Global Energy Review

Saudi Arabia: Expansion Plans for Oil and Gas

A Report by Dr Paul McDonald
Consulting Editor, Oil and Energy Trends

Contents

List of Tables

Introduction

With petroleum reserves of 266.7 bn barrels–sufficient to last nearly 74 years at recent rates of production–Saudi Arabia appears easily able to increase its production capacity considerably.  With a capacity of 12.5 mn bpd already, the kingdom plans to raise this to somewhere in the region of 15.0 mn bpd within a few years.

It also has plans to increase its refining capacity, raising its crude distillation capacity by almost 1.7 mn bpd, or nearly 80%, to 3.7 mn bpd.  There are also plans to upgrade two refineries and to add further petrochemical units to some existing refinery sites.

As part of a policy of substituting domestic consumption of oil with natural gas, Saudi gas production is set to rise by up to 80%.  The kingdom has reserve levels of 285.5 trillion cubic feet: sufficient for 87 years’ production at current levels.  All of any increase in production is likely to be absorbed internally.

Previous Saudi Arabian plans to increase the production of oil and gas have been subject to delay, and the kingdom’s plans for refinery expansion have also fallen behind schedule.  It is therefore questionable whether the Saudis will be able to carry out their current plans on the timescales proposed.

Crude Oil and NGL

Production

Saudi Arabia produced 8.1 mn bpd of crude oil in 2009 plus a further 1.8 mn bpd of NGL. Of the total production of 9.9 mn bpd produced, some 7.7 mn bpd were exported. Saudi plans to expand production are based on reserves estimated at 266.7 bn barrels: sufficient to last for nearly 74 years at current rates of production (see Table 1)

Table 1
Saudi Arabia: Oil Profile, 2009
Proven Reserves 266.7 bn bbl *
Years remaining 73.8 †
(mn bpd)
Production  
Crude 8.1
NGL 1.8
Total 9.9
Consumption  
Total 2.2
Net Exports  
Total 7.7
All figures include half the Neutral Zone
Totals rounded
* As at 1.1.09
†Based on 2009’s total production
Source: (Reserves) Oil & Gas Journal
(Other) GER estimate

Last year saw the completion of a number of important expansion schemes, giving the kingdom the capacity to produce 12.5 mn bpd: some 4.4 mn bpd above its actual production in 2009 (see Table 2). Not all of this new capacity is immediately usable. It nevertheless represents a considerable increase in Saudi Arabia’s production capability and is by far the largest increase that has occurred in any one country in recent years.

Crude Oil

Most of 2009’s increase was in the form of crude oil production capacity but there was a significant rise in output capacity for NGL as well. By far the main increase came from the Khurais field, which will be capable of producing 1.2 mn bpd of crude oil, representing just over 77% of the increases in crude production capacity that were recorded in 2009 (see Table 3).

The Khurais field-complex is a particularly useful addition to the production capability of the national oil company, Saudi Aramco, in that the output is of Arabian Light crude oil, the kingdom’s main crude oil export stream and one of its most desirable crude oil blends. When it is at full production it will allow Saudi Aramco to substitute output from Khurais for production from fields like Safaniyah that produce less marketable, heavier crudes, such as Arabian Heavy, which currently sells at about $1.75 a barrel less than Arabian Light crude. More light crude has been made available from Shaybah, where the 2009 increment was to an existing field.

Table 2
Saudi Arabia: Crude Oil Production, 2009
  (mn bpd)
Production 8.1
Capacity 12.5 *
Spare Capacity 4.4 *
OPEC Quota 8.051 *
Production over-quota 0.059 †
  (%)
Quota as Share of OPEC-11 Total 32.4 †
Production as Share of OPEC-11 Total 30.8 †

All figures include half the Neutral Zone
Totals rounded
* As at 31.12.09
† For 2009 as a whole
Source: (Quota) OPEC
(Other) GER estimate

NGL

In addition, some 520,000 bpd of NGL production capacity has been added. The principal new source of gas liquids is the Khursaniyah field, which has the capacity to produce 280,000 bpd of NGL at its peak. The second phase of the Hawiyah field has provided a further 170,000 bpd of capacity.

