Saudi Arabia is adding another dimension to its energy mix by developing the giant Jafurah gas field in the Eastern Province. With investment of $110 billion, Saudi Aramco is developing the field, which is expected to gradually increase production to 2.2 trillion cubic feet of wet gas by 2036 if fully completed.
The news came during a meeting of the Higher Committee for Hydrocarbons, presided over by Crown Prince Mohammed bin Salman. Jafurah, the largest nonconventional and non-associate gas field in the Kingdom, will contribute $20 billion to the annual gross domestic product, with $8.6 billion in net income annually and thousands of direct and indirect job opportunities.
Wet gas has the same basic composition as dry natural gas but with additional components. Wet gas contains around 85 percent methane and other liquid natural gases such as ethane and butane. It is these extra liquid components that make the gas wet. Depending on the area, wet gas can occur more often than dry gas. It all comes down to the chemical composition of the shale from which the gas is extracted.
The field will be able to produce about 130,000 barrels per day of ethane, representing about 40 percent of current production, and about 500,000 barrels per day of gas liquids and condensates required for the petrochemical industries, representing about 34 percent of current production.
As such, the Kingdom will become one of the most important gas producers in the world, in addition to being the most important oil producer. The development of Jafurah, in addition to Saudi programs to develop renewable energies, will achieve the best mix of energy consumption locally and support the Kingdom’s record in protecting the environment and its sustainability.
The crown prince has set clear instructions to prioritize allocating the field’s production to local sectors — including industry, electricity, water desalination, mining and others — in line with the Kingdom’s Vision 2030 reform plan.
This great announcement will reinforce the Kingdom’s leadership position and strong influence in the oil and gas sectors in particular, and the global energy market in general. Furthermore, it will be in line with all new energy programs that focus on climate change and sustainable, environmentally friendly energy resources. Basil M.K. Al-Ghalayini is the Chairman and CEO of BMG Financial Group.
Disclaimer: Views expressed by writers in this section are their own and do not necessarily reflect Arab News' point-of-view
Who flares, wins: Saudi Arabia bets big on gas again
Kingdom’s Minister of Energy makes a comment on the country’s ability to become a gas exporter
Saudi Aramco plans to invest $110 billion in gas reserves in the Kingdom’s Jafurah field
Updated 23 February 2020
Saudi oil has helped lubricate the global economic engine for more than half a century, but its gas reserves are often overlooked. That is all about to change as Saudi Aramco invests $110 billion to develop unconventional gas reserves in the Kingdom’s Jafurah field, located southeast of Ghawar, the world’s biggest conventional oilfield.
For several weeks, Saudi Energy Minister Prince Abdul Aziz bin Salman had been hinting at a major shake-up of the Kingdom’s domestic energy sector in which gas is likely to play a central role.
“Soon you will hear about the ability of the Kingdom to be a gas exporter,” he said earlier this week.
Saudi Aramco said on Saturday that Jafurah held an estimated 200 trillion cubic feet of gas with production to begin early in 2024, reaching about 2.2 billion standard cubic feet per day by 2036. The oil giant said it had about 425 million standard cubic feet per day of ethane, and expects to generate 550,000 barrels per day of gas liquids and condensates.
Standard cubic feet of gas held by Saudi Aramco at the end of 2018
Plans for the field were reviewed by the Saudi High Commission for Hydrocarbons in a meeting chaired by Saudi Crown Prince Mohammed bin Salman.
Over 22 years, Jafurah could generate $8.6 billion in annual income and contribute $20 billion to the Kingdom’s gross domestic product per year. The Saudi crown prince has ordered that the gas produced at the field should be prioritized for domestic industry.
The discovery has ramifications not only for Saudi Arabia and its journey toward a cleaner energy mix, but also for the global gas market, where a slew of recent discoveries in the Eastern Mediterranean is rapidly reshaping economies from Cairo to Ankara, fueling fierce rivalries in the process.
“The start-up of Saudi Arabian exports could mark a major change to the global liquefied natural gas (LNG) balance in the second half of the decade given the size of the country’s conventional and unconventional gas resources,” James Waddell, senior global analyst at London-based Energy Aspects, told Arab News.
