Saudi Arabia is pushing Aramco to do more than ever. We examine the key projects keeping Aramco and Saudi Arabia at the top of the oil world.
By all measures, 2011 was another successful year for Saudi Aramco.” So begins Aramco’s annual report for last year, and it’s hard to disagree. Saudi Arabia’s upstream sector is riding a wave of new oil and gas development, buoyed by high oil prices and a need to secure the Kingdom’s export dominance and domestic energy supply.
At the heart of Saudi Arabia is Aramco, the largest national oil company – or, indeed, company of any kind – in the world. The company’s ability to maintain production and reserves exploitation has been tested in the last few years, as Saudi production has stepped in to sooth markets squeezed by the lack of Libyan, and more recently Iranian, supply.
Aramco is also the lifeblood of the Saudi economy, making $23.1 billion of domestic procurement spending in 2011 and providing direct employment to over 46,000 Saudi nationals. Non-oil exports remain only 12% of the Kingdom’s total, and oil accounts for roughly 80% of budget revenues, 45% of GDP, and 90% of export earnings.
After a round of exploration and production spending – including the huge and advanced Khurais megaproject – that hiked Saudi Arabia’s estimated production capacity from 11 million barrels a day to 12.5 million in 2009, Aramco CEO Khaled Al Falih has ruled out a push for more crude supply. A notable exception is the ongoing development of the offshore Manifa field (see boxout on page 42), which is due to start production in 2013.
Aramco has embraced its current period of transformation, and has continued to grow and diversify its business in light of several demands which have become more urgent over the last eighteen months.
The company is implementing a bold plan to transform itself from an upstream oil and gas company to a fully integrated global energy enterprise, a project which involves diversification into downstream operations, trading and even transportation.
In short, Aramco is doing things that you would not expect an upstream oil and gas company to do. Its transformation is profound.
Some industry watchers have raised concerns that Aramco’s interests are becoming too diffuse, particularly given the company’s vital role in stimulating national industry and providing high-quality jobs for Saudis, and that the level of non-core activity Aramco is doing is a reflection of lacklustre progress in industrial and investment policy elsewhere.
Trading Places
As part of a drive to monetize the Kingdom’s oil interests along the value chain, Aramco’s new trading subsidiary began commercial operations in January and is already up to full speed.
Aramco Trading will represent the company’s interest in sales and purchases of refined petroleum products such as condensates, naphtha, gasoline, middle distillate fuels, fuel oil and residual products and bulk petrochemical products.
The company is also greatly expanding its shipping interests. In June, Aramco announced that it will merge its shipping and marine arm Vela International with Saudi National Shipping (Bahri), making it the world’s fourth largest owner of very large crude carriers.
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Gas for the grid
A key concern for the Kingdom is migrating from oil as a source of energy for power generation to gas, nuclear and renewables. Khalid al-Falih, CEO of Saudi Aramco, has warned that domestic liquids demand is on a pace to reach over 8 million bpd by 2030 if there were no improvements in energy efficiency or changes of supply.
Accordingly Aramco, again branching out from its core strengths, has been undertaking a mammoth drive for gas feedstock, one that is set to intensify once the Manifa project is completed.
Al Falih, who says Aramco’s exploration and production budget is “the highest in the company’s history,” has confirmed in August that Aramco expects to begin offshore drilling in the Red Sea before the end of 2012.
In an interview with Saudi newspaper Al Riyadh, Khaled Al Falih said that in addition to progress in the Red Sea, Aramco had found resources in the north of the country, where Aramco is exploring for unconventional gas resources, the details of which Al Falih said he will announce “in due course.”
Aramco began a wide-ranging seismic program in the Saudi Red Sea in 2009, as part of a push to explore new oil and gas assets in the face of increasing domestic demand and an unsustainable crude burn for power generation.
While data processing is ongoing, shallow water exploration got underway in December. Al Falih said that he expects deepwater exploration to get started in 2013.
Al Falih told Al Riyadh that the huge Karan gas field – see our field focus on page 40 – is now yielding 1.8 billion cubic feet of gas a day, and will produce up to 2.5 billion feet of gas a day by the summer of 2014. The Aramco CEO says plans are under way to install sufficient power generation capacity to harness the gas.
Aramco is drilling in the Hasbah and Arabiyah offshore gas fields, located northeast of Dhahran. The company has broken several of its records with these drilling activities, including drilling the largest diameter holes and running the longest casing strings.
Hasbah will have seven single-well platforms and supply the huge Wasit Gas Plant with 1.3 billion scfd of non-associated gas. Arabiyah will have six wells and supply Wasit with 1.2 billion scfd of gas.
The company has also embraced unconventional gas technology, and has hoovered up expertise from the US to facilitate pilot projects for shale and tight gas extraction under its Upstream Unconventional Gas Program launched last year.
Aramco says there are early indications that the Kingdom’s unconventional gas resources may rival its extensive conventional gas reserves.
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New Partner
Aramco has also been branching out with a new partnership with Sinopec, one of China’s state oil companies. Aramco and Sinopec signed a preliminary agreement in March to cooperate in a wide range of areas, including oil exploration and development, refining and petrochemicals.
The agreement envisages that Aramco and Sinopec will coordinate closely on oil sales, trading, and project engineering, according to Sinopec.
