The first major contracts for Saudi Arabia’s Jafurah field – supposedly, the biggest shale gas field outside the U.S. – were awarded last week, as the Kingdom aims to become the third largest natural gas producer in the world by 2030, to the point where it could even become a net exporter of gas. This, in turn - if true - would allow Saudi to achieve its supposed aim of producing half of its electricity from gas and half from renewable energy sources in pursuit of its 2060 net-zero greenhouse gas emissions target. However, as analysed in depth in my new book on the global oil markets, Saudi Arabia’s statements on its oil sector in the past have been highly exaggerated – as without its oil power, the country has no real power at all – and consequently its comments about its gas and net zero projects should also be regarded with scepticism. This was again in evidence - specifically focused on its gas and net zero targets - when Saudi Arabia recently was alleged to have lobbied the United Nations to play down the need to move rapidly away from fossil fuels.
In broad terms, the Jafurah shale gas basin is estimated to have at least 200 trillion standard cubic feet (scf) of gas in place, across an area of some 17,000 square kilometres. Production of natural gas from the site is expected by its lead developer, Saudi Aramco, to increase from around 200 million standard cubic feet per day (scfd) in 2024/25 to a sustainable rate of 2.2 billion scfd of gas by 2030. In addition, the development is also expected to yield 418 million scfd of ethane and around 630,000 barrels per day of gas liquids and condensates, which are earmarked for use in the Kingdom’s petrochemicals sector. According to Aramco, the company’s shale gas programme will replace around 500,000 barrels per day (bpd) of crude oil production, with the Jafurah development accounting for about 300,000 bpd of that at peak production. Over and above the US$10 billion of contracts initially awarded last week, the Jafurah project will see at least another US$58 billion in investment by 2030.
So, will all of this enable Saudi Arabia to achieve its stated targets as above? No, is the short answer. To begin with, there are questions surrounding the sheer volume of seawater that will need to be desalinated before being used in the gas processing plants involved in the Kingdom’s shale gas drive, both from technical and cost perspectives. It is true that the Saudis have been using desalination equipment for many years in the drilling sector but the country’s shale gas initiatives will be of a different order. This was indicated by Aramco’s recent request for bids from local and international companies to build out a full-scale water desalination plant project in the Jafurah shale gas field. An earlier request for bids was cancelled, and the request this time around is for a desalination plant with 20 percent less capacity. It is also a fact that the Jafurah shale gas fracks will occur at much deeper levels than the typically much shallower U.S. equivalents – at around 9,000 to 10,000 feet in the case of Saudi compared to around 3,000 to 4,000 feet in the U.S.’s case – according to Aramco data, making the process a lot more expensive. Aramco sources have stated that this can be offset in part by the other resources concomitantly extracted – notably ethane – but this remains speculative at this point.
In terms of hard gas output numbers as well, there are more questions. According to Aramco’s figures, the Jafurah site has an estimated 200 trillion scf, a figure that should be taken in context of all other Saudi energy reserves estimates, but let us assume that it is true. In the meantime, Aramco has gas reserves supposedly of around 233.8 trillion scf, which for the purposes of this analysis, we may assume the same thing on the same basis. The plan is for Aramco to start production from Jafurah in 2024/25 and to reach 2.2 billion scfd of gas by 2036. Last year – without Jafurah - Aramco produced 8.9 billion scfd of natural gas. This would give a notional total – with Jafurah - of 11.1 Bcf/d. Crucially, however, even with this current 8.9 Bcf/d of gas production in place, Saudi has been burning around 400,000 bpd of oil for power generation (on top of enormous actual volumes of fuel oil and diesel).
All other factors remaining equal, one billion cubic feet of gas equals 0.167 million barrels of oil equivalent, so 2.2 Bcf/d (the future Jafurah output) equals 0.3674 million barrels of oil equivalent, or 367,400 barrels. Therefore, the total projected new amount of gas to come from Jafurah is around 367,400 barrels per day, which is not even enough to cover the current amount of oil being (400,000 bpd) burned for power generation in Saudi Arabia, even if Aramco’s already elevated gas production holds steady. Therefore, Saudi’s statements that this move to gas will meaningfully contribute to any net zero greenhouse gas emissions targets are not true. This is even more obvious when factoring in Saudi’s double-dealings over hitting IMO-compliance targets, as exclusively analysed at the time by OilPrice.com.
And what of Saudi’s claims that it will become such a big producer of shale gas that it may even be able to become a major net exporter of gas? 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, compared to the 11.1 Bcf/d of Aramco’s current peak production added to the notional production from Jafurah. 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
More Top Reads From Oilprice.com:
- The Multi-Billion Dollar Start Of A Nuclear Fusion Boom
- Natural Gas Bulls Hit Hard By Warm Weather Reports
- The Oil Price Crash Has Taught U.S. Shale A Valuable Lesson