Table 3
Saudi Arabia: Field Projects, 2009-20
Field Type of Output Peak Production On-Stream
  (bpd)  
Hawiyah-II NGL 170,000 2009
Total 170,000  
Khurais Crude 1,200,000 2009
  NGL 70,000 2009
  Total 1,270,000  
Khursaniyah NGL 280,000 2009
Total 280,000  
Nuayyim Crude 100,000 2009
Total 100,000  
Shaybah * Crude 250,000 2009
Total 250,000  
Dammam † Crude 100,000 2013-onwards
Total 100,000  
Manifa Crude 900,000 2013-2015
Total 900,000  
Berri * Crude 300,000 TBD
Total 300,000  
Offshore      
Zuluf Crude 900,000 TBD
Red Sea Crude TBD 2015-20
  Total 900,000  
Total Crude 3,750,000  
NGL 520,000  
Total 4,270,000  

Dates and volumes subject to change
TBD = to be decided
* Extension to existing field
† Re-starting mothballed field
Source: Saudi Aramco; oil press

New Developments

Saudi Arabia

Manifa

Over the next six years, Saudi Arabia plans to commission a further three upstream developments, of which the largest is the Manifa field. Manifa was discovered as long ago as 1957 but was not developed early since its crude is heavy and sour. Saudi Arabia already had considerable reserves of heavy crude in its giant Safaniyah field. For some years, Saudi Aramco has had to shut in some of its heavy crude production owing to poor demand for the crude. With reserves estimated at 17 bn barrels, Manifa is expected to produce 900,000 bpd of Arabian Heavy with an API of 27°-29°.

Its development has not been without problems. It is Saudi Aramco’s most expensive field development to date with a price tag of nearly $16 bn. The field lies offshore in the Persian Gulf and the need to construct a series of artificial islands to act as drilling platforms has added considerably to the field’s costs. Manifa was originally due on-stream in 2011 but is not now likely to be commissioned until 2013 at the earliest (see Table 3).

Berri Extension

Two other field developments are scheduled between now and 2015. Both of them are based on existing fields. A 300,000 bpd extension is planned for the Berri field, which has been in production since 1967 and which produces 36°API Arabian Extra Light crude. Reserves for the entire field-complex are put at somewhere in the region of 10 bn barrels

Damman

The second development is at Damman, which began production in 1938 but is now mothballed. Damman formerly produced 33°API Arabian Light and was the first oilfield to be discovered in Saudi Arabia. There were plans to re-start production by 2012, but the date has now slipped back to after 2013.

Zuluf

A number of other developments have been pencilled in for after 2015 but as yet no details are available. These mainly concern offshore fields in the Persian Gulf and the Red Sea. The fields in the Persian Gulf include Zuluf, which is already in production, but which the Saudis say is capable of producing an additional 900,000 bpd from untapped areas of the field, which Saudi Aramco says contain 10 bn barrels of crude.

Safaniyah

Saudi Aramco also believes there is much more oil to come out of its main Persian Gulf field, Safaniyah. The state-owned company says there are several unexploited reservoirs that could be used to produce up to 700,000 bpd. The crude, however, is Arabian Heavy–like that from the rest of Safaniyah–which may delay the development of these reserves given that the Saudis plan to produce an additional 900,000 bpd of Arabian Heavy from Manifa within a few years.

Red Sea

The other main unexploited offshore area is the Red Sea. Little exploration has been carried out here so far. Saudi Aramco plans to start drilling in 2012, but any developments–assuming commercial quantities of oil are found–appear to be a long way off. The Red Sea is much deeper than the Persian Gulf and is likely to prove costly to develop. Commercial oil production looks highly unlikely before 2020

Neutral Zone

The Neutral Zone, which lies along the Kuwaiti border and which Saudi Arabia shares equally with Kuwait, produces about 540,000 bpd. With proven reserves estimated at 5 billion bbl, it has sufficient reserves for just over 25 years at current rates of production (see Table 4). There are plans to increase output over the next decade.

