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Gas production costs still too high - Saudi Aramco


Saudi Aramco is keen to develop its unconventional gas resources to meet rising domestic demand but production prices are still too high, Amin Nasser, senior vice president for upstream at the company said.

In its 2010 annual report published in June, Aramco said it started evaluating tight gas and shale gas where it would initially focus on the northwest and in the area of the world's largest onshore oil field, Ghawar, as gas infrastructure is already in place.

North American effect

"I think the (shale gas) industry made a big stride especially in North America bringing the prices of gas to US$4... we are looking at unconventional gas at Saudi Aramco in good number of areas within the Kingdom," Nasser told in an industry event.

Technological advances which slashed the cost of producing gas trapped in shale and tight rock formations turned North America from a major gas importer to potential exporter over the last few years.

But in Saudi Arabia, the US$0.75 per million British thermal units (mmbtu) industrial gas sales price - a remnant from the days when Saudi had plenty of practically free associated gas coming from its vast oilfields to meet modest internal demand - is still below the current cost of unconventional gas production in the advanced North American industry, making Saudi unconventional gas prospects unattractive for now.

Huge potential

"I think we have huge potential when it comes to unconventional gas... price is an issue, however we think we can bring it with (in) reasonable price compared to crude (oil)," Nasser said.

"Mark my words, in the near future you will see a lot of (unconventional gas) development in this region, there's plenty of gas especially in the unconventional side. Hopefully, with the right technology development we can make it affordable, " he said.

Surging demand

The world's biggest crude oil exporter burns many millions of barrels of oil each year in power plants, because it does not have enough gas available to meet surging demand, reducing potential oil export revenues.

An Aramco executive said in 2009 the firm had been working on tight gas projects for 20 years but had been unable to find technology to make its extraction cost effective.

Nasser said the oil giant is still trying to develop technologies to unlock unconventional gas resources despite the technical and economic challenges.

After completing a massive crude expansion program in 2009, Aramco stepped up its search for non-associated gas to cater for demand growing seven per cent annually from the power generation and petrochemicals industry.