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Saudi awaits accurate estimate of unconventional gas resources

By Kevin Godier

Saudi Aramco remains positive that its unconventional gas resources are both huge and useable, but will need another two years or so to pin down an accurate recoverable reserves figure and form a commercial production plan, according to recent remarks by its leading executive. Non-conventional gas nevertheless “has a place in the energy mix” in order to reduce the burning of valuable crude oil for power generation, said Aramco’s chief executive Khalid al-Faleh, in an interview last week with Platts and two other publications.

Last year, al-Faleh indicated that Saudi Arabia could hold hundreds of trillions of cubic feet of shale gas, more than doubling its proven reserves of conventional gas, which total 280 trillion cubic feet (7.9 trillion cubic metres). In the interview, al-Faleh said that although the world’s largest oil exporter had “conceptual estimates” of its tight and shale gas reserves, it would not book recoverable reserves until it completed an assessment of its unconventional gas resources.

Conventional hydrocarbons

Of course, there remains plenty of output capacity on the conventional oil and gas side, said al-Faleh, highlighting that Aramco’s sustainable production capacity would rise to a nominally huge 12.9 million bpd once the Manifa heavy oilfield development was completed.

But domestic demand for energy is now rising rapidly in Saudi Arabia – as it is in other GCC markets to meet the demands of growing economies and populations – and consumption across the kingdom’s industry and domestic households is now in the range of 4 million barrels of oil equivalent (boe) per day, according to al-Faleh.

Other Aramco officials have predicted that Saudi Arabia may need to burn as much as 3 million bpd of oil by 2020 just to generate power if it fails to improve its energy efficiency, which would lift the average of about 500,000 boe currently used by the kingdom’s power plants by some 500%.

Alternatives search

Thus, Aramco has been keen to seek alternative sources of energy, and has targeted natural gas production of 15.5 bcf (439 mcm) per day of gas by 2015, some of this to be drawn from the world’s fourth largest reserves of natural gas. Aramco has been developing its first non-associated gas field, the offshore Karan field, while also working with foreign partners, including Shell, on a gas exploration programme.

However, production costs have been a major preventative factor in a long-touted aim of developing the country’s large-scale unconventional gas resources, Amin Nasser, senior vice president for upstream at the company, indicated in early October. Nasser was reported as saying that while a number of evaluation projects were under way, commercial production would remain unlikely until the cost of extraction could be reduced further to align more closely with Saudi Arabia’s fixed price system, which is currently set at US$0.75 per million British thermal units, well below the cost of extracting unconventional reserves.

“Hopefully, with the right technology development, we can make it affordable,” he said. In the recent interview, al-Faleh echoed some of this theme. He emphasised that to expand gas production further “will take a lot of investment and non-conventional gas will be certainly a lot more expensive than the gas we have produced in the past – both associated and even the expensive conventional non-associated gas that we have brought on stream, like the increments we are bringing now from offshore.” He was quoted as saying: “Unconventional gas will be generally more expensive than those increments. But still, when considering the alternative of burning valuable liquids like crude oil and condensates, non-conventional gas will compete.”

Assessment the key

Al-Faleh underlined that no major commercial production of shale gas was likely to take place until a recoverable reserves figure was booked. “It will take a couple of years of intensive exploration and perhaps piloted production of this type of resources before we tell with certainty how much reserves we have and when we will be able to bring them to market,” he said in the interview. He continued: “At this stage, I would just caution it is still estimates of resources, conceptual in nature. I have mentioned before that our resource base is in the hundreds of tcfs. Hundreds can become smaller if you go with P90, the 90% probability. On the other hand, it will be much larger if you used P10 figures, and something in the range of 200 to 300 tcf if you are looking at the mean estimate,” he was quoted as saying.

Asked whether Aramco might bring in a foreign partner for reserves assessment work, al-Faleh replied: “As of now, we are not going to bring in anybody. Saudi Aramco is in the process of undertaking this exploration work on our own.” Aramco said in its 2010 annual review that it was looking for unconventional gas trapped in shale rock and impermeable sandstone in the country’s northwest and in the area of the Ghawar field, where gas infrastructure exists. Brian Gratto, manager for exploration resource assessment at the company, underscored in mid-May that the firm was particularly keen to find ways to use less of its valuable crude as fuel for power stations. Aramco wants to add 5 bcfd (141.5 mcmd), said Gratto, adding that the plan was to start with small-scale shale and tight gas recovery of about 300 mcfd (8.5 mcmd), before raising this to hit the larger target. “This is not something that Aramco wants to do over 10 years or more because by then we would have burned more crude oil at power stations that we could sell abroad for higher gains,” he was quoted as saying by Bloomberg.

Consumption breakdown

Saudi observers will have taken a special interest in the details which al-Faleh provided concerning the volumes of crude oil used for power generation in the kingdom, not least that the Aramco head has warned previously that sustained high consumption will impact future crude oil export volumes. Furthermore, data on this aspect of Saudi Arabia’s economy have been varied, to some extent because there is a major seasonal variation, and the total is far higher during the country’s hot summer months.

“I have seen 900,000 bpd and 1 million bpd, which are absolutely incorrect,” al-Faleh was quoted as saying. “I believe 500,000 bpd is in the range of the annual average crude oil being burned for power generation,” he noted. Al-Faleh continued: “Today if you look at our total energy consumption, it is in the range of 4 million boepd, give or take a couple of hundred thousand. About 50% of it is gas-based. This includes feedstock into petrochemicals: some of it is LPG; some of it is ethane; some of it is natural petrol which is a form of naphtha, but it is all derived from gas.” Faleh pointed out that, of the other 2 million boepd, “a lot of it goes into refined products and there is the 500,000 bpd of crude that goes into utility applications.” The Aramco CEO has in the recent past cautioned that this consumption aggregate could roughly double by 2030 to 8.2 million bpd. “If we do not introduce efficiency measures, if we do not sharpen our consumption pattern, if we do not substitute different energy sources, if renewables do not make a dent in our energy mix, that will be the outcome,” he reiterated. To consume such a figure for domestic purposes “will be extremely inefficient in terms of converting energy input into economic output”, he stressed.

Relax production

Al-Faleh confirmed that the state-owned giant intended to relax production from some of its older reservoirs to achieve maximum recovery rates, playing down the nominal 12.9 million bpd production capacity that will be available once the Manifa heavy oilfield development – the last of Saudi Aramco’s planned capacity expansion projects – is complete. “When Manifa comes on stream, if we continue producing all of those reservoirs at the same rate, we will have 12.9 million bpd. But we are not going to do that. Once we do it, we will introduce reservoir management restrictions to relax those fields, because we are aiming for later in this century and beyond to be able to achieve our maximum reservoir recovery,” he was quoted as saying.


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