The offshore fields of the Neutral Zone are owned and operated by the Kuwait Gulf Oil Company (KGOC) and Saudi Aramco. The onshore fields are operated under a 30-year concession agreement between Saudi Arabia and Chevron.

Wafra

The largest of the Neutral Zone fields is Wafra, which forms part of Chevron’s concession. Output is about 255,000 bpd. Wafra is thought to have proven reserves of around 3 billion bbl, but there are further reserves of heavy crude. These remain to be delineated, but estimates have been quoted in a range of 10-30 billion barrels.

Chevron’s plan is to exploit these new reserves using the ‘steamflood’ system of enhanced oil recovery (EOR) it has developed at the Duri heavy oilfield in Indonesia. It is not yet certain how much of the additional heavy crude can be recovered. Figures quoted by Chevron have been in a range of 15-30%, but a spectacular increase in output from Wafra looks unlikely. Independent estimates of the producibility of the new reservoirs suggest that a $10 billion investment involving the provision of more than 1,000 steam-injection wells would produce an additional 300,000 bpd of heavy crude, taking Wafra’s total output up to 555,000 bpd. None of this additional output is likely to appear before 2015.

Table 4
Neutral Zone: Oil Profile, 2009
Proven Reserves 5.0 bn bbl *
Years remaining 25.4 †
  (th bpd)
Production  
Crude 540
NGL *
Total 540
(Saudi Share 270)
Consumption  
Total *
Net Exports  
Total 540
(Saudi Share 270)

Totals rounded
reserves are as at 1.1.09
† Based on 2009’s production
* Negligible
Source   (Reserves) Oil & Gas Journal
(Other) GER estimate
Dorra

Another untapped prospect is the offshore Dorra field. This is principally a gasfield but some condensate production is expected as well in future–though, again, not before 2015. Whilst some exploration work is reported to be under way, any development work will have to await the resolution of a boundary dispute with Iran, which claims a part of the field.

Outlook to 2015

Saudi Arabia, together with its half of the Neutral Zone, is capable of producing about 12.5 mn bpd (see Table 2).  Not all of this capacity is immediately usable, but production could be raised to this level after a number of months.

The Saudis have indicated that they would like to go above 12.5 mn bpd, but no firm target appears to have been set.  In May 2005, Saudi Aramco’s Chief Executive Officer, Abdallah Jumah, declared that Saudi Arabia was capable of raising its capacity to somewhere in the region of 23 mn bpd.  This would require, he said, the identification of further reserves of 200 billion bbl.

Both predictions remain fantasy at the moment.  Saudi Aramco appears to be thinking, more pragmatically, of a figure in the region of 15 mn bpd.  Even this, though, may not be achieved until about 2020.  Any increase in capacity between 2010 and 2015 is likely to be small.  In certain circumstances, such as stagnant or falling demand for oil in the industrialized countries of the OECD, there may be no increase at all (see Table 5).

Table 5
Saudi Arabia: Oil Production Capacity to 2015
Year Region Capacity
(mn bdp)
2010 Saudi Arabia 12.0
Neutral Zone 0.5
Total 12.5
2015 Saudi Arabia 12.0-12.5
Neutral Zone 0.5-0.6
Total 12.5-13.1
Source: GER estimate

OET ARCHIVE:

HYPER-LINKS:

Refining

Refining Policy

Saudi Arabia’s oil policy has tended to concentrate heavily on the upstream sector. Recently, however, it has tried to boost capacity in the refining sector. The country already has the capacity to refine some 2.1 mn bpd of oil (see Table 6), making it more or less self-sufficient in refined products.

