[Plantagenet]

Saudi Arabia announced it will start fracking shale to produce Natural Gas in KSA. It is one of the first countries outside the US to adopt the new technique for producing oil and NG from shale

KSA to start fracking project in shale

KSA plans to use the NG they produce from shale to power their electrical grid, freeing up more oil for the export market.

[ROCKMAN]

The KSA has been doing a good job of not wasting NG produced in association with the oil. I wonder if the announcement of targeting NG that should be very expensive to develop compared to the associated NG they’ve been essentially getting for free is an indication of how they anticipate their oil production to decline. From: http://www.arabianoilandgas.com/article ... l1xBZ0o5WE

“The report records a notable achievement by Saudi Arabia in managing gas flaring. The Kingdom’s master gas system mega-project, which was online in 1982, today gathers almost 100 Bcm per year and is the world’s largest single hydrocarbon network. Approximately half of the gas supply for the system comes from associated gas that was previously flared. Joe Anis, GE Energy’s President & CEO for the Middle East said: “The success achieved by Saudi Arabia is one example in the long journey for the Middle East region towards managing gas flaring more effectively, which has long-term environmental and energy sector impact”.

[Plantagenet]

The main reason I started a thread on this topic is that some have claimed that US-style fracking of shale to produce oil and gas wouldn't catch on overseas, and the huge increases in US oil and NG production could not be duplicated overseas.

Clearly that is wrong. Fracking of shale is going to occur all around the world.

When KSA ---- the largest oil producer in OPEC----starts utilizing fracking techology on shale, you can bet your bippy that the other OPEC producers will also soon be fracking shales. Fracking is also getting started in Australia and South America and the UK and Poland.

Everybody is gonna be fracking.


Currently known global distribution of shales thought to have FF resources that can be produced using fracking

[kublikhan]

From the article:

Riyadh - hampered by scarce water and prices fixed far below production costs - is unlikely to produce much shale gas this decade.

Doesn't sound like KSA will be replicating the US's huge increase anytime soon.

[ROCKMAN]

k - Time will tell depending on how fast they move. Got to thinking about the price differential between a NG Btu and an oil Btu. Even with the higher cost of international priced LNG you would have thought there was already a hard move away from oil-fired electrical generation. Unless their shale are much more productive then ours I would think LNG imports would make more sense especially given the KSA's close proximity to major LNG exporters. But I would also think they've already looked at those numbers very hard.

[Plantagenet]

From the article:

Riyadh - hampered by scarce water and prices fixed far below production costs - is unlikely to produce much shale gas this decade.

Doesn't sound like KSA will be replicating the US's huge increase anytime soon.

1. Waterless fracking doesn't require water.

2. The current price of NG outside the US doesn't reflect NG production costs anymore than the international price of BRENT oil reflects KSA oil production costs. The NG price is largely driven by Russia's monopoly over NG sales to Europe and has nothing to do with NG production costs in KSA.

3. Fracking shales in the US started about 10 years and current production is enormous. All major energy projects these days have ca. 10 year planning cycles.

4. Only time will tell how much NG the KSA can ultimately produce by fracking shales. I doubt they'd be doing it if the potential for significant NG production wasn't there.

[kublikhan]

2. The current price of NG outside the US doesn't reflect NG production costs anymore than the international price of BRENT oil reflects KSA oil production costs. The NG price is largely driven by Russia's monopoly over NG sales to Europe and has nothing to do with NG production costs in KSA.

I never said it did? The rigzone article is claiming the fixed low sales prices of natural gas in KSA will act as an impediment to fracking. Here's an article that delves into the subject in more detail if you are interested:

The government of Saudi Arabia will lose millions of dollars a day tapping into much-needed new gasfields because of rigidly low domestic prices, according to the International Energy Agency (IEA). Rapidly increasing electricity consumption and industrial development has led Saudi Aramco, the state oil company, to scramble to develop new natural gas reserves - with many significant successes.

But the cost of developing those fields overshadows the revenue the company will receive from selling the gas to power producers and petrochemical outfits at fixed prices, according to new estimates by the IEA. The cost of extracting a million British thermal units (BTUs) of gas from the new offshore Karan gasfield will be about US$3.50 (Dh12.85), the IEA said, while the domestic sales price for that same gas is fixed by the Saudi government at US 75 cents. The cost of producing gas from the more difficult Arabiyah field will be even higher, up to $5.50 per million BTUs, the IEA estimated.

