GAS: Turning up the pressure

30 September 2005
In 1975, a little piece of history was made in the Gulf's energy sector when King Faisal instructed Saudi Aramco - then Arab American Oil Company - to design, build and operate a master gas system (MGS) for the kingdom. The largest engineering feat to have been carried out by a single company at that time, it employed tens of thousands of workers to build the gas-gathering and fractionation infrastructure linking all the kingdom's onshore and offshore gas-oil separation plants (GOSPs).

Thirty years later, gas is once again the hot topic of debate, as Riyadh and Washington sign a bilateral agreement that eases the way for the kingdom to be granted full membership of the World Trade Organisation (WTO). With competition coming to the Saudi hydrocarbons sector, the issue of pricing in particular is likely to cause more than a few headaches for Aramco in the months to come.


Initially, it was Brussels that flagged up the issue, when a similar trade agreement was signed by the EU and Saudi Arabia in 2003. EU leaders protested then at the feedstock price of $0.75 a million British thermal units (BTU) for gas supplied by Aramco to the local petrochemicals industry. They argued that the price was well below international levels, making Saudi Basic Industries Corporation (Sabic) products unfairly competitive.

The pricing issue is unlikely to be resolved soon, but pressure is mounting on Aramco to deliver increased volumes of feedstock gas. 'The demand for dry [sales] gas has grown at an average rate of 6 per cent in the past four-five years, with the demand for wet [ethane-rich] gas increasing by more than 9 per cent,' says a Dhahran-based Western oil executive.

Growth in demand is largely being driven by the series of new petrochemical projects proposed in the Eastern Province by Sabic and the private sector. Back and front-end engineering and design (FEED) as well as construction work is already under way for six new greenfield olefins and polyolefins projects in Jubail, and expansions have been announced for four existing ventures. Major investments are also planned in Yanbu in the western region. Altogether, more than 12 million tonnes a year of new capacity is planned to be brought on stream, starting in 2009. At around the same time, Saudi Electricity Company, The Power & Utilities Company for Jubail & Yanbu (Marafiq) and Aramco are planning to install about 3,700 MW of gas-fired capacity.

Demand for reinjection of gas into oil reservoirs to maintain pressure is yet another factor. The situation in the kingdom is not comparable with that in other Gulf states such as Oman, which is fighting to prolong the life of old reservoirs, but there are indications of a change. 'Reinjection into Shouaiba is very high and it is set to increase,' says the executive. 'New demand will also come from other onshore fields which have been in production since the late 1940s.'

Nearly 60 per cent of the kingdom's total estimated natural gas reserves of 237 trillion cubic feet (tcf) are in associated form, and therefore any future new production will be partly limited by OPEC constraints. But Aramco is pressing ahead with major new investments regardless. According to headline presentations made in late June in Washington by Khalid al-Falih, senior vice-president of Aramco's gas operations, new capital investment of nearly $9,000 million is planned by 2010 in the upstream gas sector.

Work is already under way on two major schemes - the straddle and the Khursaniyah gas plant (KGP) - which will cost more than $3,000 million. The larger of the two, the straddle scheme, will look at processing non-associated gas and natural gas liquids (NGL) from the Haradh and Hawiyah plants. Some 3,800 million cubic feet a day (cf/d) of gas will be available on project completion in 2008. By that time, about 1,000 million cf/d of gas will also b

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