Saudi Aramco to release design tender for shale gas

03 October 2013

Saudi Arabia to be first country in the Middle East to develop shale

Saudi Aramco is pushing ahead with its plans to produce shale gas in three different locations by inviting companies to express interest in a front-end engineering and design (feed) contract that it plans to release in October.

MEED reported on October 2012 that Aramco was fast-tracking the development of its shale gas  resources by about seven years due to the kingdom’s insatiable demand for gas continued. A study was completed in July 2013 and now a design tender is ready to be released.

The state-owned oil company plans to invite bids for design work for gas treatment facilities and all accompanying offsites and utilities in three different locations of Saudi Arabia.

The locations are:

  • The Empty Quarter
  • South Ghawar in the Eastern Province
  • Jafurah in the northern desert region.

“This is the first real sign that Aramco is serious about shale gas and that the studies that were carried out over the last two years have been successful,” says an oil and gas source based in Saudi Arabia. “[Shale gas] has suddenly gotten very real.”

The amount of man hours for the feed contract is not known and the exact scope of works will not be known until the full feed is completed. The work is expected to be done both in-kingdom and out of kingdom (IK/OOK).

“It is tough to estimate the exact level of work involved until a tender is released,” says a source familiar with large-scale gas design work. “I would estimate that each location will need at least 200,000-300,000 hours of work, making this a very significant tender.” 

After the tender is released, invited companies will have about two months to submit bids and an award will be made in the first quarter of 2014.

Further evidence of Aramco ramping up its unconventional gas operations is that the company has  made enquiries with rig manufacturers regarding buying or leasing as many as 40 rigs that would be used in shale gas production.

“Aramco is starting to meet with rig manufacturers and initial talks are being initiated,” says a source. “There could be as many as 40 new rigs required if full scale development of shale gas goes ahead.” 

Seismic surveys have been carried out on shale gas formations across Saudi Arabia. MEED also reported in 2012 that US oilfield services companies Halliburton and Schlumberger conducted feasibility studies for potential production in the northern regions of the kingdom, close to the Iraq and Jordanian borders.

If production does start then oilfield services companies will carry out all of the underground activities which will include drilling the horizontal wells and fracturing (fracking) the rock formations.

Shale gas is the same as conventional natural gas in composition except it is trapped between impermeable rock formations, usually deep underground. To free the resource, it is necessary to create permeability in the surrounding rocks to release the gas.

Creating permeability in rock to release gas thousands of metres under the surface is complex and expensive. This is achieved by a process known as ‘fracking’, which involves drilling long horizontal sections and creating artificial permeability by fracturing as many as 400 wells.

“If Aramco starts production it will be expensive, but extracting unconventional gas sources are expected to become cheaper as the technology is developed and it will still be cheaper than burning oil,” says the oil and gas source based in the kingdom. .

The price of extracting shale gas in Saudi Arabia is expected to be $8-$9 per million BTU. The remoteness of the potential locations for production as well as increased manpower costs would push the bottom line up far higher than conventional sources of hydrocarbons.  Another challenge would be finding an adequate water source for each production area. 

However, despite $8-$9 per million BTU for shale gas being far higher than Aramco’s usual production costs for conventional sources, burning crude oil in power plants works out at $18.33 per million BTU when converted.  

According to Baker Hughes Saudi Arabia has the world’s fifth largest shale gas deposits of about 645 trillion cubic feet. According to Saudi Aramco’s last annual report the kingdom’s conventional gas resources stand at 282.6 trillion cubic feet.

Saudi Aramco was not available for comment when contacted by MEED.

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