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Can Azerbaijan Help Solve Europe’s Gas Crisis?

Can Azerbaijan Help Solve Europe’s Gas Crisis?

Surrounded by strong neighbors, Azerbaijan…

Tim Daiss

Tim Daiss

I'm an oil markets analyst, journalist and author that has been working out of the Asia-Pacific region for 12 years. I’ve covered oil, energy markets…

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Saudis Look To Boost Gas Production In A Big Way

OPEC de facto leader and the world’s largest oil exporter Saudi Arabia has now officially joined the ranks of the world’s ever-expanding liquefied natural gas (LNG) exporters club. State-owned Saudi Aramco’s chief executive Amin Nasser said on Thursday that the company was in discussions with many partners around the world regarding potential joint ventures in gas and that it had sold its first LNG cargo, reportedly from Singapore, the LNG trading hub in the Asia-Pacific region, which accounts for two-thirds of global LNG demand.

The storied oil giant has indicated several times that it’s interested in going long on gas, both exports as well as for domestic usage. Riyadh also said recently that it planned to produce 10 percent of its power from renewable sources in the next five to six years to diversify its energy mix and free up even more crude oil for export purposes. Saudi Arabia still primarily uses crude oil for electric power generation. However, if the Kingdom turns to both natural gas (the cleanest burning hydrocarbon as well as renewables, solar and wind power) it could free up more oil for export, anywhere between 300,000 barrels per day to 1 million barrels per day, depending on whose figures you use.

Solar promises

On the solar front, however, the Kingdom talks a bigger game than it actually plays, at least up to the present. Riyadh has pledged over the last several years to become one of the top global solar producers by investing some $350 billion in solar infrastructure.  In March, Saudi Crown Prince Mohammed bin Salman announced a $200 billion agreement with Japan’s SoftBank Group Corp. to build enough solar capacity to triple Saudi Arabia’s current electric output.

Going long on renewables, particularly solar, is also part of the crown prince's vision to revolutionize the Saudi economy, both in terms of modernization and to pivot away from over-reliance on crude oil. Riyadh is developing around 30 solar and wind projects targeting 9.5 GW of renewable energy by 2023, as well as plans to build 17.6 GW of nuclear capacity by 2032. Related: This Country Will Be Critical For The Oil Industry’s Future

However, virtually no construction on projects has begun according to media reports in the region. Likewise, Fatih Birol, executive director of the International Energy Agency (IEA) said in December that the Saudis have a "lot of stop and go" efforts in its renewables energy push.

Gas ambitions

Saudi Aramco plans to boost its gas production to 23 billion standard cubic feet (scf) a day from 14 billion scf now, Nasser said at a chemicals industry event in Dubai late last year. “Our gas program... will attract investments of about $150 billion over the next decade,” he said. “We also have world-class unconventional gas resources that are rapidly supplementing our large conventional resources…. We are looking to shift from only satisfying our utility industry in the kingdom, which will happen especially with the increase in renewable and nuclear to be an exporter of gas and gas products.”

Saudi Arabia is also expressing interest in taking a major part, around a 30 percent stake, in Russia’s proposed massive Arctic LNG 2 project. The ramifications of any possible Saudi investment in the project could see Saudi Arabia either resell cargoes on the secondary (spot) market, or strike mid to long term supply deals, or simply using it for domestic usage.

A deal between Saudi Arabia and Russia on the gas front will also solidify its growing participation in the OPEC+ group of oil producers that is currently drying up excess oil supply in its second oil output deal in as a little as three years. In January, Nasser told Reuters in an interview that Saudi Aramco was also looking to spend billions of dollars on natural gas acquisitions in the U.S.,  as part of the state-owned oil major’s strategy to bolster its gas business and become a global natural gas player.

By Tim Daiss for Oilprice.com

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