“We trace our relationship back to the early 1990s when we started downstream venture discussions in China; since then Sinopec and Saudi Aramco have developed cross-border cooperation along the hydrocarbon value chain, covering upstream and downstream investment, crude oil trading and engineering services.”
said Sinopec Chairman Fu Chengyu after the companies signed a The companies are already working together on a giant refinery at Yanbu in Saudi which, will process 400,00bpd when completed, which is expected to be supplied from the Manifa field.
Stable supplies of Saudi crude are vital to China’s energy supply mix, and Saudi has tilted eastwards as a result of China’s burgeoning demand for fossil fuels. Overall, Aramco is investing $90 billion over the next five years to expand the company’s refining capacity to six million barrels a day, is commitment to the $19 billion Sarada chemicals project with Dow Chemical.
Smart Water Flood
For all that, Aramco has not forgotten its roots as a cutting edge upstream company. An excellent recent example is Aramco’s EXPEC Advanced Research Center’s strategic research program “SmartWater Flood,” which is exploring the potential of increasing oil recovery from carbonate reservoirs by tuning the properties of injection water.
Field tests have been recently completed demonstrating the potential to increase oil recovery from the Kingdom’s carbonate reservoirs using conventional seawater injection by tuning the ionic composition of injected water.
Mohammad Qahtani, vice president of Petroleum Engineering & Development spoke of the trials’ success: “Considering these field trials are the first-ever applications in carbonate reservoirs, they further provided another confirmation that SmartWater Flood has strong potential to be a new recovery method targeting Saudi Aramco carbonate reservoirs.”
Saudi Aramco utilizes water injection in the field periphery to maintain pressure necessary for hydrocarbon production. Leveraging current field injection practices and Saudi Aramco’s existing water injection infrastructure is highly attractive as it is an efficient and economical approach to increasing recovery.
Over the last few years, in-house research efforts have revealed that injection of chemistry-optimized versions of injection seawater provided substantial oil recovery beyond conventional seawater flooding for carbonate rock samples.
These results were confirmed and validated through different laboratory studies. A roadmap for SmartWater Flood field applications is underway, targeting a full demonstration project.
The first phase of the roadmap is to conduct several single well tests to prove the concept. Upstream to downstream, Aramco is rising to the challenges handed it by its host government and oil markets.
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Saipem in Saudi
Saipem recently signed five contracts with Saudi Aramco for the charter of 2,000-HP and 1,500-HP onshore drilling rigs. The contracts are set for periods from 3 to 5 years, starting at different times between the second half of 2012 and Q3 2013.
In view of the contracts signed, Saipem will be expanding its onshore fleet by buying three new rigs, while the rest will be transferred to Saudi Arabia from other areas.
The awarding of these contracts further strengthens Saipem’s long-standing relationship with Saudi Aramco, a key client and reinforces its presence in the country, where it is already operating 2 jack-ups and 10 onshore rigs and is carrying out important onshore and offshore EPC contracts.
Massive Manifa
Discovered in 1957, Manifa field is in shallow waters southeast of Tanajib, about 200 kilometres northwest of the east coast city of Dhahran.
The development strategy of Manifa is based on optimum use of onshore drilling. Instead of developing Manifa completely from offshore platforms, it is developed from 27 drilling islands connected by a 47 kilometre long causeway, in addition to 16 onshore drill sites and 13 platforms.
The Manifa project will be Aramco’s largest offshore field when fully operational. The huge outlay is being spent on constructing a number of drilling islands, a central processing facility, a water injection system, downstream pipelines, and a massive 41km causeway that runs to shallow-water offshore platforms.
This will facilitate the easy transportation of goods and services both to and from the mainland. The nearby Khursaniyah Gas Plant is also being upgraded to cope with the additional gas from the project.
A central processing facility will process 1 billion cubic feet per day of natural gas. The field was delayed for two years after Aramco decided to concentrate on prioritising a number of gas projects to help meet soaring domestic demand for gas in the KSA.
Manifa hosts the longest well in Saudi Arabia. At a depth of 32,136 feet (around 9.8 kilometres), and completed a horizontal power water injector across the Lower Ratawi reservoir situated in the Partitioned Neutral Zone between Saudi Arabia and Kuwait.
The drilling of precisely directed extended-reach wells for optimum field coverage is at the heart of the project.
Manifa Facts:
Investment: $10 billion
Production: 900,000 bpd crude, 120 million scfd of sour gas, 50,000 bpd condensate, 950,000 bpd produced water
Mcdermott wins Offshore
In July, a subsidiary of McDermott International was awarded two projects for Saudi Aramco in the Arabian Gulf in the Karan, Safaniya and Zuluf fields.
The first project, Karan-45, comprises fabrication of a new wellhead platform, auxiliary platform, jacket and link bridge, with subsea installation of a 20-inch flowline and a 15kV composite power and fiber optic cable.
Project management, engineering and procurement will be undertaken at McDermott’s engineering office in Al-Khobar, Saudi Arabia. Fabrication will commence shortly at the company’s Jebel Ali facility in the United Arab Emirates and the offshore scope will be undertaken by vessels from McDermott’s global fleet. The project is scheduled for completion in the first quarter 2014.
The second project, issued under the existing Long-Term Agreement, includes the procurement of flexible flowlines and the fabrication, transportation and installation of pipelines and subsea tie-ins.
Procurement and fabrication will be carried out at the company’s Jebel Ali facility and installation, using vessels from McDermott’s fleet, is scheduled for completion by the end of the first quarter of 2013.
The values of these contracts were not disclosed, and are included in McDermott’s second quarter 2012 backlog.