This section contains relevant reference points, placed in (Opinion field)
But to really understand how gas could change Saudi Arabia’s future, it is worth recounting how it has already shaped the Kingdom’s past.
The image of flames rising from a pipe in a desert is one that often springs to mind when people think about the oil industry — but it is typically gas, not oil, that produces that distinctive and dramatic sight.
For decades gas was little more than an unwanted by-product of the oil industry, mainly because it was in the wrong place.
Demand lay thousands of miles away in the cities of Europe, Asia and North America — too far to be transported practically or profitably by pipeline. So, instead, it was burned off at the wellhead during the drilling process in a practice known as “flaring.”
That all changed in 1976 when a company called the Saudi Basic Industries Corporation was established by a royal decree. Back then, SABIC, the acronym by which most people now know it, was just a single-room office with six people. Before it was established, the Saudi government had already started selecting its brightest young school-leavers to develop the skills needed for industrialization.
The University of Colorado’s 1973 chemical engineering graduation records display the names of a number of young Saudis who would go on to work at SABIC and other petrochemical companies in the Kingdom, including Mohammed Al-Mady, one of the company’s original employees who would later become CEO.
Politics, as well as economics, was a factor in gas becoming such an important part of Saudi Arabia’s early industrial history
In the autumn of that year, when the Saudi graduates had left the snow-covered campus of Boulder for the last time, the world found itself in the middle of an oil crisis triggered by the Arab-Israeli war.
The ensuing OPEC-led oil embargo against countries perceived to have supported Israel during the conflict sent the price of gasoline soaring in the US and put companies such as Shell, already then a long-term investor in the Saudi oil industry, in a difficult position.
Against this tense backdrop, the Saudi government of the time made clear it wanted to send oil only to companies that would help it industrialize. Later, Shell would become one of SABIC’s first big joint venture partners, building a $3 billion petrochemical plant in what is now the industrial city of Jubail.
The story only made a few paragraphs on the last page of The New York Times business section on July 9, 1980, yet it bookmarked a turning point in the history of the country and the emergence of SABIC as a global industrial player.
In the space of a few years, a waste product had become a source of wealth.
It was to become a template of sorts for the subsequent stellar growth of SABIC, with Saudi Arabia trading oil for the technical expertise of multinationals across petrochemicals, steel and fertilizers.
Since then, SABIC has been one of the biggest beneficiaries of Saudi gas reserves, growing from that single Riyadh office with six employees in 1976 to becoming one of the world’s biggest chemical companies, employing 33,000 people worldwide, and building the industrial cities of Jubail and Yanbu in the process.
From oil industry waste product, to petrochemical raw material, Saudi gas is now entering its third chapter.
While the plot and principal characters have only been partially revealed, we know that it is likely to become both an export and a source of domestic power generation, a stepping stone toward a cleaner energy mix that will include more solar and wind power.
“Despite plans to meet Saudi Arabia’s growing power demand through gas and renewable energy generation, the country also has a high potential to have excess gas produced in the coming years that can be exported,” GlobalData power analyst Somayeh Davodi told Arab News.
“Saudi Aramco has already completed a number of gas processing projects and has been able to successfully meet its growing domestic gas demand during past decades. The company is adding more than 2.5 billion cubic feet per day (bcfd) to its already existing gas plants capacity in few years time, increasing the country’s gas processing capacity to 18.9 bcfd by 2022.”
The massive increase in gas processing capacity in the Kingdom is taking place at a time of similar upheaval in the global gas market.
Major finds in the Eastern Mediterranean over the past decade are stoking political tensions as Egypt, Israel, Cyprus, Turkey and Lebanon all seek to establish sovereignty over recently discovered gas reserves.
The emergence of these new players in the global industry also threatens the dominance of top exporters Russia, which has long been the main supplier to Europe, and Qatar, the world’s biggest supplier of LNG.
This complex mix of economic and political tensions has led some analysts to predict that gas and not oil will be the source of the next big regional conflict.
