Saudi Arabia concentrates on tight gas as Shell abandons shale exploration

Dunes in Saudi Arabia
Source: DollarPhotoClub

Saudi Arabia is focusing on developing its tight gas deposits to compete with U.S. shale. It also seeks to satisfy its domestic energy needs with gas to free its crude reserves for export.

As Bloomberg reported on Monday, state-owned oil and gas company Saudi Aramco is now targeting a cost of $2 to $3 per thousand cubic feet of tight gas. Saudi Aramco is drilling in tight sands reservoirs where permeability and porosity is greater than that of shale formations but below that of conventional oil and gas bearing sands.

At 645 trillion cubic feet of technically recoverable shale gas, Saudi Arabia holds fifth largest shale gas deposits in the world, but water scarcity makes extraction difficult. Shale gas exploration requires the use of a technique called fracking which requires up to 2.5 and 5 million gallons water per well.

Also on Monday, Reuters reported that Royal Dutch Shell decided to end its investments in a gas development project in Saudi Arabia.

“Shell has decided to end further investment in the Kidan development,” it said in an emailed statement.

“This was a difficult decision but Shell remains committed to the Kingdom and we are keen to grow our investments, both in upstream and downstream.”

The Kidan area of the Empty Quarter, the sea of sand dunes that cover south-east Saudi Arabia, is exactly the kind of terrain where the lack of water would make exploration difficult. What is more, although Kidan is rich in gas, the gas extracted there is sour, which means that it has high levels of potentially deadly hydrogen sulphide and therefore is tougher to produce than conventional gas reserves.

Shell joins three other foreign firms – Italy’s ENI, Spain’s Repsol and France’s Total – which have already abandoned the search for commercially viable gas deposits in that part of Saudi Arabia.

This might be why Saudi Aramco is concentrating on drilling in tight sands rather than shale.

“We do have shale, but shale will take a little bit more time because we need to go with the low-risk, high-rewards projects to get our revenue,” Adnan Kanaan, manager of the company’s Gas Reservoir Managing department said in a report published today by the Society of Petroleum Engineers.

It doesn’t mean, however, that Saudi Arabia is completely giving up on shale. As some oil and gas companies leave, Russia’s Lukoil – in cooperation with Saudi Aramco – is planning to commence shale gas exploration in the same “Empty Quarter” that Shell is abandoning.

The Saudi Arabian oilfield chemicals market is also projected to grow as Saudi Aramco is mapping shale gas reserves and carrying out piloting in three potential areas of the country that include north-west, south Ghawar and Rub-al-Khali.

In order to maintain its highest global share in energy exports, alongside meeting domestic energy needs, Saudi Arabia has planned projects to develop offshore non-associated natural gas fields as well. Baker Hughes is the current market leader in the country’s oilfield chemicals industry.

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