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Saudi Arabia industry: Gas priority

COUNTRY BRIEFING

FROM THE ECONOMIST INTELLIGENCE UNIT

Saudi Aramco is pressing ahead with its plans to expand gas production, even as it calls a pause in its oilfield development

Top on the list is the Karan project, which several in the industry have dubbed as Aramco ’s single-largest non-associated gas development programme. Some US$3bn has been earmarked for investment to produce at least 1.5 bn cu ft/day from mid-2011.

Located offshore and north of the giant Safaniya field, Karan is potentially home to about 10trn cu ft (tcf) of gas. Development of the acreage was first taken up in third quarter 2006, when exploratory drilling indicated substantial reserves. This was followed by in-depth 3D seismic work and testing of wells. With field delineation and demarcation completed, Aramco did not look back since and mounted on the drawing board front-end and detailed engineering work of gas extraction and processing facilities.

Job specs

At a mid-March job explanation meeting in London of contractors and vendors, officials from Aramco ’s project management team unveiled details of the proposed facilities. Offshore, they include the installation of five production platforms, including a tie-in, a 92-km gas transmission pipeline and four 24-inch-diameter flowlines. Onshore, the planned major facilities are gas processing trains with capacity of 1.5 bn cu ft/d at the existing Khursaniyah gas plant (KGP), a sulphur recovery trains and related handling units.

The project is being fast-tracked with technical and commercial bids due to be submitted by June 24th for the engineering, procurement and construction (EPC) contract. In the next stage of project implementation, in July Aramco plans to receive funding approval from its board of directors. An award for the construction contracts is aimed in August, with the facilities planned to be built by July 2011.

As part of efforts to draw benefits from economies of scale, the Karan development is being synchronised with the 90m cu ft/d of gas and 67,000 b/d of condensate to be produced from the adjacent Manifa oil field. Under the original plan, Karan gas was to be processed at a new onshore plant to be built as part of the Manifa development. But, now output from both acreages will be brought to KGP.

The Karan development will dwarf any other gas projects Saudi Arabia may initiate in the coming few years, but to keep pace with the rising demand for natural gas Aramco has also embarked on a major scouting programme to add another 50 tcf of non-associated gas reserves by 2016. At present, the kingdom’s total natural gas reserves is 242 tcf, but nearly 60% of it is in associated form and linked with crude oil output.

Gas quest

The new focus areas for exploration include the Nafud basin, northern and western Saudi Arabia, the Red Sea, the Persian Gulf and Rub al-Khali (Empty Quarter). Some 300 development and over 70 exploration and delineation wells are planned to be drilled by 2010, according to Aramco .

Of the new frontiers, the most advanced is the Empty Quarter where exploratory drilling work is ongoing. Until now, the South Rub al-Khali Company (SRAK) has spudded two wells. The results have been discouraging, but to the north there seems to be a glimmer of hope. Early last year, Luksar - a joint venture of Lukoil Overseas and Aramco -reported findings in its second wild cat well in Block A. More recently at Block B, Sino-Saudi Gas also announced initial flows from its preliminary drilling activities. The Royal Dutch/Shell Group , which holds 40% of SRAK has also been undeterred by the withdrawal of France’s Total , and is pressing ahead with more exploratory well drilling.

Next in line is the Red Sea, where Ottawa-based Sanders Geophysics has launched an aero-magnetic survey. According to Aramco , initial seismic work has indicated that the west coast is particularly promising. The verdict will be awaited. But, in the meantime Aramco is expanding its gas-handling capacity at the onshore Ghazal field to receive 40m cu ft/d of gas by late 2008. Incremental volumes of non-associated gas will also come from fields discovered recently in the Eastern Province.

Significant volumes of associated gas—estimated to be at least 200m cu ft/d—will also flow from the Khurais field, the largest in the current expansion programme, with capacity to produce 1.2m b/d of crude oil by end-2009.

With demand for natural gas growing at 7-9% each year, Aramco is well aware its master gas systems (MGS) set up in the 1970s will need sufficient back up.

By 2030, demand will soar to 14.5bn cu ft/d from current levels of 5.5bn cu ft/d. At present, the power and desalination sector accounts for nearly 55 % of the total gas consumption, with the remaining 45 % being used as feedstock for petrochemicals. However, pressure is mounting on Aramco to make available increased volumes of propane, butane and ethane.

The Karan development will considerably ease the looming gas shortage, but looking ahead, producing the increased volumes of gas needed to satisfy demand will be a daunting task.

SOURCE: Business Middle East