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Saudis invest $ 100 billion in shale oil production

UNITED STATES (OBSERVATORY NEWS) — Since this commodity is experiencing one of the worst recessions in history, one might think that a large oil company, which will supply most of it to an already flooded market, will cause panic.

With 10.3 million barrels per day, Saudi Aramco is the largest energy company in the world, responsible for producing 10% of the world’s oil reserves at one of the lowest production costs.

This is why the news that Saudi Arabia has begun the largest development of shale gas should drive the natural gas market into a severe depression.

It is clear that markets feel exhausted amid falling natural gas prices by 40% over the past year. This is probably one of the reasons why the ghost of yet another oversupply caused a muffled reaction.

But in fact, everything is more complicated.

Major gas producer

Saudi Aramco has announced that it will receive $ 110 billion over the next couple of years to develop the Jafura gas field, which may contain 200 trillion cubic feet of gas.

The state-owned company hopes to start producing natural gas from the Jafur field in 2024, by 2036, production should be 2.2 billion cubic feet per day of gas and 425 million cubic feet per day of ethane.

The field will produce about 550 thousand barrels per day of gas liquids and condensates, which is 50% more than the current production, a little more than 1 million barrels per day. In the future, Aramco produced 8.9 billion cubic feet per day of natural gas and 1 billion cubic feet per day of ethane in 2018.

If the company achieves its development goals, Jafura will become the largest unconventional gas field outside the United States. Saudi Arabia will officially become the third largest gas producer in the world by 2030, losing only to Russia and the United States.

Unconventional drilling was not very successful outside of North America, mainly due to lack of experience, lack of water or other key resources, poor infrastructure or proximity to large populated areas.

But Aramco seems to have realized all this and even boasted of low shale gas development costs.

According to Amin Nasser, president and chief executive officer of Saudi Aramco, abundant seawater will have to be used in the Jafura field during hydraulic fracturing, which will be a serious cause for concern mainly in a desert country.

The Saudi State Oil Group is also collaborating with international oilfield services companies to develop the necessary drilling technology. Since 2013, the company has already drilled 150 wells, most likely having checked all production parameters. Not for export.

It sounds impressive, but Saudi Arabia is not enough to become a major exporter of natural gas.

“Soon you will hear that the kingdom is capable of becoming an exporter of gas,” said Mohamed bin Salman, the crown prince of Saudi Arabia this month, without going into details.

At the same time, on Friday, he ordered that gas from the Jafura field be used mainly in domestic industry to support the Vision-2030 plan, Crown Prince’s main strategy for economic reform aimed at diversifying the economy and removing it from excessive dependence from oil.

Aramco has invested billions of dollars in new petrochemical projects, including a $ 44 billion refining and petrochemical complex in India and $ 7 billion in investments in another complex in Malaysia. Now it is negotiating with companies to expand partnerships in this segment.

In addition, Saudi Arabia has had tense relations with Qatar, its main supplier of natural gas through the Dolphin pipeline, since 2017. The Kingdom accuses Doha of supporting terrorism. Saudi Arabia will strive to minimize its dependence on Qatar by developing its own gas fields.

But preserving our own natural gas has great economic meaning. The Kingdom burns about 900 thousand barrels per day of valuable liquid fuel for industrial purposes and for the production of electricity. Replacing all this petroleum natural gas can bring additional export revenues worth more than $ 10 billion, or even more if oil prices recover in the future.

This additional oil could provide a good airbag to save raw materials that were recently affected during the attacks on Abkaik.

In the near future, Saudi Arabia is unlikely to be able to export natural gas, even if it wants to.

According to Platts Analytics estimates, natural gas production in Saudi Arabia should reach at least 23 billion cubic feet per day by 2026, which will fully satisfy the country’s growing demand for electricity and industrial demand. That is, natural gas alone is unlikely to satisfy half of industrial demand, even when production at Jaipur is in full swing.

There is nothing to worry about if we assume that Saudi Arabia will be able to export an additional 1 million barrels of oil per day, replacing part of its own demand with natural gas. The EIA expects global demand for oil and liquid fuels to grow by 1 million barrels per day in 2020, and another 1.5 million barrels per day in 2021.

Expanding commodity volumes in this oversaturated market is bad. But probably it will not make much difference in a broader sense.

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