In March 2013, Saudi Arabia's Petroleum and Mineral Resources Minister Ali Al-Naimi announced plans to drill seven test wells to extract shale gas as part of a program to develop the Kingdom's unconventional Oil and Gas reserves.
While the US Unconventional Oil & Gas boom has made "Unconventional" a buzzword among energy and business analysts over the last few years, the move to develop this unconventional resource in a country renowned for its conventional oil and gas reserves can seem like a curious contrast.
But on further analysis, the development of a national shale gas network can be seen as a strategic move for the Saudi government to drive the economic growth of the country and secure future employment and revenue streams.
While shale gas has gained prominence with the general public due to the development of reserves in the US, few understand what the development of this resource actually entails.
Essentially, pockets of natural gas trapped in dense, impermeable sedimentary rock, shale gas production is a complex business involving intense seismological study, complex extraction systems and multifaceted distribution infrastructures. Similar to nuclear and renewable energy, the development of shale gas will depend not only on the availability of resources, but also on supportive fiscal measures and skilled talent.
There is good news for Saudi Arabia in this respect. Minister Ali Al-Naimi has forecast 600 trillion cubic feet (tcf) of shale reserves in the Kingdom, equivalent to over 100 million barrels of oil.
Saudi Arabia's shale reserves exceed that of Mexico (545 tcf), Australia (437 tcf) and Russia (287 tcf).
Saudi Arabia has identified substantial shale gas formations in the northwest of the country, the South Ghawar (the world's largest conventional oil field) and the Rub'al-Khali.
A recent report by Accenture (International development of unconventional resources: If, where and how fast) stated that the development of the unconventional energy infrastructure in Saudi Arabia will enable it to meet its domestic gas needs and increase oil exports.
While Saudi Arabia is blessed with vast oil and gas reserves, the country is also experiencing a surge in domestic electricity demand. With an estimated population of 27 million people currently using up to 49 GigaWatts (GW) of electricity, according to the country's Electricity and Cogeneration Regulatory Authority, and an ambitious pipeline of multi-billion dollar infrastructural projects, the country's electricity consumption will surely rise.
The rise in electricity consumption puts forward a challenge for the Saudi government. In order to provide this electricity, the country has burned oil and gas that could be exported, leading to a loss in export revenues.
Similarly, oil and gas resources are provided to local utilities at a subsidized rate, further exacerbating the problem of lost income.
In fact, the International Energy Agency predicts that the Kingdom could turn into an energy importer within the next 20 years, if the rate of electricity consumption continues.
Therefore, developing unconventional resources like shale gas could provide an innovative solution to address increasing domestic electricity demand.
It provides resources to produce electricity, while freeing up the existing oil reserves for export, thus earning the country valuable revenues.
It also means that the "business case" for the country for Shale Gas is attractive. Although the local gas sale price is heavily subsidized (at $0.75 per million BTUs — about 20 percent of process in the US), using this gas to substitute for oil produces an attractive return based on the international sale price of the produced oil now available for export rather than on the gas price.
In addition a "multiplier" effect means that this gas, as well as releasing oil for export, also produces electricity which supports the economic growth of the country, allowing it to continue to diversify from being a crude oil exporter to an exporter of refined products and other goods and services.
Harnessing Saudi Arabia's shale gas reserves will certainly not happen overnight given the technical challenges and scale of development required.
The country, however, has a strong oil and gas services sector and conventional skilled workforce, and local companies have made significant progress in recruiting foreigners with unconventional skills to support development.
The progress being made was illustrated by recent comments by Saudi Aramco CEO Khalid Al-Falih, who stated that the company plans to be producing 200 million cubic feet per day of unconventional gas by 2018 to power a 1,000 MW power plant to feed a new phosphate mining and manufacturing operation planned by Maaden in the north of the country.
In addition, the government is also planning to diversify and expand its energy mix.
By 2032, Saudi Arabia will have 41GW of solar energy and 17GW of nuclear energy in order to meet its domestic electricity demand.
What the Kingdom has, which is unique, is the reserves and government support and vision to develop this sector as an engine for the continued development of the country.
The next two decades will be filled with much activity, change and dynamism proving that the country has what it takes to remain a global powerhouse in the world energy business.
Arab News
12 August
