Experts wonder if Saudi Arabia has enough gas to go around

February 14, 2024, 7:10 AM

An Aramco worker cycles around the Hawiyah gas plant. The state oil major is planning to expand the facility

$100bn plan for Jafurah basin
Riyadh wants to be top exporter
Production and demand rising

Saudi Arabia is investing hundreds of billions of dollars in natural gas, but analysts are divided about the chances of the world’s largest oil exporter becoming a gas-exporting powerhouse too.

The kingdom’s biggest gas play is the Jafurah basin, located in the Tuwaiq mountains about 185 miles from Dammam and southeast of the massive Ghawar oilfield.

Jafurah holds some 200 trillion cubic feet of natural gas, according to state oil giant Saudi Aramco.

This is unconventional, non-associated gas – the former is used to describe hydrocarbons trapped in rock, such as shale gas, and the latter means the gas can be accessed without producing oil so Opec limits do not apply.

The $100 billion-plus Jafurah project is scheduled to start operations in 2025. Aramco expects it to produce up to 2 billion cubic feet per day (cfd) of dry gas by 2030, as well as about 420 million cfd of ethane and around 630,000 barrels per day (bpd) of gas liquids and condensate.

This would go some way towards meeting the country’s target of increasing gas production from 10 billion cfd to 15 billion cfd by the end of the decade.

Work is underway on other conventional and unconventional gas projects too. They include the expansion of the Hawiyah gas plant and the commissioning of plants at Tanajib and Khursaniyah, according to Iman Nasseri, managing director for the Middle East at oil and gas consultancy Fact Global Energy.

Domestic demand is growing rapidly

Before becoming a gas exporter, however, Riyadh needs to satisfy growing domestic demand, as it moves to diversify from burning crude oil and liquids for power generation and industry.

The country wants to produce half its electricity from gas and half from renewables as it moves towards a net zero target – reducing carbon emissions while also making more of its oil available for export.

“They may free up to 1 million bpd of liquids [for export] this way,” says Nasseri.

Francesco Sassi, an energy researcher based in Bologna, believes Riyadh is well-positioned to increase gas production and export, particularly given the economic and political role it has taken since Russia’s invasion of Ukraine.

“Gas is a tool to deepen energy co-operation with Europe and Asia while building up alternative markets to co-operate, technologically and economically, with international companies,” says Sassi.

Some analysts think the volumes may not be sufficient, however. “Domestic demand could absorb all new gas output,” says Siamak Adibi, a principal consultant in the Singapore office of Fact Global Energy.

Saudi Arabia is burning between 400,000-500,000 bpd of oil for power generation in addition to large volumes of fuel oil and diesel, according to market observers.

Aramco estimates that its shale gas programme can replace around 500,000 bpd of crude oil when it reaches full capacity. But some are not persuaded that this will be enough.

Jadwa Investment has calculated that Saudi’s gas output would have to rise by nearly 7 percent per year by 2030 to meet the demands of a growing population and industrial development.

The kingdom had the seventh-highest domestic natural gas demand globally in 2018.

Wood Mackenzie, an energy consultancy in London, points out that Saudi Arabia has developed several large offshore non-associated gas projects to help meet rapidly rising demand.

Production from these fields was expected to plateau in 2022 and new sources are now required.

Alexandre Araman, principal analyst at Middle East upstream at Wood Mackenzie, believes there will be enough gas left over for export – and points out that unconventional projects are the cornerstone of Saudi Arabia’s gas ambitions.

The main challenge is cost, he says. Jafurah and other developments need hydraulic fracturing and huge volumes of water, which leads to higher drilling costs than in comparable US shale gas projects.

“However,” he adds, “the high condensate-to-gas ratio makes the play commercially viable.”