S05 ORME 6 2014 - Analysis 02_Layout 1 9/26/2014 2:50 PM Page 28
Analysis
Aramco’s Annual Report 2013, it has discovered three oil and two gas fields including the Red Sea deep-water oil field AlHaryd, following the 2012 discovery of a gas field in the Shaur structure located in the shallow waters off the country’s North Western Tabuk province. This latter gas field is “a potential game-changer in the future of the Kingdom’s energy mix,” notes Saudi Aramco. During 2013, Saudi Aramco undertook its first deep-water drill stem test at Duba-1 in the northern Red Sea at a depth of 648m.
US$25bn project launched By the end of this year, the first of seven planned appraisal wells will be drilled in the new gas field Ahmar-1 discovered in 2012, located some 16 miles off the coast from the port city of Duba as part of a US$25bn development plan, reported 2B1st Consulting in January 2014. Saudi Aramco will drill three wells in shallow waters not exceeding 100 metres in depth and four in deep water of more than 1,000m. This gas field is forecast to produce 75mn cfd of gas and 4,500 bpd of condensate for a 20-year period. The gas will be delivered by pipeline to Duba, where Saudi Aramco is planning to build an industrial complex containing a gas central processing facility, a petrochemical plant and large power station which will be connected to the respective national power and gas grids to supply cities such as Yanbu and Jeddah along the Red Sea coast. Whether any of this resultant new gas and electricity will be exported to neighbouring Egypt or Jordan, both of which suffer from power and gas supply problems, remains an open question.
What production techniques might be used? The specific production techniques on future discoveries and the companies chosen to deploy them will be announced in 2015. However, if the reservoirs are filled with
crude, floating rigs will be used to puncture the seabed to subsea fields lying 1,000m below the water's surface. The oil is likely to be transferred via floating production, storage and offloading vessels to off-shore tankers. If the reservoirs contain large quantities of associated gas, as is the case with the Ahmar -1 field, processing facilities are necessary to separate the oil from the gas. These would be built on land and connected by pipelines to the rigs. “Such a production system would become expensive,” comments Dr Sadad Al-Husseini, retired vice president, exploration and development at Saudi Aramco and now Owner and Founder of energy consultancy Husseini Energy. In either case the production of hydrocarbons on the Saudi side of the Red Sea is unlikely to reach significant scale before the end of this decade, said Professor McDonald.
Red Sea exploration challenges Saudi Aramco customarily operates in Gulf waters not exceeding 330 feet, which is less than a 10th of the average depth of the Red Sea. Lacking both the experience and the technology for deep water operations, Saudi Aramco will have to select from amongst leading deep-water oilfield operators such as Brazil’s Petrobras, Norway’s Statoil, Denmark’s Dong Energy and the UK’s BP, which have extensive experience of deep sea operations in the North Sea and the Gulf of Mexico. Such companies “will be wellpositioned to secure work when tenders are released,” commented energy analyst Kevin Baxter, as reported by UPI in November 2013. Also, Saudi Aramco’s expertise in managing giant contracts with western companies will stand it in good stead during the rush to boost the Kingdom’s gas production. An additional challenge is the complex geology. The seafloor of the Red Sea is unstable, being composed of a thin post-salt section lying above active salt. Such
The need to increase generating capacity is a factor in the drive to discover new energy resources
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Issue 6 2014
Finding more gas is crucial in order to meet current demand as well as to secure a planned increase in generating capacity” conditions suggest that, “It is very likely that the oil will be light and have a lot of gas in it," said Al-Husseini, in the UAE newspaper The National in June 2012. Professor Macdonald reinforces the view that much of the gas discovered will be in the form of associated gas, rather than large independent gas fields.
Why the drive to explore the Red Sea and elsewhere? The main objective of the current exploration drive is to boost gas production in order to limit the use of expensive oil in power generation, as well as to meet rapid growth in demand. Saudi Aramco observes that local demand for crude has increased “to the point where volumes meant for export may fall to unacceptably low levels in the coming two decades.” In addition, fears that Saudi oil production from existing fields has peaked or is likely to peak soon underlie the Kingdom’s search for new sources of energy, including oil, solar and shale gas. Currently, Saudi Arabia consumes at least a quarter of its oil output at heavily subsidised prices, putting a strain on the Kingdom’s budget. Already, there are gas shortages, forcing industrial consumers such as power stations, petrochemical and associated downstream plants to switch to oil. The opportunity cost for Saudi Aramco is high, since it is required to supply domestic industrial customers with oil at the equivalent of US$5 to US$15 a barrel compared to Brent crude prices of around $100 a barrel. Finding more gas is crucial in order to meet current demand as well as to secure a planned increase in generating capacity from 55GW to 120GW by 2020. Saudi Aramco expects domestic gas demand to nearly triple from its current 3.5 tcf by 2030. The evident prospective shortage of gas and fears that Saudi Arabia could turn into a net oil importer by 2030 makes exploration and development of the Red Sea’s hydrocarbons a priority, albeit a very expensive way of maintaining oil export volumes. However, it will take a long time to develop the Red Sea resource. If substantial finds are made, it could also boost the economies of other Red Sea states such as Sudan, Somalia and Eritrea, says Professor Macdonald. In the meantime, reductions in energy subsidies, economies in energy usage and diversification to solar and shale could form important components in the Kingdom’s energy strategy. n