The two fields will together produce 2.8 billion cubic feet per day of gas (cfd), according to Saudi Aramco's forecasts, leading to average daily losses of more than $8 million if consumer prices are not increased and the cost of the field developments is not reduced. In Saudi Arabia and across the region, the IEA said, "there is greater realisation that additional gas deposits are going to come in at costs much higher than in the past, and if domestic prices remain artificially low, a way must be found for the government or the national oil company to bridge the gap"

In a recent exploration round for gas in the country's south-eastern Empty Quarter by foreign companies, "it proved impossible to develop any reserves at a cost anywhere near the Saudi domestic selling price", the IEA noted. The Saudi government has been reluctant to increase gas prices for fear of hurting the international competitiveness of the country's petrochemical industry and the bottom lines of power producers, who sell electricity at fixed prices.

Saudi faces gas cost dilemma

[Plantagenet]

The internal energy market in KSA is ALREADY heavily subsidized. KSA currently currently burns OIL to make electricity. If they replace oil with NG they will make more money by exporting that oil.

You can't just look at the cost of developing the NG in isolation----you also have to take into account the money KSA will EARN by selling and exporting the oil that was formerly used for domestic electricity production.

Obviously KSA has crunched the numbers and they think they will come out ahead by shifting from oil to NG for electrical power generation and exporting that oil.

[rockdoc123]

exactly correct Plant. A number of years ago I attended a meeting that Aramco and the Saudi government had in London that described the reason for the gas bid round that they opened to foreign participation. The whole idea was that they were consuming enormous amounts of fuel oil to run desalination plants etc. As you say the value add from displacing fuel oil burning with natural gas is considerable. Unfortunately the conventional gas bid round resulted in no new discoveries of any significance. The shale gas initiative makes a lot of sense, the shale kitchen area is quite large and there is considerable area that isn't all that deep.

[ROCKMAN]

Doc - Exactly. that's why I made a point about the cost per Btu. Given what the KSA can sell an oil Btu compared to what it may cost them to develop a shale gas Btu they could come out way ahead of the game even if the gas Btu ends up costing a great deal more than what it costs us in the US. It's conceivable they could spend more to drill a well than what the NG is worth in the market place if in doing so they create a bigger net income from the additional oil sales.

Which does bring the mind the effort to develop gas to liquid plants here in the US for a similar reason.

[John_A]

Which does bring the mind the effort to develop gas to liquid plants here in the US for a similar reason.

At the 33rd Oil Shale Symposium at Colorado School of Mines yesterday, opening session, there was this interesting presentation from an EIA energy resource modeler. He indicated that while the oil shales (kerogen) were a nice way to backstop a basic supply side model, he challenged the audience to convince him NOT to use the GTL process and the hydrates in the GOM instead.

There appear to be serious people who take fracking, oil shales, shale oil, and hydrates all very seriously, and the point they hammer home is cost...cost....cost.

So SA can make more money selling its oil and using shale gas to keep the home fires burning as it were...good for them. Certainly they aren't about to let facetious nonsense like EROEI stop them from doing a perfectly logical economical move.

[dcoyne78]

The bottom line is can the gas be produced more cheaply than just importing the gas, clearly KSA thinks the answer is yes. Time will tell. At least in the US this is accomplished best by mid sized companies. Last time I checked Saudi ARAMOCO was not a midsized oil company.

DC

[Tanada]

I have seen it written around here somewhere that Seawater and deep aquifer Brine are both acceptable fracking fluids. If that is so Saudi Arabia is already using lots of Persian Gulf water injection into their active fields to stimulate oil production. Why can't they use that same water for fracking shale formations?

[ROCKMAN]

In frac fluids water isn’t just a carrying agent. It’s part of the chemical reaction process they develop for specific characteristics to get a successful frac. Typically not only is fresh water used but it’s filtered to take out even very minute contaminants. But companies have been working of compounds that would work with salt water. I don’t know much about that effort but have read reports that while it works to some degree in some reservoirs it probably won’t be a universal solution. Given the amount of propane etc. the KSA produces the gas frac might be their best option in the end. And then there are companies who are developing methods to reclaim frac fluids and recycle them for the next job.

[rollin]

The Saudi are hitting on several cylinders now, exploiting reserve fields, natural gas production and solar PV production. I suspect they will start efficiency and conservation improvements soon, no sense in burning up the profits.

