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Saudi Arabia Boosts Natural-Gas Output

The world’s top crude-oil exporter, Saudi Arabia, has long lagged behind its rivals in natural-gas production.

Now, after years of stumbles and missed deadlines, the kingdom’s top officials say they have made progress in boosting gas capacity, with major new projects meant to reduce the country’s reliance on crude oil for producing electricity.

On Wednesday, Saudi Arabian Oil Co., the country’s state-owned energy firm, said it had formally signed contracts to carry out a $13.33 billion gas project first announced last year. Once completed in 2019, the Fadhili project here in an isolated stretch of desert in the Eastern Province will be the country’s first to treat gas from both onshore and offshore fields, said Amin Nasser, chief executive of Saudí Aramco, as the state oil company is commonly known.

The start of the Fadhili project comes after a gas development called Wasit started production in March. It is expected to add 20% to Saudi Arabia’s natural-gas production when it reaches full production capacity in the next few weeks, officials said.

Saudi Arabia has also committed around $10 billion to gas exploration and is focusing on deepwater areas of the Red Sea, shale gas in the north and the potential for more gas production from its giant oil fields.

By 2020, Saudi Arabia has a goal of increasing its gas production capacity to 17.8 billion standard cubic feet a day, up from about 12 billion now and 6 billion in 2000. In the next decade, Saudi energy officials want to expand gas production capacity to 23 billion standard cubic feet a day.

“The needs inside the kingdom are large for gas,” said Mr. Nasser at the news conference announcing the Fadhili contracts and outlining the kingdom’s ambitions.

The focus on natural gas comes as Saudi Arabia tries to find new ways to feed its power and industrial sectors. Natural gas is burned in half the kingdom’s power plants and is used as feedstock in its petrochemical industry, but Saudi Arabia is one of a handful of countries that still burns crude oil for electricity because of gas shortages.

Last year, Saudi Arabia used nearly 600,000 barrels a day of crude for electricity, peaking at about 900,000 barrels during the hot summer months. Once Wasit is fully on stream, around 300,000 barrels a day could be saved from direct burning, Saudi Energy Minister Khalid al-Falih said in June.

Saudi Arabia needs those crude-oil barrels for exports as the kingdom competes to maintain its top spot in the global market as oil prices remain mired in a two-year funk.

The country pumps over 10 million barrels a day, most of which is exported around the world. Saudi Aramco, as the state oil company is known, also has more refineries to feed with crude oil.

Saudi Arabia says it has 297.6 trillion standard cubic feet of gas reserves, but it has lagged behind rival gas producers like Qatar, the U.S. and Russia. According to the International Energy Agency, Saudi Arabia was the world’s eighth-largest producer of natural-gas in 2015, tied with Turkmenistan and behind Norway, China and its rival Iran.

Unlike the Saudi’s crude oil, which is among the easiest in the world to pump, the kingdom has often found its gas developments to be expensive and difficult to produce.

In 2003 and 2004, a consortium of international oil firms including Royal Dutch Shell PLC were invited to drive to find gas in Saudi Arabia’s southeast Empty Quarter, the Rub al Khali, under tough terms that would have made it difficult for them to make money. The companies gave up after Saudi Arabia refused to raise its low, government-set gas prices.

Other gas projects have proved to be prohibitively expensive because much of Saudi Arabia’s gas has high sulfur content, which requires an elaborate processing system.

Saudi Arabia’s energy minister, Khalid al-Falih, said Aramco has yet to find gas in deepwater projects in the Red Sea. He said shallow water and onshore drilling for gas continues.

“We have made progress,” Mr. Falih told reporters in Vienna last month.

Jim Krane, a Middle East energy expert at Rice University’s Baker Institute, called Saudi Arabia’s gas shortage “a nightmare for Saudi Aramco, which has had to stand aside and watch as its precious export commodity gets burned in such wasteful fashion.”

He said the kingdom was making positive changes, including raising the price of gas to dampen demand and putting control of the country’s energy policy under one minister in the spring.

Amrita Sen, chief oil analyst at Energy Aspects, said the Saudis had been focused on developing natural gas for over three decades but the efforts are getting more attention now that they are framed as part of the country’s push to lessen its dependence on crude oil. The plan’s architect, Deputy Crown Prince Mohammed bin Salman, is “media savvy,” she said.
Source: Dow Jones

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