Saudi gas: Paying the gas bill on time

Dhahran-based Eastern Gas Company (EGC) is a relative unknown in Saudi Arabia's hydrocarbons industry.

Yet slowly but surely it is bringing about a strategic change in the role of the

private sector in the kingdom's burgeoning gas business.

'We have a mandate from [Saudi] Aramco to sell gas to consumers in the new Dhahran industrial area,' says EGC executive manager Nasser al-Shaikh Mubarak. 'Our agreement lasts until 2008 and then Aramco will review our progress. We have a big responsibility on our shoulders and will strive to make the project a success.'

Three hundred kilometres away in Riyadh, Natural Gas Distribution Company has been granted a similar licence by the Petroleum & Mineral Resources Ministry. Its purpose is to supply an array of small-scale manufacturing units being set up by local entrepreneurs in the industrial hinterland of the capital.

These two private sector gas initiatives may be small, but the implications are large. With the full backing of the government, decades of solo management of the gas sector by Saudi Aramco is under the spotlight. 'We favour a greater participation of the private sector and see a move from a single source gas developer to a multiple supplier,' says Khalid al-Senani, manager of gas supplies and pricing at the ministry.

This is a critical moment for the kingdom's gas sector, which has come under pressure from the rapid spread of new industries. A decision is still awaited on gas feedstock allocations for several petrochemical ventures planned for the new Jubail 2 industrial area on the Gulf coast. 'Availability of gas is the biggest issue for the industry,' says Mohamad Sadeq, assistant general manager of Al-Takatuf United Petrochemicals Company. 'We have petitioned the ministry for higher allocations and are waiting to hear. If we get more gas, we can work miracles.'

But the growing cost of extracting,

processing and piping new gas is taking its toll on Aramco. The company is pushing hard for a higher gas price to offset its spiralling costs. At present, standard gas prices in the kingdom are set by the ministry at $0.75 a million BTU the lowest in the Gulf.

Yet the two new private gas ventures could be a taste of things to come. EGC has an agreement for 45 million cubic feet a day (cf/d) of gas, which it plans to supply to 35 industrial consumers. Even though this gas has a far higher price tag than normal, it should still be able to turn a profit. 'We will buy the gas from Aramco at $1.12 a million BTU and sell it at $1.34 a million BTU,' says Mubarak.

This could prove to be the first draft of a new tariff structure. According to Patrick Allman-Ward, chief executive officer of South Rub al-Khali Company (SRAK), which is prospecting for gas in the southern Empty Quarter, producers would like to see an in-kingdom gas price of as much as $1.5 a million BTU. '$0.75 is just the cost of extraction,' he says. 'You will have to factor in processing and transportation costs.' However, finding an equitable balance will not be easy. 'The gas tariff is constantly under review and we have to maintain prices above production costs,' says Al-Senani. 'The producer [Aramco] has to have a reasonable rate of return. There is talk of a new gas price of $1.2-1.5 a million BTU, depending on the areas But there is no final decision as yet.'

Ultimately, the introduction of a new gas tariff will require the approval of the cabinet. 'This is probably one of the most sensitive issues today in the Eastern Province,' says Abdulwahab al-Sadoun, director-general of energy at Saudi Arabian General Investment Authority (Sagia). 'Any revision will have far-reaching political and commercial ramifications for the kingdom's petrochemicals producers and will have to be approved by the king himself. The ministry will have to ensure that the feedstock price is competitive for them. At the same time, Aramco's a