Sure they know that their internal use is increasing and that their fields will go into decline, but they have a longer window to transistion than most countries. Food production is a problem for them as well as water. They are securing African food production and are desalinating water.

Someday, if they continue to be smart, they will be selling electricity to nearby countries or the Euro grid. They do have a lot of sunlight. Ironic how the desert sun will kill you, but now it can keep you alive through PV technology.

[ROCKMAN]

rollin - Good point. Which is also why any past KSA chatter about keeping oil prices low was just PR IMHO. I don't have the details but I recall reports that due to its need to import so much as well as continue to financially support a large segment of their society they ran budget deficits for years when oil prices were lower. Even though they currently produce about the same volume of oil their revenue has increased from $60 billion per year to over $300 billion. The transition you describe will likely cost $trillions. The only hope I see for the KSA is to maintain current production rates and prices long enough to build a war chest sufficient to pay those huge future bills.

Along those lines there seems to be a great synergistic fit between future KSA ambitions and those of China. In addition to food the KSA also imports a large amount of refined petroleum products…products that will be essentially to fueling their transition efforts. China is in the process of expanding in country refinery capacity in the KSA. China is also acquiring ag lands in Africa which could easily be sourced by the KSA in exchange for allowing China increased exclusivity to its future oil production. Likewise China has the technical expertise and boots on the ground to assist the KSA in that huge infrastructure build out needed for the transition. A potential match made in heaven for those two countries. And a potential match made in hell for those countries anticipating the KSA as a future source of their oil imports.

[rockdoc123]

I suspect they will start efficiency and conservation improvements soon, no sense in burning up the profits.

I would say they are the poster child already for efficiency. The recovery factor in the northern part of Ghawar is now predicted to be in the range of 72%, a value that probably sits up at the top of most primary oil recoveries in the world. Their MRC wells program coupled with SMART completions (allowing for downhole monitoring of water influx) and the use of expandable liners was ground breaking and has resulted in higher recovery from fields like Ghawar, Khurais and Shaybah and lower overall cost. Long ago the Saudis took the opportunity to learn from the majors (before they kicked them out) and subsequently their application of technology to solving reservoir problems has been at the leading edge of industry. The difference is that Aramco actual applies key learnings from laboratory and full field modeling work in their fields where western companies tend to have a huge execution gap between R&D and field application ("we've always done it this way and it's been good enough" often being the stated reason). The exception would be some of the small companies with regards to shale gas and the big boys in the early days of ultra deep water drilling.

as long as their is a demand for internal funding of public works, job creation etc. I doubt they will go into any form of oil conservation other than to make sure that the market is not oversupplied. Price is important to them now where as it used to be market share. With prices below $80/bbl they have a hard time meeting internal funding demands, with prices above $100/bbl they realize that too much expensive oil will come on stream which will ultimately put downward pressure on prices. I suspect they would be very happy if oil sat in a range between $90 and $100/bbl.

[Graeme]

Saudi Arabia gas project has failed, admits Shell

Royal Dutch Shell has admitted that its search for gas in Saudi Arabia has been a decade-long wild goose chase, dashing any hopes of gaining a prized upstream foothold in the kingdom.

“We haven’t had a very successful exploration campaign,” Andrew Brown, director of upstream international business at Shell, told The Sunday Telegraph in an interview. “We aren’t conducting any operations there [at Rub al-Khali desert] at the moment.”

Mr Brown declined to specify whether the failure of exploration in the desert – where sand dunes can tower 1,000ft high and temperatures can hit 122F – would force it to shutdown the South Rub al-Khali Company (SRAK), its joint venture with state-owned producer Saudi Aramco.

The announcement on its activities in the Rub al-Khali comes as Shell – Britain’s most valuable company by market value – aggressively cuts costs. In January, Shell said it aimed to raise about $15bn (£8.7bn) from asset sales and cut capital spending to $37bn this year from $46bn in 2013.

No work has taken place in the area since the company said it had stopped drilling in February. Exploration has been plagued by delays and the cost of working in such an environment.

telegraph

[toolpush]

The logical place for Saudi to get plenty of gas from is Qatar. No LNG required, just a big short pipeline. But for some reason they aren't talking to each other. Kuwait was talking about LNG from Qatar. I don't know if that went ahead.