Saudi Aramco is stalling plans to start large-scale production of shale gas in the kingdom due to serious concerns over costs.
MEED reported in January that Aramco was tendering contracts for both studies and front-end engineering and design work on the scheme. But now, sources in the kingdom say both these potential contracts have yet to be awarded and the expectation is that shale gas will not be produced for at least another five years.
The US Baker Hughes has estimated Saudi Arabias shale gas reserves at 645 trillion cubic feet, compared to its conventional gas reserves of almost 285 trillion cubic feet. Despite the abundance of shale gas, there are several other issues to consider when dealing with unconventional gas resources in the kingdom.
A primary concern is finding enough water to carry out the hydraulic fracturing (fracking) that is the principal method of producing shale gas. Water is generally mixed with sand or chemicals and blasted into wells at high pressure. The rocks are fractured and gas is released. This would mean that water would have to be piped in to be used in the fracking process.
The main issue for shale gas is cost because unlike most of [Saudi Arabias] other hydrocarbon resources, there is no infrastructure in place to support production in two of the planned sites, says a senior oil and gas analyst based in the kingdom. It is not just about start-up costs either because shale gas requires continuous studies and investment in test drilling, and it has high operational costs.
The shale gas industry in the US drills 7,200 new wells a year to maintain production of about 21 billion cubic feet a day (cf/d). Here, shale gas wells cost at least $8m each and about 300 wells are required to produce 600 million cf/d. Each well will need to be replaced every 12-18 months on average, which means an annual investment of well over $1bn for each shale gas-producing region.
Most wells are drilled to about 6,000-7,000 feet. By contrast, some wells in the Empty Quarter in Saudi Arabia are expected to be drilled to depths of 12,000 feet. Well costs in the kingdom are expected to exceed $10m.
Conservative estimates for gas prices in the remoter regions are $15 a million BTUs, while South Ghawar is between $8-$10 a million BTUs.
I am sure no one at Aramco is under any illusion about how much shale gas is going to cost, says the senior analyst. This is why it is probable that [Aramco] is going to ensure the right economies of scale are in place before the investment decision is made.
The three potential sites for shale gas production in the kingdom are the Empty Quarter, South Ghawar in the Eastern Province and Jalamid in the northern desert region.
Due to the massive energy infrastructure already in operation in the Eastern Province, the most likely area for initial production would be South Ghawar. However, experts predict that costs are still prohibitively high even for this location.
Aramco is still committed to non-conventional gas and has formed a specialist unit that will concentrate solely on the resource.
The company is also investing heavily in conventional gas resources and has recently brought the non-associated offshore Karan field into operation, producing 1.8 billion cf/d of gas. The Wasit development, another offshore non-associated gas project, is expected to come on stream by 2016-17 and will produce 2.5 billion fc/d.
Aramco produced 10.7 billion cf/d in 2012. This equated to annual production of 3.9 trillion cf/d, which is a rise of 8.3 per cent year-on-year, the largest in the companys history.
A short-term solution could be to import liquefied natural gas (LNG) from a floating terminal, but while Aramco has looked into the feasibility of importing LNG, a decision has yet to be made regarding this strategy.
Aramco was not available for comment when contacted by MEED.