A new report released by the Cyprus-based publication Middle East Economic Survey (Mees) has said that the development of Arabiyah and Hasbah – two offshore non-associated gas fields in the Gulf – is being fast-tracked by Saudi Aramco to keep in line with Saudi Arabia’s gas expansion plans.
“Demand for gas is surging on the back of massive growth of petrochemicals production, power generation and water desalination. But gas exploration through joint ventures with international oil companies in the Empty Quarter has so far been disappointing, and with associated gas output likely to be capped by OPEC production restraints for some time, the company [Aramco] has sought a remedy,” the report said.
According to Mees, details of the project are vague, but they form part of the state-owned company’s five-year plan to take them to 2014. The two fields are expected to yield a bout 1.8 billion cubic feet a day when fully operational.
Although the proposals were accepted immediately, due to the relatively quick period that the fields can be brought online coupled with the huge surge in demand for gas in the KSA, the high sulphur content of the gas means that the stae-owned company will be saddled with extra processing expenditure.
“High sulphur levels and the offshore location of Arabiyah/ Hasbah projects will make for relatively expensive development,” the Mees report said. “It will cost [Aramco] around US$5.5 per million British thermal unit (BTU) to produce gas from the two fields.”
The gas being used for internal consumption also creates pricing problems.
“Barring any change in policy, Saudi Aramco will be required to sell gas to its customers at the Saudi standard internal price of $0.75 per million BTU. The selling price for the gas is to be close to one-eighth of its production cost,” the Mees report added.
The report then stated that taking these factors into consideration it seems inevitable that the Saudi Arabian government will have to raise prices.
“For the moment, the demand for cheap gas to expand industrial development and provide the much-needed employment seems to be trumping arguments to put gas developments on a sustainable basis,” the report said.
The gas expansion plans Saudi Aramco are undertaking comes at a time when other oil expansion projects are being moth-balled until the oil price rises. Last week arabianoilandgas.com reported that Saudi Aramco were cutting the number of oil rigs by up to 20% in 2009.
