Saudi gas boost to benefit petrochemicals and oil trade

Aramco

• Jafurah field opens in 2024
• Aramco gas expansion aids petrochemicals prospects
• Saudi Arabia is not a significant gas exporter

Saudi Arabia is likely to use an enormous shale gas play due to come into production next year to develop upstream petrochemicals and divert lucrative crude oil into exports, analysts say.

Saudi Aramco, the state oil giant, says that the Jafurah field contains an estimated 200 trillion standard cubic feet (scf) of natural gas, which would make it the largest liquid-rich shale gas play in the Middle East.

The field is expected to reach output of 2 billion cubic feet per day (bcf/d) by 2030.

Crucially, the gas is non-associated – free from an oil play – and can therefore be extracted without implications for reservoir pressure or for Opec+ commitments. 

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Saudi Arabia is, however, far from becoming a significant gas exporter, like Gulf neighbours Qatar and Oman. Nor would it want to be, given that oil is by current prices four times as profitable. 

Instead, domestically produced gas allows the country to develop other upstream projects and free up oil for export in the future.

Aramco is targeting 13 million barrels per day as its maximum sustainable oil capacity by 2027, and can use its refining capacity to manage the crude. 

“We’ve been closely observing the growing allocation of capital expenditures towards gas projects within Saudi Arabia over the last few years,” Dylan Hattingh, analyst at Energy Aspects, says. 

“We anticipate a growing portion of Aramco’s future expenditure to be directed towards gas-related initiatives and environmentally sustainable investments.”

Gas output increase

Energy Aspects expects Saudi gas output to increase by around 50 percent by 2030.

Jafurah will help position Saudi Arabia as an ammonia exporter as part of the growing hydrogen economy.

Other projects include the Hawiyah Unayzah gas storage reservoir, which will help manage seasonal gas demand.  

Aramco, one of the largest public companies in the world after its 2019 Saudi bourse listing, says that when Jafurah reaches peak production, it is expected to generate energy for domestic consumption equivalent to around 500,000 barrels of crude oil.  

Jafurah will also generate 420 million scf per day of ethane and 630,000 barrels of natural gas liquids per day, which can serve as feedstock for the petrochemicals industry.

Reuters/Hamad I Mohammed

Figures published this year show Aramco has gone beyond its seasonal increase in gas production ahead of the summer months, though it was still obliged to ramp up fuel oil imports from Russia to meet summer power generation demand. 

Despite oil cuts by Opec+ which came into effect in May, overall production rose in the second quarter by 5 percent once gas is factored in.

Non-crude production jumped from 2.54 million barrels of oil equivalent per day to 3.44 million. 

The state-run oil companies of both Saudi Arabia and the UAE want to expand their chemical production capacity.

The ambitions mark a strategic shift that could have huge implications for a global petrochemicals industry that is already suffering from its lowest margins in two decades.

Aramco’s longstanding aim has been to put an additional 3 million bpd of oil into petrochemicals production. 

Amin Nasser, the Aramco CEO, has said the company is considering taking overseas upstream stakes, rather than restricting itself to downstream projects – refineries and petrochemical plants – as it has done historically. 

“We will continue to assess available opportunities for development and if there is something that is commercially viable and meets our criteria in terms of investment, we will announce that deal at that time,” he told journalists on August 7. 

According to Bill Farren-Price, a macro oil analyst, Aramco wants to retain the flexibility to maximise its oil export position into the 2030s, despite the fact that oil demand globally is expected to wane. 

“Given they [the Saudis] burn so much oil in these summer months, around a million barrels a day, there is a considerable amount of volume available if you could switch the power sector into gas and nuclear and wind farms,” Farren-Price says. 

“With the oil cuts they’ve instituted there is a lot of spare capacity that’s not online.

“When oil demand peaks globally by the end of this decade they’ll be fighting over pieces of a shrinking cake and will want to optimise the volumes they can put on water and export.”