It is impossible to go to any conference, event or even meetings without hearing about unconventional oil
Three years ago, people were just starting to talk about the potential impact of shale gas on the Middle East region and particularly on the petrochemicals industry. Now it is virtually impossible to go to any conference, event or even meeting without having some discussion in relation to the fascinating subject of unconventional gas and oil.
I think it has something to do with the name. Whoever coined the term ‘unconventional’ in relation to gas and oil created something that resonates with all of us; we all want to be unique, different, a bit unconventional in our own way.
So the idea of unconventional oil and gas has a certain mystique, together with its own special vocabulary of terms such as “fracking”, which has become the point of contention for both sides of the environmental debate.
The impact on North American petrochemicals is already very obvious. An industry which was in steady decline has been reinvigorated and many projects have been announced, with major new crackers and associated plants, cracker revamps and several fertiliser plants proposed. All due to increased availability of ethane and methane from shale gas.
Then there is the impact on the LNG business. North America had been expected to become a huge importer of LNG. New terminals were planned and exporting countries were looking hungrily at this major market. Now the US is considering exporting LNG once again, turning the global market on its head.
Now we all know that gas availability is a challenge for the Middle East. Cheap ethane has historically been the motor for the petrochemicals in the region, allowing the very rapid expansion of petrochemical giants such as SABIC and others. For many years, producers in Saudi Arabia have benefitted from the discounted rate of 75 cents/MMBtu.
However the competing needs of the power generation and petrochemicals sectors will almost certainly lead to an ethane price increase, eroding the competitive advantage of the petrochemical producers.
Propane prices are already high, when compared with the US. So what about unconventionals in the Middle East? Saudi Arabian shale gas reserves are very significant. Baker Hughes, the oilfield services major, estimates shale gas reserves to be at 645 trillion cubic feet (TCF), the fifth largest such reserve in the world.
By way of comparison, the country’s conventional gas reserves are estimated to be around 279 TCF. Naturally Saudi Aramco is starting to investigate the potential for shale gas development.
There are also large reserves of tight gas in Oman, which are being developed by BP but significantly, price in the tightly controlled Oman market has been a much discussed issue in the development of the project.
In the UAE, ADNOC is looking very closely at the country’s potential for unconventional gas, which is also believed to be significant. So what does the potential development of unconventional gas mean for the Middle East petrochemical industry? In the short term, the answer is ‘not very much’.
Development of this new industry will take a lot of time, effort, commitment and some serious expenditure. Just developing the infrastructure, having the availability of the drilling and fracking equipment and having the required skilled resources will be a major challenge.
Huge volumes of water are also required for the fracking process and, although sea water can be used, it still has to be piped to locations which are often remote and hundreds of miles from the coast.
However, the need for gas will ensure that these developments do happen and in the longer term, the impact could be significant. In the meantime, the chatter about unconventionals will certainly continue to gather pace!
Andy Gibbins is Vice President, Middle East with Euro Petroleum Consultants [EPC] and based in Dubai. Prior to joining EPC, Andy spent over 20 years with Shell and NOVA Chemicals. EPC is a technical oil & gas consultancy with offices in London, Dubai, Moscow, Sofia and Kuala Lumpur. They are also the organisers of leading oil & gas conferences and training courses. EPC is holding the first conference dedicated to Operational Excellence in Abu Dhabi in December “OpEx 2013”. Please visit www.opex.biz or www.europetro.com for further details.