Table 6
Saudi Arabia: Crude Distillation Capacity, 2009
Company Refinery Capacity
(bpd)
Saudi Aramco Jeddah 85,000
  Riyadh 120,000
  Yanbu 235,000
  Rabigh 400,000
  Ras Tanura 550,000
  Total 1,390,000
Saudi Aramco/Shell (SASREF) Jubail 290,000
  Total 290,000
Saudi Aramco/ExxonMobil (SAMREF) Yanbu 400,000
  Total 400,000
Saudi Arabia Total 2,080,000

Source: Oil & Gas Journal

Domestic demand, however, is rising rapidly and the government wants to increase domestic refining capacity both by building new refineries and expanding existing ones. Some 1.7 mn bpd of new crude distillation is planned. There are also proposals to extend the country’s largest refinery, at Ras Tanura on the Persian Gulf, and the refining and petrochemical complex at Rabigh on the Red Sea (see Table 7).

Foreign Ventures

The Saudis have opted for four large new refineries of 400,000 bpd each. Two are to be developed in conjunction with foreign oil companies. The first to be completed is likely to be at Jubail, where Saudi Aramco has formed a joint-venture known as the Saudi Aramco Total Refinery and Petrochemical Company (SATORP). The new refinery is to be built at a cost of $4 bn and is due to open in March 2013. The refinery is being developed in conjunction with the Manifa field and will use Arabian Heavy crude produced there.

A second refinery joint venture involves the US company ConocoPhillips, and is for a 400,000 bpd refinery at Yanbu, on the Red Sea. The refinery is supposed to open in 2014 but may be delayed until it starts to become clearer what is going to happen to world oil demand following the recent recession in many industrialized countries. As with SATORP’s refinery, the idea appears to be to run the Yanbu plant on Arabian Heavy.

Table 7
Saudi Arabia: Refining Projects
Company Refinery Distillation Capacity
to be added
(bpd)		 On-stream
New Refineries      
Saudi Aramco/Total (SATORP) Jubail 400,000 March, 2013
Saudi Aramco/ConocoPhillips Yanbu 400,000 2014
Saudi Aramco Ras Tanura 400,000 End-2014
Saudi Aramco Jazan 400,000 2015
  Total 1,600,000  
Refinery Expansions      
Saudi Aramco Ras Tanura 50,000 2015
Saudi Aramco/Sumitomo Chemical (PetroRabigh-II) Rabigh TBD Post-2015
  Total (to 2015) 50,000  
All Refinery Projects Total 1,650,000  

Volumes and dates subject to change
TBD = to be decided
Source: Oil press

Domestic Refiners

The Jazan refinery is designed both to meet growing domestic demand and also to boost economic development in a relatively poor region of Saudi Arabia, in the remote south-west of the country. The remoteness of the region makes this an expensive project and the Ministry of Petroleum and Mineral Resources has struggled to find backers for the project. The Ministry’s original idea was that the refinery would be a private Saudi venture using both Saudi engineering expertise and Saudi finance, but neither the expertise nor the estimated $10 billion required to build a worldscale refining and petrochemical complex could be found. It now looks as if the only way Jazan will ever be built is if the state company, Saudi Aramco, takes it on.

Outlook to 2015

Saudi Aramco has a large-scale project of its own to complete before taking on the responsibility for Jazan, for which the rationale is more political than economic, having been promoted by King Abdullah in 2006 as a way of bringing prosperity to a remote and potentially unstable border region close to a zone of conflict in northern Yemen.

OET ARCHIVE LINK: ‘Yemen faces uncertain gas future’, Gas & Power, Feb 10

The state oil company is likely to give priority to its proposed 400,000 bpd refinery at Ras Tanura, on the Persian Gulf (see Table 6), which makes a much better fit with its existing refinery network and oil supply infrastructure. Any refinery at Jazan would have to be supplied from oilfields located near Ras Tanura: either by tanker or via an extension to the kingdom’s domestic pipeline system. A commissioning date of 2015 has been suggested for Jazan, but this looks a trifle optimistic.

