Sauid Arabia key fact

About $28bn of industrial and petrochemical projects are on hold in Saudi Arabia

Source: MEED Projects

In the next few months, Saudi Arabia will make important progress in addressing its chronic gas shortage, with construction set to start on the $5bn Wasit gas development and the $3bn Shaybah natural gas liquids (NGL) project. This year will also see the Karan gas field come onstream.

Aramco has been charged with increasing domestic gas reserves by about 50 trillion cubic feet by 2016

The kingdom has about 275 trillion cubic feet (cf) of gas, placing it fourth on the list of countries with the world’s largest gas reserves, behind Russia, Iran and Qatar, according to the US Energy Information Administration. But about 57 per cent of Saudi Arabia’s gas is associated and tied to oil production. So if oil demand and output fall, the amount of gas available is restricted. Of the remaining 100 trillion cf of non-associated gas, some 75 per cent has a high sulphur content or is in a tight formation, leaving just 25 trillion cf that is easy to process.

Gas projects postponed

Gas consumption has been rising rapidly over the past decade, on the back of huge investment in power and water schemes, petrochemicals plants and other sectors, such as metals and mining. National oil company Saudi Aramco has been unable to keep up with the growing demand and is struggling to provide new allocations to industrial schemes. As a result, many projects have been delayed. Currently, about $28bn of industrial and petrochemical projects are on hold in Saudi Arabia, according to Middle East projects tracker MEED Projects. Of this total, $20.5bn-worth of projects cite issues with gas feedstock as the reason for the delay.

Aramco has been charged with increasing domestic gas reserves by about 50 trillion cf by 2016, with an emphasis on finding new non-associated fields. The state-owned oil giant is also developing several multibillion-dollar megaprojects.

Saudi gas consumption
(Billion cubic metres)
1999 46.2
2000 49.8
2001 53.7
2002 56.7
2003 60.1
2004 65.7
2005 71.2
2006 73.5
2007 74.4
2008 80.4
2009 77.5
Source: BP

The Karan gas field was discovered in 2006 off the coast of the Eastern Province and is the first non-associated gas field to be developed in Saudi Arabia. The $10bn scheme was fast-tracked from the outset and started its construction phase in 2009. Completion is due in mid-2011 and the field is expected to produce 1.8 billion cubic feet a day (cf/d) of gas, from reserves of more than 9 trillion cf of gas.

The gas will be processed at the Khursaniyah gas plant, which has undergone a major refurbishment. It now has two NGL trains that will process the first phase of Karan, as well as 1 billion cf/d of associated gas from nearby oil fields Abu Hadriya, Fadhili and Khursaniyah.

Most of the contracts have now been signed for the Wasit gas scheme and awards are expected soon on the Shaybah NGL project, which means development of these should begin in 2011. 

Wasit gas packages

Under the Wasit scheme, Aramco aims to produce 2.5 billion cf/d of sulphur-rich non-associated gas from the Arabiyah and Hasbah fields, located off the coast of the Eastern Province, before transporting it to central processing facilities at Wasit.

In late January, four onshore packages for Wasit were awarded by Aramco and all were won by South Korean companies. SK Engineering & Construction (SK E&C) was awarded three of the four engineering, procurement and construction (EPC) packages. The company will be responsible for the main inlet and gas processing facilities, the NGL fractionating column, the sulphur recovery facilities and the main supporting utilities. The sulphur recovery facilities comprise four 1,200 tonne-a-day units. The deal was worth a total of $1.9bn.

Saudi gas reserves* 
(Trillions of square feet)
2005 239.5
2006 248.5
2007 253.8
2008 263
2009 275.2
*associated and non-associated

SK E&C’s win took the contracting sector by surprise, as it was not thought Aramco would not award three packages to one contractor.

“SK has held in-kingdom contractor status [which allows companies to bid for Aramco contracts] for some time now, but hasn’t really won anything of note,” says a Saudi contracting source. “Aramco had a good look at them to see if they were capable of executing all three of the packages for the prices they submitted and obviously decided they were.”

But the project is of such importance to tackling the kingdom’s gas deficit and SK E&C has a track record of finishing gas projects ahead of time.

Samsung Engineering was awarded the cogeneration package for Wasit in a deal reported to be worth $462m.

The site where the Wasit onshore facilities will be built is being prepared by the local Abdulali al-Ajmi Company and work is expected to be finished by August. The initial engineering work will be carried out by SK E&C and Samsung Engineering in South Korea, before transferring to Wasit in August.

Korean gas contract wins

The remaining contracts for the Wasit scheme are the two offshore packages, which cover a total of 13 unmanned platforms and associated facilities, linked to the onshore processing plant. Sources have indicated that South Korea’s Hyundai Heavy Industries (Hyundai HI) is the lowest bidder for both packages. If Hyundai HI is successful then Wasit would represent a tremendous coup for the South Korean EPC contracting industry. Completion of Wasit is expected in 2014.

Meanwhile, the Shaybah processing facilities will be able to separate about 228,000 barrels a day (b/d) of NGLs from crude oil produced at the Shaybah field in the Empty Quarter of the kingdom. Ethane and propane will also be produced. Phase one of the project involves the construction of two NGL trains.

There are four EPC packages to be awarded on Shaybah, which closely mirror the onshore packages of the Wasit scheme. Bids are currently being evaluated and early reports indicate that South Korean contractors are again going to be successful and take all four contracts.

“Due to the similarity of Shaybah’s packages to Wasit’s, no one can see past the South Koreans again for this one,” the Saudi contracting source says. “SK E&C may be out of the reckoning, but the others must be feeling confident.” 

As with the Wasit scheme, completion for the Shaybah NGL project is expected in 2014. The two schemes and the Karan project will increase Saudi Arabia’s gas production capacity to about 15.5 billion cf/d, from 10.2 billion cf/d today.

The additional gas supplies should mean some of the industrial projects on hold can move forward. But it is likely to only provide temporary relief. Ahmed al-Saadi, vice-president of gas operations at Aramco, said last year domestic gas demand is growing at a rate of 5-6 per cent a year. With industrialisation a major focus area for the government in its drive to create more jobs, Aramco will need to continue to exploit new non-associated gas fields.