Who flares, wins: Saudi Arabia bets big on gas again

Who flares, wins: Saudi Arabia bets big on gas again
Gas reserves near the Kingdom’s vast Ghawar oilfield could generate up to $8.6 billion annually. (Supplied)
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Updated 23 February 2020

Who flares, wins: Saudi Arabia bets big on gas again

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

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.


233.8 trillion

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.

Gas reserves near the Kingdom’s vast Ghawar oilfield could generate up to $8.6 billion annually. (Supplied)


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.

Why North American investors are gobbling up booming bitcoin

Updated 3 min 17 sec ago

Why North American investors are gobbling up booming bitcoin

Why North American investors are gobbling up booming bitcoin
  • Digital currency soars to record high amid dramatic $3.4bn global market shift

LONDON: Bitcoin has grabbed headlines this week with its dizzying ascent to an all-time high. Yet, under the radar, a trend has been playing out that could change the face of the cryptocurrency market: A massive flow of coin to North America from East Asia.

Bitcoin, the biggest and original cryptocurrency, soared to a record $19,918 on Tuesday, buoyed by demand from investors who variously view the virtual currency as a “risk-on” asset, a hedge against inflation and a payment method gaining mainstream acceptance.

But the boom represents a shift in the market, which has typically been dominated by investors in East Asian nations like China, Japan and South Korea since the digital currency was invented by the mysterious Satoshi Nakamoto over a decade ago.

It is North American investors who have been the bigger winners in the 165 percent rally this year.

Weekly net inflows of bitcoin — a proxy for new buyers — to platforms serving mostly North American users have jumped over 7,000 times this year to over 216,000 bitcoin worth $3.4 billion in mid-November, data compiled for Reuters shows.

East Asian exchanges have lost out.


  • North American exchanges win out in bitcoin boom.
  • Huge bitcoin flows to that region from East Asia.
  • Market players cite demand from large US investors.
  • Fewer retail punters in Asia another factor at play.

Those serving investors in the region bled 240,000 bitcoin worth $3.8 billion last month, versus an inflow of 1,460 in January, according to the data from US blockchain researcher Chainalysis.

The change is being driven by an increasing appetite for bitcoin among bigger US investors, according to Reuters interviews with cryptocurrency platforms and investors from the US and Europe to South Korea, Hong Kong and Japan.

“The sudden influx of institutional interest from the North American region is driving a shift in bitcoin trading, which is rebalancing asset allocations across different exchanges and platforms,” said Ciara Sun of Seychelles-based Huobi Global Markets, whose parent company has roots in China and operates in several Asian markets.

East Asia, North America and Western Europe are the biggest bitcoin hubs, with the first two alone accounting for about half of all transfers, according to Chainalysis, which gathers data by region with tools such as tagging cryptocurrency wallets.

Industry experts caution it is too early to call a fundamental shift in the market, particularly in an unprecedented year of pandemic-induced financial turmoil.

Growing flows to North America this year are not necessarily “an indication that the center of gravity is tilting toward the US,” said James Quinn of Q9 Capital, a Hong Kong cryptocurrency private wealth manager.

Others also point out that cryptocurrency trading is highly opaque compared with traditional assets and patchily regulated, making comprehensive data on the emerging sector rare.

Nonetheless, Chainalysis found North American trading volumes at major exchanges — those with the most blockchain activity — had eclipsed East Asia’s this year. This is not unheard of, with North America having moved ahead on occasions in the past, but never by such a large margin.

Volumes at four major North American platforms have doubled this year to reach 1.6 million bitcoin per week at the end of November, while trading at 14 major East Asian exchanges have risen 16 percent to 1.4 million, according to the data.

By comparison, a year before, East Asia led the way with 1.3 million a week versus North America’s 766,000.

Those interviewed said compliance-wary US investors, many of whom had been deterred by the opaque nature of the market in the past, are being attracted by the tightening oversight of the American crypto industry.

US exchanges are in general more tightly regulated than many of those in East Asia, and there have been several moves by American regulators and law-enforcement agencies this year to clarify how bitcoin is overseen.

A leading banking regulator said in July, for instance, that national banks could provide custody services for cryptocurrencies. The justice department also outlined an enforcement framework for digital coins in October.

“You’re increasingly starting to see distinctions in the market between those that have no regulatory or little regulatory clarity, versus those that do,” said Curtis Ting of major US exchange Kraken.

“Larger institutions seek the predictability that a regulated venue offers.”

Assets under management at New York-based Grayscale, the world’s largest digital currency manager, have soared to a record $10.4 billion, up more than 75 percent from September. Its bitcoin fund is up 85 percent.

“A lot of US funds are trading with large US counterparties,” said Christopher Matta of 3iQ, a Canadian digital asset manager with clients in the US, citing exchanges such as California’s Coinbase that are overseen by New York financial regulators.

“It tells you right there how important the regulatory nature of the space is, and having venues to trade on that are regulated — it’s definitely something that institutional investors are thinking about.”

Another factor behind the 2020 trend is a decline in the armies of retail investors in Asia who drove bitcoin’s 2017 boom, which pushed it to its previous peak.

In South Korea, strict regulations have been discouraging such investors, according to In Hoh of Korea University’s Blockchain Research Institute.

Concerns that major retail exchanges linked to China but based elsewhere could be caught up in a crackdown by Beijing may have pushed down demand, said Leo Weese, co-founder of the Hong Kong Bitcoin Association.

In October, for instance, Malta-headquartered OKEx, which was founded in China, suspended crypto withdrawals for nearly six weeks because an executive was cooperating with an investigation by Chinese law enforcement.