Aramco’s billion-dollar shale gas gamble

Aramco’s billion-dollar shale gas gamble

This year will mark the 15th anniversary of the launch of the first gas venture between Saudi Aramco and international oil companies. Unfortunately, the partnership with Shell and Total, as with others later on, ended a few years ago without producing a single commercial drop of condensates or a single molecule of natural gas from the Empty Quarter.
After the failure with the international oil companies, Saudi Aramco went out on its own, however, and embarked on a drive to find and develop shale gas — an activity that, back then, wasn’t particularly attractive.
Saudi Arabia is endowed with shale gas, but nobody can tell for sure how much. One estimate from industry provider Baker Hughes puts the figure at 645 trillion cubic feet, slightly higher than former Saudi oil minister Ali Al-Naimi’s estimate of 600 trillion cubic feet.
At a conference last month in Bahrain, Khalid Al-Abdulqader, general manager of unconventional resources at Aramco, said that the Kingdom’s gas resources from shale and other sources are “huge.”
The Jafurah basin, in the east of the country, where the company is now drilling for shale gas, is similar in size to Eagle Ford in Texas, the second-biggest US shale play for gas, he said.
A rough estimate for the shale gas in Jafurah could be at least 600 trillion cubic feet because the layer Aramco is targeting there is the source rock for Al-Ghawar, the world’s largest oil field. Aramco has already started its quest in Jafurah. The company has drilled hundreds of wells there and at least 10 drilling rigs are involved in fracking, the process used to break up the rocks and unlock the hydrocarbons.
However, unlocking the full shale gas potential in Jafurah on a scale similar to that of Eagle Ford is easier said than done. Saudi Aramco will face many challenges in its quest to become a major shale gas producer. First and foremost, there is the issue of cost. The US is the only country in the world where operators can drill for shale gas or oil at a reduced cost, thanks to experience and technical advancements. The cost of a shale gas well varies from one area to another, but the range there is around $6 million to $8 million.
In other areas, such as Argentina, the cost can be up to double the US figure. In Saudi Arabia, a shortage of qualified and skilled frackers, and the lack of fresh water to be injected in the wells, means the cost is unlikely to be lower than this.
Saudi Aramco already produces huge amount of desalinated water, which is injected into oil fields to maintain the pressure of the reservoirs. Each day, the company injects around 15 million barrels of water to produce 10 million barrels of crude. According to the American Geoscience Institute, a typical well in Eagle Ford needs around 4.3 million gallons of water for fracking. In the Horn River basin in British Columbia, Canada, that figure can rise to 15.8 million gallons. For Saudi Arabia, where water sources are limited, these are huge volumes.
The New York State Department of Environmental Conservation estimates each well, per frack, will require 2.4 million to 7.8 million gallons of water. This translates into roughly 400 to 600 tanker truckloads of liquids to the well, and 200 to 300 tanker truckloads of liquid waste from the well. Aramco, however, is trying to be creative and is testing alternative methods, including the use of recycled water for fracking. The company also plans to go beyond water by using carbon dioxide.

Unlocking the full shale gas potential in Jafurah on a scale similar to that of Eagle Ford is easier said than done.

Wael Mahdi

The second challenge for Aramco is operating the basin. Unlocking a shale basin as huge as Eagle Ford is more than a one-man show. There are at least 200 operators in the 30 county areas that make up the Eagle Ford basin. Aramco, however, is going solo with the help of few field services companies such as Schlumberger, Baker Hughes and Weatherford.
Third, there is the issue of scale. Al-Abdulqader said that Aramco will need to reduce the cost before it can develop the basin fully to make it commercially viable.
So with all these challenges, why would Aramco venture into shale oil? 
There are many benefits. The biggest is a reduction in the burning of liquids for power generation and the freeing up hundreds of thousands of barrels for export. 
Aramco can also become a gas exporter if it manages to unlock the vast deposits from the basin. That will spur more industrial activities and help its petrochemical sector expand.
Finally, the gas will allow Saudi Arabia to reduce emissions and the country’s carbon footprint, helping it to become a leader in using cleaner fuel under the UN climate agreements.
So there is a huge reward for unlocking Jafurah, but will it be as big as Eagle Ford? That is the biggest question Aramco faces and it seems the oil giant is up to the challenge — unlike the situation with the Empty Quarter.
 
  • Wael Mahdi is an energy reporter specializing on OPEC and a co-author of “OPEC in a Shale Oil World: Where to Next?” He can be reached on Twitter @waelmahdi
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