Is Saudi Arabia Set On Becoming A Global Gas Leader?

Is Saudi Arabia Set On Becoming A Global Gas Leader?

Authored by Simon Watkins via OilPrice.com,

Saudi Arabia aims to become a major gas exporter by 2030, as part of its ‘Vision 2030’ plan.

Saudi Aramco announced over $25 billion in contracts for gas sector expansion.

Despite these efforts, Saudi Arabia’s projected gas output by 2030 may still fall short of covering its own power needs.

Saudi Arabia may be the third largest producer of crude oil in the world, after the U.S. and Russia, but its gas output has struggled over the years to make much of a mark in the global market. Currently, it produces around 4.2 trillion cubic feet (Tcf) a year – making it the ninth biggest producer in the world – but this goes to meeting domestic consumption needs. Associated (with oil drilling) gas accounts for around half of the Kingdom’s present production, although the non-associated percentage has more than doubled since 2012. However, last week saw twin announcements that might begin to change that, in line with Saudi Arabia’s target of becoming a major gas exporter by 2030 as part of its ‘Vision 2030’ plan.

The two announcements came as part of the statement from the country’s flagship hydrocarbons firm, Saudi Aramco, that it has signed over US$25 billion in contracts to undertake major new gas sector expansion projects.

The first of these, according to the firm’s chief executive officer, Amin Nasser, is that US$8.8 billion is to be spent to increase the scale and scope of the Kingdom’s gas network, in particular through the third phase development of its MGS. In addition to new rigs and ongoing capacity maintenance expenditure, the money is to fund the addition of around 4,000 kilometres of pipelines to the current infrastructure and 17 new gas compression trains. These are aimed at boosting capacity by about 3.15 billion standard cubic feet per day and connecting several more cities to the network. As part of its plans to substitute gas for oil in local power generation, domestic demand for natural gas in the country is expected to grow by 3.7% each year from now to 2030, according to the Energy Information Administration (EIA).

The second announcement was that a further $12.4 billion will be invested in the second phase of Saudi Aramco’s expansion of the much-vaunted Jafurah unconventional gas field. The money is split across 16 new contracts, including the construction of gas compression facilities and associated pipelines, and the expansion of the Jafurah Gas Plant to incorporate the building of new gas processing trains, and utilities, and export facilities. It will also include construction of Saudi Aramco’s new Riyas Natural Gas Liquids (NGL) fractionation facilities in Jubail, which is designed to process NGLs received from Jafurah. This increased gas output would provide very welcome export dollars for a country that has struggled to recover fully from the Oil Price Wars of 2014-2016 and 2020, as analysed in full in my new book on the new global oil market order. It could also replace some of the oil used in domestic power generation, so freeing up more high-value crude for export over time. Last year, Saudi Arabia generated slightly less than 70 percent of its electricity from gas, with the vast bulk of the remainder from oil. The key question for this gas field, then, is will it achieve what it is meant to?

March this year saw an unexpected sudden increase of 15 Tcf in the level of gas deposits apparently now contained in the 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 around 48 Tcm, for Iran at about 34 Tcm, and for Qatar over 24 Tcm. At the same time, the amount of crude oil being burned for domestic energy consumption has risen in the past few years to well over 500,000 barrels per day. In the extreme temperatures of the summer months, this rises to around 900,000 bpd as air conditioners remain on full for much of the period.

The longstanding plan was that production from Jafurah should reach 2.2 billion cubic feet per day (bcf/d) of gas production by 2036. The new plan is for sales gas (gas at the outlet of a plant that is primarily methane) production to reach 2 bcf/d by 2030 instead, allowing room for considerable exports to be undertaken. That said, all other factors remaining equal, one billion cubic feet of gas equals 0.167 million barrels of oil equivalent, so 2 bcf/d (Jafurah’s estimated 2030 output) equals 0.3340 million barrels of oil equivalent, or 334,000 barrels. Therefore, the total projected new amount of gas to come from the unconventional gas field by 2030 is around 334,000 barrels per day, which is not even enough to cover the current amount of oil – 500,000 bpd to 600,000 bpd – being burned for power generation in Saudi Arabia, never mind any increase in demand between now and 2030. Moreover, based on independent industry estimates of the changing demographics of Saudi Arabia and the 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 Saudi gas finds, the Kingdom would still be in deficit in its power generation sector if there was a straight switch from crude oil burning to gas-only burning.

Over and above the practical shortcomings of these announcements, certainly in Jafurah’s case, they do highlight an increasing awareness by the Saudis that gas, especially LNG, has been the key emergency energy source since Russia invaded Ukraine in February 2022, and is likely to remain so in an increasingly dangerous world. It is readily available in the spot markets and can be moved quickly to anywhere required, unlike gas or oil sent through pipelines. Unlike pipelined energy as well, the movement of LNG does not require the build-out of vast acreage of pipelines across varying terrains and the associated heavy infrastructure that supports it. They also highlight that the Kingdom understands that the U.S. led the way in engineering a massive increase in LNG availability for it and its key allies with the express intention of making its NATO partners less vulnerable to Russian threats to remove gas and oil supplies from them. The U.S.’s success in doing this remains the key reason why Russia did not go unpunished for yet another invasion of a European sovereign state – as it did with Ukraine in 2014, and Georgia in 2008, as detailed in my latest book on the new global oil market order. Indeed, the U.S. went from zero LNG exports before 2016, to become the world’s biggest exporter of the gas, with around 86 million metric tonnes of LNG shipped in 2022. And around two-thirds of all the U.S.’s LNG exports since Russia invaded Ukraine have gone to Europe.  

Given the U.S.’s dominance in this field, and Saudi Arabia’s awareness that it has fallen behind in this sector, these two announcements from Riyadh may signal new opportunities for Washington to restore a beneficial relationship for it with the Kingdom. The very recent signing of a landmark 20-year deal for the U.S.’s NextDecade Corporation to sell LNG to Saudi Aramco may well end up having a significance way beyond the confines of the energy market.

 

Tyler Durden
Wed, 07/10/2024 – 21:40

https://www.zerohedge.com/energy/saudi-arabia-set-becoming-global-gas-leader