Chinese hydrocarbons company Sinopec has sank the seventh well of its gas exploration of Saudi Arabia’s vast Empty Quarter.
The well is part of a joint venture deal the company signed with Saudi Aramco in 2004 to drill seven wells over a period of up to 10 years. The project has yielded no commercially viable gas and the costs are believed to be far higher than the projected US$300 million according to news agency Reuters.
“We are drilling the last well now…One of the previous ones barely struck any gas. The rest found a small amount of flow but with no commercial value, as the agreed gas prices were too low,” a Sinopec official is reported as saying.
The set domestic wholesale price is believed to be $0.75/mmBtu.
“All the foreign firms accepted that price. But you need to strike a high-yield discovery to make it economically viable,” he added.
Exploration for gas in Saudi’s Empty Quarter has been disappointing, with no real commercial discoveries and escalating costs.
“The terms on which Saudi Arabia allowed foreign investment in the Empty Quarter were extraordinarily harsh,” Samuel Ciszuk, Middle East analyst for IHS Global Insight, said.
”Companies were refused access to any oil discovered and only allowed to sell their eventual gas production to Aramco at a set price, including an eventual transport fee.”
Even at the outset of exploration it was clear that the companies would need to discover significant amounts of condensate and natural gas liquids (NGL)—to which they would have been allowed to retain title and market freely—for the venture to be commercial,” he added.
Ciszuk believes that many companies in the future will be discouraged from investing capital into such a risky venture.
“Given the immense logistical challenges in operating and developing discoveries in the barren region, little reason for optimism remains for commercial gas finds,” Ciszuk said.
“For Saudi Arabia—which had high hopes of its prolific Eastern region extending into the Empty Quarter—the drilled dusters raise uncomfortable questions about its long-term domestic gas supply,” he added.
