Gulf Turns To Unconventional Gas To Ease Shortage

Gulf Turns To Unconventional Gas To Ease Shortage

As part of the solution to deal with the region’s growing gas crisis some Gulf states are developing ‘difficult’ gas reserves. Bahrain, however, will have to take a decision on LNG imports before it knows its deep gas test results. Oman – whose BP-led tight gas project faces shortages of both water and skilled staff – will soon join talks between Iran and India to build a gas pipeline that will connect the three countries, Nick Wilson writes from the Unconventional Gas World Middle East conference, held on 3-4 October in Abu Dhabi.

Not everyone thinks that difficult to develop gas is the answer to the region’s problem. An official from state-owned Qatar Petroleum (QP) stated in 2010: “Shale gas is neither plentiful nor cheap.” The US government’s Energy Information Administration (EIA) did not include the Middle East in its 2011 global shale gas survey, stating that the region has plenty of gas. Conference speakers, however, said that unconventional gas is needed and could be produced at costs significantly lower than importing LNG. One estimate is that the Middle East and North Africa have 2,548 trillion cu ft of shale gas and 823 tcf of tight sandstone gas in place.

Bahrain will face a peak gas demand deficit by 2015 and an average annual deficit by 2017, according to a presentation by 'Abd al-Abi Mukhtar, Manager of Deep Gas Exploration for state-owned Bahrain Petroleum Company (BAPCO). Bahrain will take a decision by the first quarter of 2012 on awarding an LNG import terminal contract (MEES, 15 August) to import 400-800mn cfd of LNG for 15 years starting in 2014. But it will only drill the first Awali field pre-Khuff deep gas exploration test wells by the year-end.

Mr Mukhtar tells MEES that he expects production costs to be “less than $10/mn BTU – making it cheaper than importing LNG at $17/mn BTU plus.” He says the project is viable even though the gas is dry, unlike the tight and ultra-sour gases of Kuwait, the UAE and Oman. Bahrain’s Occidental-led consortium Tatweer Petroleum is confident of finding commercially viable amounts of gas because in a previous exploration project in the 15,000-20,000ft deep pre-Khuff formations, two of six wells produced gas. Without reservoir stimulation one of them produced 10mn cfd. “At this temperature – 280-300°C – it is even difficult to record data,” Mr Mukhtar said. The planned project will use hydraulic fracturing  (fraccing)  to  free  up the gas, which BAPCO thinks could boost the 10mn cfd well output to 90mn cfd. Pre-Khuff structures in other Gulf countries have yielded gas and condensate and BAPCO thinks its deep reservoirs could contain 85 tcf of gas in place. Two previously discovered reservoirs, Jauf and Kahfah, “look promising” Mr Mukhtar said. The first exploration phase, which will start by year-end, will reprocess existing seismic data, use fraccing and drill three wells to 16,000ft. BAPCO hopes the results will allow a final investment decision (FID) to be made by the end of 2014, Mr Mukhtar tells MEES, if the results are good. Nonetheless a second phase is planned to start in the fourth quarter of 2015 and will involve 2D and 3D seismic and one well with fraccing deeper than 16,000ft. Bahrain produces 1.5bn cfd of gas, of which 300-400mn cfd feeds an aluminium smelter. Its non-associated gas comes from 9,000-11,000ft deep Khuff formations, which lie beneath Awali’s oil reservoirs at 2,000-6,000ft.

Bahrain will award a contract by the first quarter of next year to build a terminal to import 400-800mn cfd of LNG beginning in 2014, and will have to decide if it wants a temporary offshore regasification facility or a permanent onshore terminal (MEES, 15 August).

Oman also hopes to import gas – having miscalculated its gas demand growth and built an LNG plant at Sur, which exports about 50% of its 2.5bn cfd available gas after it has met oil reinjection needs.

Iran-Oman-India Gas Proposal

Indian private sector firm South Asia Gas Enterprises (SAGE) has just been to Iran for talks about the supply of gas by pipeline to India via Oman. “The Iranians told them that it would welcome a trilateral meeting to discuss the whole issue of supply to India, plus Oman’s needs for gas which they could supply from within the system,” an Omani official tells MEES. Muscat will meet with SAGE soon. SAGE is owned by Subhodh Jain, who was one of the original founders of the Oman-India Gasline project, which was shelved when Oman went for the LNG industry rather than a deep water gas pipeline to India. “He has revived the project to take in a ‘gas from Iran’ perspective and he has been active in pursuit of that,” the official said.

India opted out of the proposed Iran-Pakistan-India gas pipeline project, objecting to what it saw as giving Pakistan a choke-hold over India’s gas supply. At one point a more expensive subsea route was proposed through international waters.

