19 February 2013 16:03 [Source: ICIS news]
By John Richardson
But 80% of Saudi Aramco’s capital expenditure on domestic hydrocarbons exploration is being spent on searching for more gas, perhaps the highest percentage ever, according to a Middle East-based chemicals analyst.
And in a further indication of the dash for gas, King Abdullah, Saudi Arabia’s ruler, recently gave instructions that gas should be used instead of oil for Saudi power generation, said Leslie McCune, a petrochemicals consultant, who specialises in the Middle East.
“The opportunity cost of burning crude oil is clearly its export value. This value is huge, given today’s benchmark price of Brent crude oil of around $117/bbl and Aramco’s extraction costs of $2-$5/bbl,” added McCune, who runs the consultancy, Chemical Management Resources Ltd.
“Extraction costs for gas are three times higher but the net saving of not burning crude oil would still be $70/barrel,” he said.
“The focus for gas exploration will be in the Tabuk region and in the off-shore waters in the Red Sea.”
But McCune added that there is a great deal of excitement about a shale-gas field that has been discovered in Waad Al-Shamal (Arabic for “the promise of the North”) in Saudi Arabia, north of Medina.
“Early studies indicate that the field is wet. However, if it is to be exploited, large amounts of purified water is required, which is not plentiful in Saudi Arabia,” he said.
“One way around this problem is that there is an existing water pipeline running from the petrochemicals city of Yanbu, on the west coast, to Medina.
“It might be possible to extend the pipeline to where the shale-gas reserves are located in the north of the Kingdom.”
A pipeline would also have to be built in the other direction so the ethane, propane and butane could be moved to Yanbu, where the extra feedstock might be used for substantial petrochemicals capacity expansions, said McCune.
“This might not be such a big deal, as it could be possible to connect with the existing natural-gas liquids (NGLs) pipeline that runs all the way from the petrochemicals city on the east coast, Al-Jubail, to Yanbu,” he added.
“The excitement around this shale-gas field is because of the feeling that Yanbu has been under-developed due to a lack of feedstock and poor infrastructure.”
But he stressed that a start-up date for the shale-gas field - the main purpose of which would be to supply methane for power generation and water desalination - has yet to be announced.
And, despite all of the potential for new gas supplies in Saudi Arabia, observers believe the US still has a window of opportunity.
The only cracker due to start-up in Saudi Arabia over the next five years is Sadara, the joint venture between Saudi Aramco and Dow Chemical. Scheduled to be fully on-stream in 2016, the cracker will run on 70% liquid and 30% gas feedstock.
But in the US, as many as seven 100% gas-fed crackers are scheduled to come on-stream over the next five years, with the first of the start-ups due in 2016/2017.
Meanwhile, as excitement builds over the potential for more gas supplies in Saudi Arabia, concern is also growing over the future cost of gas.
“Rumours circulated recently of an increase in Saudi ethane prices from $0.75/MMBtu to $2-$3/MMBtu. One producer is said to have lodged a protest.” added McCune.
Jamal Malaikah, chief operating officer and president of Yanbu-based polypropylene (PP) producer National Petrochemical Industrial Co (NATPET), was quoted in the UAE’s National newspaper on 7 January as saying that this was the “wrong time” for the Saudi government to re-examine gas costs.
“We still have an advantage in Saudi Arabia but we believe that advantage will be affected by the sheer volume of shale gas in the US,” he said.
NATPET’s PP production is based on propylene via propane de-hydrogenation (PDH).
Propane and butane (LPG) pricing in Saudi Arabia is based on prevailing CFR (cost and freight) naphtha prices in Japan minus a discount of around 28%.
“The discount might be reduced slightly, but I believe it will never be removed entirely,” added the Middle East-located chemicals analyst.
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