saudi Arabia was claiming proven oil reserves of 268.5 billion barrels), Saudi Arabia had physically removed from the ground forever an average of just over 2.979 billion barrels of crude oil every year. The total amount of crude oil permanently removed from the beginning of 1990 to the beginning of 2017 was, therefore, 80.43 billion barrels. In short, from 1990 to 2017, Saudi Arabia’s official crude oil reserves number had gone up 98.5 billion barrels, despite there being no new oil finds and it physically removing 80.43 billion barrels forever. 

On to Jafurah, then, and looking at claims that it will contribute to making Saudi Arabia a greener energy producer, within the context of previous such comments by the Kingdom. Back in 2020, when the International Maritime Organization’s (IMO) global sulphur cap for marine fuels dropped to 0.5 percent from 3.5 percent, Saudi Arabia stated that Saudi Aramco would eliminate all fuel oil production at its refineries within the following five years. According to a senior oil industry analyst exclusively spoken to by OilPrice.com around that time, what happened was that in order to meet this goal, all Saudi Arabia did was to dramatically increase its import of fuel oil instead, negating any possible benefits from eliminating its own fuel oil production. Again, a close look at the real figures is instructive in this regard. In 2018, the kingdom exported an average of 340,000 bpd of fuel oil, but it also imported just over 300,000 bpd over the same period. The imported fuel oil went to domestic power generation centres and the exported fuel oil went to Saudi’s big markets for the product, mainly India and East Africa. Net/net, then, Saudi’s carbon footprint for fuel oil was around double that of its own production.

Exactly the same pattern occurred after 2015 which was a peak year for fuel oil production. From 2015 to 2018, the amount of crude oil that Saudi Arabia used in domestic power generation decreased from 570,000 bpd to 410,000 bpd. However, during the same period, the amount of fuel oil that the Kingdom used in domestic power generation increased from 400,000 bpd to 500,000 bpd. That trend continued after the change in the IMO’s sulphur cap in 2020, according to the analyst.

With the likelihood of Jafurah enabling Saudi Arabia to become a greener energy supplier appearing slim to say the least, can it make the Kingdom a major gas exporter by 2030? According to the estimates issued last week, the Jafurah field now has an estimated 229 tcf of gas. However, at the same time, the amount of crude oil being burned for domestic energy consumption has risen to just over 500,000 bpd. The longstanding plan was that production from Jafurah should reach 2.2 billion cubic feet per day (bcf/d) of gas by 2036. The new plan is to have enough gas left over (after substituting for 500,000 bpd of crude oil being burned in domestic power consumption) to become a gas exporter in 2023, with the gas production target for 2030 now being 2 bcf/d. All other factors remaining equal, one billion cubic feet of gas equals 0.167 million barrels of oil equivalent, so 2 bcf/d (the estimated 2030 Jafurah output) equals 0.3340 million barrels of oil equivalent, or 334,000 barrels. Therefore, the total projected new amount of gas to come from Jafurah by 2030 is around 334,000 barrels per day, which is not even enough to cover the current amount of oil – 500,000 bpd - being burned for power generation in Saudi Arabia, never mind any increase in demand between now and 2030.

Based on independent industry estimates on changing Saudi demographics and corollary changing power demand patterns, the Kingdom will probably need gas production of around 23-25 bcf/d within the next 15 years just to cover its own power and industrial demand. In sum, then, even if the quality of the Jafurah find is unparalleled in the history of gas finds, then Saudi would still be in deficit in its power generation sector if there was a straight switch from crude oil burning to gas-only burning.

By Simon Watkins for Oilprice.com

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  • Mamdouh Salameh on March 06 2024 said:
    Whatever gas deposits Saudi Arabia’s Jafurah gasfield has, it will certainly be used in the diversification of the Saudi economy by replacing oil in electricity generation, water desalination plants and industrial enterprises. This will have the effect of extending the longevity of whatever oil the Saudis still have for exports.

    Even if the discovered gas reserves are big enough to allow some exports, the Saudis could benefit more from using it to expand their petrochemical industry to make it one of the largest if not the largest in the world rather exporting it. In so doing they earn far more than exporting the gas.

    Dr Mamdouh G Salameh
    International Oil Economist
    Global Energy Expert

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