Saudi Arabia is facing significant challenges with plans to frack its shale gas reserves.
A lack of water, unavailability of equipment and, most importantly, a lack of infrastructure, such as gathering systems and trunking lines in the remote areas where the shale gas deposits are located, are proving to be a problem for fracking plans.
“Building the fracking infrastructure is going to take years with an unknown cost structure,” said Chris Faulkner, CEO, Breitling Energy. “I don’t feel the success of the US can be replicated in any other country in the world.”
Russia’s Lukoil Overseas is currently negotiating a deal with the Saudi Arabian government to tap unconventional gas deposits in the Kingdom’s Empty Quarter. Lukoil is conducting tests to quantify the gas yields and the rates of gas in two fields. These tests will demonstrate to both Lukoil and the Saudi Arabian government the feasibility of fracking.
“Only after this research can we take a decision as to whether we will use fracking. We don’t have pre-established plans to do fracking in Saudi Arabia. It all depends on the next few months,” said a source at Lukoil Overseas.
Saudi Aramco recently reduced the cycle in which it wants to begin shale gas production by seven years, suggesting that the company is viewing shale as a viable option to fuel Saudi’s growing domestic energy needs. Currently, Saudi Arabia has to burn around 25% of its oil production of nearly 10mbpd just to meet its domestic demand. If this continues the country will reach an economic cliff and could find itself as an importer of oil at market cost.
“Saudi shale gas could become a game changer for the country and for world oil markets,” said Faulkner.
However, taking advantage of natural gas deposits will require massive, billion dollar investment. According to Paul Navratil, partner, PwC Middle East Energy Leader, one of the biggest challenges is a lack of fresh water and a lack of any form of infrastructure in the Empty Quarter.
“Fracking is so water intensive and the costs of laying the infrastructure are huge. You can not bring in raw seawater, you need to treat it. Laying down that many hundreds of kilometres of infrastructure, the cost would be huge, and would impact the total cost of production and the viability of the hydrocarbons reserves being developed,” he said.
However, shale extraction technology is taking giant leaps forwards, so what seems impossible now, may be viable in the near future.
Rapidly evolving technology could eventually allow Saudi Arabia to significantly boost its currently insufficient natural gas production.
“The pace with which fracking technology is changing right now, Saudi Arabia may just want to hold on for a little bit,” said Navratil.
If Saudi is to go ahead with its fracking plans in the Empty Quarter, it may be the most complex project the country has undertaken so far.
“Saudi has always put itself in some very ambitious challenges, and so far has delivered on them. This seems like it is maybe pushing it a little bit too far,” said Navratil.
Saudi has historically successfully implemented some highly complex oil projects.
“If you look at Shaybah, the big development in the Empty Quarter, 20 years ago everyone said that it was a crazy project because it is 600km down into the Empty Quarter far from anything and look at what it is doing now,” said Navratil. “They are able to reliably produce and export from Shaybah’s fields.”
Shale gas reserves could address the mounting challenges of Saudi Arabia’s energy conundrum. However, Saudi Arabia will have to get used to expensive extraction techniques, which will push up the cost per cubic metre for its gas, as opposed to the cheap techniques used for its associated gas, according to PwC.