Iran has a patchy track record of negotiating gas deals with its Arab neighbors – so far it has not delivered any. However, it has good relations with Oman, the only one it does not have a border dispute with. Despite its unfruitful talks about exporting gas to Oman from Kish field, Iran has two powerful incentives to build the India pipeline. By classifying it as re-export gas it could get round any future sanctions that India would be obliged to follow, and it would separate Oman from its GCC partners in the Gulf’s geopolitical struggle.

Oman’s Tight Gas Project

BP is developing Oman’s Khazzan-Makaram 100 tcf gas in place tight gas field and expects to take a FID in February 2013 (MEES, 12 September). First commercial gas would be on stream by 2016, ramping up to 1.2bn cfd of wellhead gas by 2018.

Robert Clark, Senior Petroleum Engineer at BP, said in a presentation that “implementing proven technology [in Oman] is a problem – the technology is available, but we don’t have experienced staff across the spectrum in the service companies who know how to use it.” Furthermore, BP itself globally is losing 30-50 reservoir engineers per year, each one with an average of 30 years experience. “We are going to staff up quite a bit,” he said. Yousef al-Ajaili, CEO of state-owned Oman Gas Company, who sits on the board of BP Oman, said however that “BP has been in Oman three-four years and has achieved 50% Omanization – BP has an aggressive plan to Omanize jobs” and transfer skills and technology.

Mr Clark said “water is also a problem.” For its pilot studies BP is using treated saline aquifer water, but there is not enough for full scale development. Fraccing requires fresh water – salt deactivates the cellulose gel used in fraccing that controls viscosity and keeps sand suspended. “Each frac needs 8,000 barrels of water, and wells can be fracced up to five times a day – and we plan to drill 250-350 wells,” he said. The pilot test scheme’s eight wells that are already operating in the field’s four reservoirs – Miqrat, Amin, Buah and Barik – have already consumed 800,000 gallons of water.

A ninth well will complete the pilot test. BP is testing the project’s first horizontal well, which along with fraccing is intended to improve the drainage of tight and shale gas. But this is “expensive and challenging,” Mr Clark said. A frac in Nexen’s Horn River development in Canada can cost $450,000, Canadian independent Nexen’s new technologies manager Ken Smith told the conference. Fraccing may be even more expensive in the Middle East, where the rig day rate is $45,000 compared to North America’s $15,000.

The need for expensive horizontal wells has already driven the cost of BP’s Oman project up to $15bn from $10bn. Another problem is that rapid production decline is a characteristic of tight gas. In one of BP’s pilot scheme wells, output dropped from 20mn cfd in March to 5mn cfd in September.

State-controlled Petroleum Development Oman (PDO) is also exploring high temperature, high pressure gas reservoirs at 4,000-7,000ms depth, MEES learns. “PDO is taking unconventional gas very seriously” one of its officials tells MEES. In addition to drilling in what was its Block 6 in the north – the region that provides most of Oman’s gas – PDO is also exploring in the south. In the north PDO is looking at new reservoirs in very old sandstone and even deeper carbonates, and shale structures beneath the big producing fields, including Kauther, Rawl Saih and Ni Hayda. “The gas in place is there – we are at the early stages of appraisal,” the official said. Mr Clark said that most seismic in the region has been shot at 2,000ft, looking for oil, but it needs to be shot at deeper than 5,000ft to look for gas.

Regional Gas Demand And Prices

In the past decade gas demand in the region grew at an annual average of 5-9%, which is expected to continue this decade, Mr Mukhtar told the conference.

Robin Mills, Petroleum Economic Manager of Dubai’s state-owned Emirates National Oil Company said in a presentation that “gas reserves are not the problem”. In Iran and Iraq it is just a question of developing conventional gas, but in other Gulf countries, “production sharing agreement terms are too tough to develop unconventional gas. If the countries that have gas are short of it, it’s because of prices and policies.”

Iran is lifting gas price subsidies and has a target of $6/mn BTU. Saudi Arabia’s gas price is $0.75/mn BTU, UAE’s is $1/mn BTU, Bahrain’s – which is also lifting subsidies – is $2.25/mn BTU, and Dolphin Energy – which supplies Oman and the UAE with Qatari gas – buys at $1.50/mn BTU, but supplies over contracted amount are sold at $5/mn BTU. Mr Mills said these compared with a gas price of $4/mn BTU in the United States. In the Middle East the average unit cost of production of conventional gas is $0.14/mn BTU, compared to $5/mn BTU for unconventional gas. LNG costs $15/mn BTU and diesel $25/mn BTU, he said.

Gas demand is rising due to economic and population growth, enhanced oil recovery programs – Oman and the UAE are each reinjecting 2-3bn cfd – and expanding LNG, petrochemicals and aluminum industries. But “the intra-regional gas trade has not really kept up – Dolphin is a rare example,” Mr Mills said. Mr Muktar said: “In the Middle East we don’t like to be dependent on our neighbors.” By 2015 the GCC gas deficit will be 5bn cfd, Mr Mills added.

Copyright MEES 2011.