Aramco's Jafurah shale gas faces obstacles
Water scarcity and a lack of transport infrastructure work against the recovery of gas from the shale field. Once overcome, its output may be better suited to displacing crude domestically than for LNG exports
Saudi Arabia has deeply held ambitions to be a major gas player, both regionally and internationally. But its latest shale gas project comes with several concerns that could limit its role in the global market and put into question the viability of exporting gas from the field altogether.
“There are clear logistical challenges to making shale work in that part of Saudi Arabia, given the lack of water resources and limited transport links,” James Waddell, senior global gas analyst at Energy Aspects, tells Petroleum Economist.
The $110bn project is expected to come onstream by 2024 and has a longer than usual ramp-up period until plateau capacity, which will not be until 2036, according to figures released by the kingdom. The longer ramp-up period is reflective of the difficulties Saudi Arabia could face compared with similar projects in the US.
“There are clear logistical challenges to making shale work in that part of Saudi Arabia” Waddell, Energy Aspects
To frack the gas, Saudi Arabia would need to scale up its desalination projects. There are already several in the pipeline, but this added element has the potential to cause delays and create additional costs. “Using gas to create power to desalinate water, and then using water to frack is a loop that substantially adds to the drilling costs,” Waddell says.
Plateau output from Jafurah could total 2.2bn ft3/d of gas, or around 1mn bl/d oe. That figure is almost equal to the amount of crude and fuel oil used domestically for power generation, meaning there is a big argument for the gas from the project being used to displace crude and fuel oil, freeing up excess oil for export.
Saudi Arabian gas demand is expected to grow in the coming years, led by demand from the power and petrochemicals sectors. Sales of gas in the kingdom amounted to 7.9bn ft3/d in 2015 but could be as much as 2.5 times this amount by 2030, according to figures by the King Abdullah Petroleum Studies and Research Centre. The research, which was written before the Jafurah field plans were outlined, suggests importing LNG could help support the growth of Saudi Arabia’s power sector.
“The Saudis will most likely want to displace more crude and fuel oil with gas in the power mix first before turning to gas exports [to] generate revenues,” says Waddell, noting they would generate more money from selling crude than LNG on the international market. “There is an argument that the Saudis will only displace the crude oil component from the power mix, leaving more gas available for sale to other sectors or for export. Our main expectation is that only a small share of the production from Jafurah will hit the international market, if it does at all."
If Saudi Arabia chooses to focus on using gas from Jafurah domestically, the project could meaningfully change the country’s gas consumption. However, the kingdom would need to invest in pipelines to transport the gas from the east coast to its more heavily populated west coast. That is significantly more difficult than installing a floating LNG terminal to export the gas internationally, and it could inflate the project’s expected timeline from inception to market.
2.2bn ft3/d Plateau output from Jafurah
Logistically, the conditions within Saudi Arabia are a lot more challenging than in countries such as the US, where road infrastructure already exists and rigs can be freely moved around.
In addition, other countries, such as Poland that have ventured into fracked gas have run up against problems related to navigating rock formations that are significantly different from those in the US.
But, notwithstanding these doubts, export volumes from Saudi Arabia could still affect global LNG market dynamics.
“If an export project is built, the interesting thing is that Saudi Arabia would be connected to the LNG market for the first time,” Waddell tells Petroleum Economist. “But, regarding volumes that could be sold internationally, much more important would be the Qatari North Field expansion or the next wave of US LNG.”