Kate Mackenzie Saudi Arabia struggling with gas needs

Saudi Arabia, the world’s biggest oil producer and the only one with significant spare capacity, is having trouble meeting its own needs for natural gas – much of which come from the oil industry itself.

Saudi Aramco predicts natural gas demand will double from 2007 levels of about 2.7tcf by 2030, and the state utility wants to add another 2,500MW this year, and 12,043MW by 2015.

But some analysts believe it won’t be able to hit that mark, The National reports:

The plan faces a number of constraints, including shortages of fuel and manpower, and a lengthy contracting process, said Douglas Caskie, an expert in Gulf power at the international consultancy IPA Energy and Water Economics.

“That sounds very ambitious given the capacity developments so far,” he said. “If you imagine 2,000mw as a really significant sized power plant, to replicate that, to run the procurement process for that in five years, four times over, is significant.”

Saudi Arabia’s problems with electricity generation stem from several sources. The Kingdom is an inefficient user of electricity – encouraged by generous subsidies which bring prices to around US$0.015 – $US0.04 per kilowatt. And its demand is growing by a massive 8 per cent per year – which some analysts believe will lead to an ‘extremely gradual’ relaxation of the subsidy.

Saudi Arabia also uses oil for much of its electricity generation.

Although it has large natural gas reserves -   the world’s fourth-largest proven natural gas reserves, according to Oil & Gas Journal (cited by the EIA) but much of this is alongside oil reserves. But low prices for natural gas until recent years, and deliberately low production of oil to meet Opec quotas have both contributed to the relatively low natural gas production levels.

What natural gas is produced is stretched by requirements from the oil industry itself, including petrochemical production. The country has earmarked all of its natural gas production – aside from that converted to LNG liquids – for domestic consumption only.

Saudi Aramco is planning several new natural gas developments, and just this week announced a new find in the Jalamid region. But exploration in the country’s Empty Quarter has been less successful.

A JP Morgan analyst note, quoted by The National, says the uncertainty of new gas supplies – and the competing demands from industry – mean that oil generation will continue to grow:

“With gas growth uncertain over the next few years and a stated policy that petrochemicals get first priority for gas supplies, at least in over the next three years it appears that the kingdom’s power generation will require an increasing amount of oil,” wrote Lawrence Eagles, the author of the report.

This is expected to mean a growing volume of oil production will be kept for domestic use - with implications for oil markets and the environment.

Related links:

Saudi Arabia energy data (EIA)
Oil rich region faces gas shortfall (FT)