15/03/2011
Shell hopes for more Saudi gas
Royal Dutch Shell is optimistic a second phase of exploration in Saudi Arabia’s Empty Quarter will yield gas, although it is unclear how economic it will be, it said.
Shell is one of the five companies Saudi Aramco teamed up with in 2003-2004 to drill in the Empty Quarter, or Rub Al Khali.
So far they have failed to find the volumes of gas needed to fuel Saudi economic growth.
South Rub Al-Khali Co (SRAK), a joint-venture between Saudi Aramco and Shell, said last year it had entered a second phase of exploration in the Kidan field area.
“We are optimistic otherwise we wouldn’t have entered the second exploration (phase),” said Michel Faure, chief executive officer of the Shell Companies in Saudi Arabia.
But he stressed it was still only the exploration phase.
“We have not reached a point where we have enough confidence about the volume in place. We know there is gas, that is for sure,” Faure said.
Saudi Arabia has said its oil capacity of 12.5 million barrels per day is sufficient for now and that it would instead focus on increasing gas capacity.
The kingdom needs gas to help cover domestic fuel demand and conserve oil for lucrative export markets.
Saudi Aramco’s focus on gas, includes difficult-to-extract tight gas, which is particularly hard to justify commercially.
“The development of tight gas is not commensurate with the current gas price that is in the kingdom. It requires lots of drilling wells, and there may be some alternatives which are more favorable and attractive than tight gas,” Faure said.
Saudi oil officials have said the kingdom might consider boosting the domestic price of gas.
For now, the transfer price of gas in the kingdom is 75 cents per million BTU (British Thermal Unit), a fraction of the cost on international markets.
That price has helped many companies, including Saudi Basic Industries Corp (SABIC), to become the world’s largest petrochemicals company by market value.
Shell also has a petrochemical joint venture with SABIC in Jubail.
Faure said there was a need to strike a balance so all parties could achieve profitability.
“You have to satisfy both, they have to find a way for prices to remain competitive (for petrochemicals) and acceptable for investors exploring for gas,” said Faure.
SRAK submitted its plan last year to continue exploration in Kidan, an area already discovered by Aramco years ago, after announcing gas had flowed from Kidan.
One factor that could improve the economics of the Kidan exploration area is its proximity to the Shaybah oilfield, where infrastructure for both oil and associated gas is in place.
