Saudi Aramco, the world’s largest oil exporter, last month announced it had discovered a non-associated gas field off the kingdom’s Red Sea coast. The offshore find is located 26 kilometres north-west from the port of Duba, and two test wells are already showing promising flows.
It is the latest indication that the Red Sea basin may present the last great frontier for hydrocarbons exploration in the kingdom.
Saudi Aramco has traditionally carried out its offshore operations in the shallow waters of the Gulf, on the east coast. The region has been in play since the 1950s and is home to the world’s largest offshore oil field, Safaniya, which churns out 1.2 million barrels a day (b/d) of heavy Arabian crude. Gas production has also begun, with one non-associated field, Karan, already in operation and two more under development. With vast hydrocarbons resources already available, the state-backed company has been slow to tap the potential of Saudi Arabia’s territorial waters in the Red Sea. Now, that may be changing.
Huge potential in Red Sea oil and gas production
“The Red Sea offers some exciting opportunities for so many different stakeholders,” says a senior oil and gas consultant based in Saudi Arabia. “The area’s oil and gas reserves could add decades to the kingdom’s production capacity and consolidate its role as the world’s largest oil exporter.”
Aramco has conducted geophysical surveys in the Red Sea basin since 2009, mostly in the shallow waters off the Tabuk province, but progressively moving into deeper areas. Sources in the kingdom say they are confident the area has sufficient oil and gas deposits to sustain a massive development, including offshore platforms, pipelines and onshore processing and bunkering facilities. Conservative estimates suggest the first phase of development alone would be valued at $25bn.
The state firm has not made any public estimates of the Red Sea’s potential, but it is anticipated there could be up to 100 billion barrels of oil reserves under the seabed. This is equal to a 38 per cent increase on Saudi Arabia’s current proven reserves of 267 billion barrels.
Saudi Aramco’s initial focus for its Red Sea operations will be non-associated gas, according to chief executive officer Khalid al-Falih. He said earlier this year the firm was investing in gas “like never before” and would try to bring any finds to market “as quickly as possible”.
Aramco is hopeful that any Red Sea gas fields with commercial potential could be fast-tracked and brought online within three years. This means the recent find off the coast of Duba could be brought onstream as early as 2016, if it is found to be viable. Initial gas from any non-associated field will first be used for domestic purposes, primarily for power generation and desalination, but further discoveries will also be earmarked for industry.
A number of hurdles, however, may slow the pace of projects. A key difference between the Gulf, home to the bulk of Aramco’s offshore projects, and the Red Sea, is the depth of their waters. The Gulf is one the world’s shallowest seas, with depths rarely exceeding 80-100 metres. The Red Sea, meanwhile, has depths of up to 10 times that figure. Early seismic surveys have been carried out in shallow waters close to the shore, but these will increasingly be pushed further out.
At present, Saudi Aramco has about three years of seismic data to study. Two crews have been working in the region since 2009. Several areas have been the subject of 2D and 3D studies to determine the sub-surface geological make-up of the fields.
“Our teams undertook numerous seismic surveys using new technologies that improve the definition of subsurface salt bodies,” Saudi Aramco said in its 2011 annual report.
“While data processing is ongoing, the teams have completed initial analysis of the offshore areas southwest of Julayjilah and in the Midyan area.”
The speed with which Aramco’s geoscientists can now process 3D seismic studies will help progress plans. It had previously taken months to translate the data received from surveys into the 3D models essential for creating a map for exploratory drilling operations. Now, Aramco has real-time 3D capabilities, meaning a complex reservoir can be mapped in much less time.
New oil hub
“All of the information available suggests that [Aramco] should be focusing its efforts on the Red Sea,” says the Saudi Arabia-based oil executive.
“There is a very real opportunity here to build a hub on the west coast of Saudi Arabia that could rival the Eastern Province.”
The prospect of multiple offshore fields combined with the development of a major onshore processing hub has caught the attention of the international contracting community. Deep-water oil production means companies with extensive operations in Europe’s North Sea and the Gulf of Mexico off the US coast will be well positioned to secure work when tenders are eventually released.
Both locations demand specialist technology and experience in exploiting oil fields with depths of more than 1,000 metres. Any influx of foreign firms could also bode well for underdeveloped cities along the Red Sea coast, which could find themselves playing host to a community of oil and gas companies.
A similar story has unfolded in the Scottish city of Aberdeen, which was transformed into Europe’s largest oil and gas hub following the discovery of oil in the North Sea in the mid-20th century. It is home to the vast majority of the exploration and production companies working in the North Sea, as well as hundreds of firms providing support services to the wider industry.
“There is no doubt that any potential oil and gas hub being built on the Red Sea coast can benefit from expert knowledge and skills Aberdeen has accrued over the past 40 years,” says Terry Willis, Middle East managing director for UK trade body the Energy Industries Council. “Exporting skills and experience from Aberdeen could make the process a lot less challenging for stakeholders.”
The difficulty in developing an offshore oil and gas industry will not be lost on Saudi Aramco, which previously built one of the world’s largest oil and gas hubs in the Eastern Province. The risk involved, however, is multiplied exponentially when dealing with deepwater exploration and production of hydrocarbons. The costs are also typically far greater.
Laying pipes and building platforms will be more expensive and will present safety challenges not encountered on the east coast of the kingdom. The offshore infrastructure will then have to transfer its inventory to an onshore hub that must be built from scratch. Duba has been touted as a potential site for onshore processing facilities.
The city has a population of about 65,000, a container terminal and runs ferry services to Egypt and Jordan. Duba is also the closest port city to Aramco’s seismic study site. Any Red Sea development, therefore, would offer Riyadh the opportunity to bring prosperity to what is considered one of the kingdom’s least developed regions.
Excluding shallow-water non-associated gas fields that can be developed relatively quickly, any major development of the Red Sea is still expected to be some years away.
Saudi Aramco is currently developing its downstream refining and petrochemical units, as well as fast-tracking a number of gas projects.
No major decision regarding introducing additional oil capacity will be made by Aramco until after the 900,000 b/d Manifa offshore oil field comes onstream in 2014-15.
The Red Sea has captured the imagination of the oil industry, causing international contractors to pay close attention to developments. The interest is no doubt amplified by the prospect of playing a role in what could be the next major series of megaprojects by the world’s largest oil company.
It is estimated there could be up to 100 billion barrels of oil in the Red Sea