Number of people SABIC employs worldwide
Whether or not that turns out to be true, we know that demand for gas is rising as an alternative energy source in Middle East economies transitioning away from oil, as a petrochemical raw material, and as an alternative to increasingly undesirable coal-fired power plants in countries such as China and India.
In addition to the estimated 233.8 trillion standard cubic feet of gas held by Saudi Aramco at the end of 2018, the Kingdom last year also announced the discovery of large amounts of gas in the Red Sea. The size and significance of this find is not yet known.
In its most recent gas sector report, the Paris-based International Energy Agency said that after another record, global demand for natural gas is set to keep growing over the next five years, driven by consumption in fast-growing Asian economies.
Saudi Arabia’s investment in its gas reserves is part of a broader move away from reliance on oil industry revenues that have dipped sharply since 2014. That has had a major impact on government revenues across the Gulf and created a new urgency for energy sector reform — with some countries more exposed to that downward trend in oil prices than others — depending in part on their production costs.
“Saudi Arabia’s oil production costs are among the lowest in the world, in the order of $5 per barrel,” Dan Klein, head of scenario planning analytics at S&P Global Platts, said. “Even under a scenario where global oil demand and price declines sharply, the Saudi oil industry will remain extremely profitable.”
As the outlook for global oil consumption continues to be buffeted by everything from the rise of the US shale industry to the decline of the combustion engine and even the spread of the coronavirus, the Kingdom’s investment in its gas resources offers a hedge to this volatility and uncertainty around the future role of crude oil in the global economy.
Gas helped to establish industry in Saudi Arabia almost half a century ago. Now it looks likely to pay an equally pivotal role in the Kingdom’s next phase of economic evolution — at home and overseas.
INTERVIEW: ‘Now is the wrong time to be selling,’ says JP Morgan Middle East MD Steven Rees
Rees: Right now, the economy is in an unprecedented state. In a literal sense, economic time has stopped.
Updated 29 March 2020
Global financial markets have gyrated widely over the past two weeks, with the most savage drops in stock market history turning into one of the best rallies ever recorded.
In these mercurial circumstances, Steven Rees has some simple advice to investors: “Now is the wrong time to be selling,” he told Arab News.
Rees speaks with some authority. He spent many years as head of global equity strategy for JP Morgan, the most profitable bank in the US.
His view is also especially relevant for Saudi Arabia and the Middle East. Rees runs JP Morgan’s Middle East team from bases in London and Geneva, and the bank has a long relationship with the Kingdom, going back to the 1930s when it helped fund the embryonic oil industry.
“Now more than ever we’re committed to working with the country and with businesses there,” Rees said.
But Saudi Arabia, and the rest of the world, is living through extraordinary times. The global economy has been thrown into reverse as the spread of the coronavirus disease (COVID-19) effectively closes off huge chunks of economic activity, and governments around the world have had to step in with unprecedented aid packages to mitigate the effects of what is now an inescapable recession.
Rees paints a stark picture of the economic state of the world. “Right now, the economy is in an unprecedented state. In a literal sense, economic time has stopped — due to government-imposed social distancing — but in a capitalist economy, financial time never stops — bills still need to be paid and markets to keep trading,” he said.
“Consumption is just grinding to a halt. We’ve never seen anything like this. The impact on the second quarter of the year is going to be far greater than anything we’ve ever seen,” Rees added.
In JP Morgan’s American homeland, which is adding virus cases at an alarming rate, the economic effect will be devastating. The bank is forecasting a 14 percent contraction in GDP in the second quarter. In Europe — where some experts say virus cases are approaching a peak — the hit will be a 22 percent fall in the economy.
The bank does not quantify the effect on Middle East economies, but Rees said the region had “done a relatively good job” in reacting to the crisis by shutting down big parts of their economies and getting citizens and expatriate workers to adjust to the “new normality.”
He warned, however: “No country will be spared by the downturn.”
Against this depressing backdrop, he sees some hope from the ability of governments to use radical intervention to mitigate the economic effects and prevent recession turning into a prolonged depression. One aim of policymakers is to help get people over the extreme standstill that will take place in the second quarter.
