• 3 minutes e-car sales collapse
  • 6 minutes America Is Exceptional in Its Political Divide
  • 11 minutes Perovskites, a ‘dirt cheap’ alternative to silicon, just got a lot more efficient
  • 1 min GREEN NEW DEAL = BLIZZARD OF LIES
  • 6 days If hydrogen is the answer, you're asking the wrong question
  • 10 hours How Far Have We Really Gotten With Alternative Energy
  • 10 days Biden's $2 trillion Plan for Insfrastructure and Jobs
Cyril Widdershoven

Cyril Widdershoven

Dr. Cyril Widdershoven is a long-time observer of the global energy market. Presently he works as a Senior Researcher at Hill Tower Resource Advisors. Next…

More Info

Premium Content

Natural Gas Drives Saudi Geopolitical Pivot

Aramco industry

The world’s largest oil company Saudi Aramco seems to have surprised the global energy markets the last couple of days.

New announcements of multi-billion dollar investments in gas related operations, indicating a new move to make Saudi Arabia a major gas exporter, have been made public by the company’s CEO Amin Nasser. This ‘strategic pivot’ may come as a surprise, as Aramco is mainly known as a producer of crude oil. The reality, however, is different as the Kingdom has not only been quietly investing in upstream gas projects, it is also sitting on some of the largest natural gas reserves in the world.

At a conference in Dubai, Amin Nasser stated that that Aramco will be committing around $150 billion in investments in the next 10 years, targeting a gas production of around 23 bcf per day, an increase of 9 bcf from the current 14 bcf. The Aramco CEO also stated that 16 drilling rigs are currently working on unconventional gas, while more than 70 wells have been completed in 2018.

These statements are not a radical change in tactics by the oil giant. The last couple of years, a new strategy has been implemented by Aramco to diversify its operations from largely upstream into a more diversified downstream approach. The expanding domestic downstream sector already needs additional gas supply as feedstock.

At the same time, Aramco’s oil producing units are also demanding higher gas volumes. In order to support current crude oil production volumes, EOR techniques are being implemented, which are partly based on gas (re-) injection to stimulate pressure in the field and stabilize or increase production. Saudi Arabia’s ongoing economic diversification efforts and exponentially growing power demand has also had its repercussions on Aramco’s gas strategies. More natural gas as feedstock for power generation is needed to counter the current steep demand for crude oil by power plants and refineries. Taking into account the higher demand for crude in the near future, Saudi Arabia will need to free up more crude oil to export or provide as feedstock for chemicals.

Even though the Kingdom holds substantial conventional gas reserves, unconventional gas is needed to supplement existing production. Nasser indicated that unconventional gas will provide much needed liquids and ethane volumes, for which demand has increased substantially due to the expansion of the Saudi chemical sector. Related: $50 Oil Puts Shale To The Test

Before Aramco and the Kingdom will be able to become a net exporter of natural gas, greater production is needed. Without a drive to implement vast renewable energy schemes, no additional volumes of natural gas will be able to be freed up for possible exports. And a mix of wind and solar investments will be accompanied by an expected 17.6 GW of nuclear energy generation capacity in 2032.

On the other hand, Aramco’s ongoing discussion to acquire a majority stake in SABIC, the world’s largest downstream operator, could be a major constraint in future. Aramco’s target to increase its global refining capacity from 5.4 million bpd to 8-10 million bpd, could have consequences for natural gas exports too.

Increasing refining capacity, while still trying boost oil exports in order to meet growing demand, could end up in cannibalizing part of the extra gas production inhouse. Some of the feedstock of Aramco-SABIC refineries can be supplied with natural gas products and liquids, keeping enough crude oil barrels available to stabilize the market and convince them of the Kingdom’s future oil powers.

Discussions will be held the coming years with regards to Aramco’s gas future and capabilities. The current environment is challenging, even if the oil giant is going to prove up major new reserves in the Arabian Gulf and Red Sea areas. At present these volumes are impressive but may not be enough to push the Kingdom from being a growing gas importer to be a net gas exporter within 10 years.

Unconventional resources in the Kingdom have been assessed several times as interesting’, but not having the same impact on the market as new discoveries such as recent finds in the East Mediterranean. A possible interesting twist could be if Aramco is willing to invest and operate the coming years in cooperation with NOGA/Tatweer on the offshore shale oil field of Bahrain. Associated gas production is to be expected, but volumes are not known yet. Possible links with Aramco exist, so an integrated approach could be the solution here.

It still feels a bit strange to discuss Aramco/Saudi Arabia as a major gas exporter. Looking at the market, in which LNG projects and major offshore gas fields are coming onstream, competition is fierce. Aramco’s current requests and discussions with major gas producers, such as Shell, Gazprom and even its Arab counterpart ADNOC, on LNG import strategies, stands clearly in contrast to the desired gas exporter status. Related: Goldman: Oil Prices Set For Rebound In 2019

A more feasible approach than to target the Kingdom’s (un)conventional gas reserves for exports is a further integration of Aramco and Abu Dhabi’s national oil company ADNOC in the LNG sectors. A week ago, both already have stated that they are discussing future gas and LNG investments.

At ADIPEC, both have signed a framework agreement to share technical and operational knowledge. Most of the GCC countries, except Qatar, are currently gas import dependent. The UAE, holding several major (sour) gas fields, with reserves of 6TCF, is still importing vast volumes of LNG. For the Kingdom the situation is possibly the same the coming years. According to BP’s assessments, the Kingdom’s gas production and domestic demand was around 111.4 Bcm in 2017.

The coming years, demand is expected to be higher, necessitating possible LNG imports. An increase in refinery capacity will also push gas demand up, which will need to be met by imports on the short term. To partly counter this growing demand, Aramco has been very aggressively targeting investments in international projects such as Russia’s Arctic LNG. The oil giant could however also use another link, based on the ongoing strategic cooperation between Cairo and Riyadh. Possible long-term contracts with Egypt to supply LNG or even pipe gas to Saudi should not be pushed aside too easily.

ADVERTISEMENT

In the short-to-midterm, Saudi Arabia will not be entering the gas exporters league at all. If the economic diversification drive of Saudi Crown Prince Mohammed bin Salman and Minister Khalid Al Falih, as indicated in Saudi Vision 2030, really takes off, demand for power and downstream feedstock will negate gas production increases. At the same time, increased production difficulties at major Saudi oil fields such as Ghawar also necessitates additional gas (re)injection projects.

Taking a more geopolitical view, Nasser’s statements could be the first indication that the Kingdom is going to set up an in-depth gas strategy in cooperation with the UAE and Russia. Gazprom’s ongoing discussions to supply LNG to Saudi Arabia is not only economically interesting, but further strengthens relations between Riyadh and Moscow. The future of OPEC+ or NOPEC could be cemented by a gas deal between the major proponents of a new OPEC. Gas could become the grease needed to keep the OPEC machine lubricated. A gas marriage made in OPEC heaven is the message, not exactly what analysts are predicting. Saudi gas is too precious for the Kingdom itself right now.

By Cyril Widdershoven for Oilprice.com

More Top Reads From Oilprice.com:


Download The Free Oilprice App Today

Back to homepage





Leave a comment
  • Einstein on November 28 2018 said:
    The short of it is Saudi Arabia is running out of oil. The population cannot continue to enjoy a leisure lifestyle on a government stipend. King MbS intends to create work for Saudis and cut the stipend.

Leave a comment




EXXON Mobil -0.35
Open57.81 Trading Vol.6.96M Previous Vol.241.7B
BUY 57.15
Sell 57.00
Oilprice - The No. 1 Source for Oil & Energy News