“The swift monetary and fiscal policy response should help bridge this gap, facilitate smooth transacting in the financial markets, and ensure that corporate and household costs are still covered while economic time is frozen,” he said.
The US Congress last week approved a $2 trillion economic aid package, on top of hundreds of billions of dollars of monetary stimulus injected into the financial system by the Federal Reserve. “The Fed has been acting decisively for the last several weeks. Now, Congress has done its part,” Rees said.
While American workers are to get a sizable lump sum to help them through, as well as extended and enhanced unemployment insurance, small businesses — “the epicenter of the crisis” in America, Rees said — will get some $350 billion in loans to help meet essential overheads.
“Overall, the firepower from the Fed to help stabilize financial markets and preserve liquidity, combined with the fiscal ‘bazooka’ in the $2 trillion legislation are powerful forces that will help the economy avoid the worst-case scenarios some have feared. Moreover, these measures should help the economy to be in a position to recover when things begin to normalize,” he added.
The reaction of financial markets in the weeks ahead will be crucial. “For investors, the $2 trillion stimulus package should be supportive for US equities and other risk assets, as it helps fill the negative income gap created by social distancing. In other words, the bill reduces the risks of a ‘worst-case scenario’ for markets.”
He added: “While the markets will want to see confirmation that containment measures are causing infection rates to crest before waving the ‘all clear’ flag, reduced tail risk is clearly helping markets see light at the end of the tunnel.”
There might even be buying opportunities in the current situation, but he warned investors to be cautious and selective in their choices. “There are some high quality assets that are undervalued. Some businesses will not only survive the downturn, but will come out of it stronger. Everything we liked before this happened, we still like, and investors have a chance to buy things at a discount,” Rees said.
He singled out technology, health care and high dividend payers like utilities as offering appreciable investment upside. Transport, aviation, retail, energy and some industrials, on the other hand, probably do not have long-term value.
“Stay calm and have a shopping list. This is not a market where you want to take on extreme risk. There is a lot of talk about market capitulation and some panic out there. But our recommendation is not to wait until everything is perfect and we have complete clarity,” he said.
With a wave of oil about to hit global markets in the next few weeks as the restraints of the production pact between Saudi Arabia and Russia fall away, the energy outlook is depressing, he said. “The timing of the production surge has been made much worse by what’s happened with the global economy. It’s a worse case scenario for the price of oil, and it is tough to see how it will pan out.
“There are countries with low cost structures or who can cut costs the fastest, but the ultimate winner will be the consumer. If energy prices are low it can boost the economic recovery we see in the second half of the year,” Rees said.
He expects a “broad-based support package” for US energy once policymakers stabilize the economic situation, and some American “interaction” with global energy markets.
JP Morgan has been involved at the heart of the Vision 2030 strategy in Saudi Arabia, intended to diversify the Kingdom’s economy away from oil dependency and boost the private sector, still heavily reliant on oil-driven government revenues for growth. Rees said the current global economic and financial crisis might have some effect on the implementation of some aspects of that strategy.
“Vision 2030 is still the right plan, but this temporary downturn will probably delay some aspects of it. The Kingdom will probably have to reduce some expenditure. They (Saudi policymakers) will have to juggle, investing for the long-term transformation but also trying to stabilize the economy and protect their citizens.
“The big mega-projects are still on track but the transformation may be delayed somewhat in terms of the diversification of the economy. But we see this as a temporary slowdown, rather than a long-term disruption of the potential of Saudi Arabia and the rest of the world,” Rees said.
The next few months will be critical, he believes. “This is a largely consumer-driven shutdown, so the question is when people can travel again, when can they leave their home and start spending again. The question is whether that happens in May, June, or later in the year.”
Whatever happens, the relationship between the Kingdom and JP Morgan will continue. “We have an 85-year relationship with Saudi Arabia and nothing has changed in our view of the long-term ‘invesaibility’ of the Kingdom. You have to take a longer term view than you took three months ago, but we’re still convinced of the long-term attractions of Saudi Arabia.
“Our view of the opportunities there has not changed. In times of stress, Saudi Arabia can continue to look to the strengths of JP Morgan. We’ve been through a lot together,” Rees said.