Additions to crude distillation capacity are likely to be confined–in the case of Saudi Aramco–to Ras Tanura, where a total of 450,000 bpd are due to be added through a combination of expansion on an existing site and new building (see Table 6). Another new refinery is likely to be added with the completion of the 400,000 bpd Saudi Aramco-Total joint venture at Jubail. Saudi Aramco’s second joint venture, involving ConocoPhillips, may well not be on-stream by that date, leaving the additions to crude distillation capacity as listed in Table 8.

Table 8
Saudi Arabia: Crude Distillation Capacity to 2015
Year Company Capacity(th bpd)
2010 Saudi Aramco 1,390
  SASREF 290
  SAMREF 400
  Total 2,080
2015 Saudi Aramco 1,840
  SASREF 290
  SAMREF 400
  SATORP 400
  Total 2,930

Source:  (2010) Oil & Gas Journal
(2015) GER forecast

OET ARCHIVE LINK: ‘Asia heads for glut in refinery capacity’, Focus, May 09

HYPER-LINKS:

Natural Gas

Substituting for Oil

Low domestic prices and rapidly rising population mean that Saudi Arabia’s energy consumption is also increasing at a rapid rate.  Demand for oil has been rising at between 6% and 7% over the last decade: whilst that for natural gas has gone up annually by about 5%.  The increase in oil consumption has been accompanied by a fall in oil production since 2005 and exports have been reduced in consequence.

The Saudis have decided to curb the rise in oil consumption by substituting it wherever possible with natural gas.  To do this, though, Saudi Arabia needs to find and to develop several new fields, and in this it is experiencing several difficulties.  Output last year was 8 bn cfd, all of which was consumed domestically (see Table 9). 

Much of the substitution is scheduled to take place in the power generation sector, which uses about 450,000 bpd of crude oil and a further 350,000 bpd of heavy fuel oil to generate electricity.  Up to 40,000 bpd of fuel oil has to be imported to meet peak summer demand for air-conditioning.

Petrochemical production will also require the production of more gas in order to extract ethane, propane, butane and pentanes-plus as feedstocks.  Some methane will also be required as fuel for petrochemical operations.  Petrochemical production is supposed to rise by one-third between 2010 and 2015 to 80 mn t/y.

New Production

For the past five years, Saudi Arabia has been trying to create a major new gas-producing region in the south of the country in an area known as Rub al-Khali, or Empty Quarter.  Unfortunately for Riyadh, this isolated and unpopulated region is turning out to be empty of gas as well as people.  Despite the efforts of six international oil companies, no commercial discoveries of gas have yet been made.

Rub al-Khali was opened up to foreign participation in 2004 in what was an unusual move for Saudi Arabia.  Following the nationalization of the four US members of the Aramco consortium, which produced the country’s oil, Riyadh set about establishing a state company to control every aspect of the oil and gas industry.  It was later decided, however, that Saudi Aramco needed specialist foreign assistance in developing Rub al-Khali.

Saudi Aramco’s experience up to then was in producing associated gas from oilfields.  Rub al-Khali’s gas is not associated with oil.  Moreover, it is a huge area covering the southern end of Saudi Arabia which, up to 2004, had lain largely unexplored.  Since then, ENI, Lukoil, Repsol YPF, Shell, Sinopec and Total have joined Saudi Aramco in the search for gas.  Whilst a few discoveries have been reported, none has turned out to be commercial, and Total has now withdrawn

Table 9
Saudi Arabia: Gas Profile, 2009
Reserves: 285.5 trillion cf *
Reserves Remaining: 87 years †
  (bn cfd)
Production 8.0
Consumption 8.0
Net Trade —

Includes Neutral Zone
* as at 1.1.09
† Based on 2008’s production
Source:  (Reserves) Oil & Gas Journal
(Other) Saudi Aramco

Empty Quarter?

Saudi Aramco insists there is plenty of gas waiting to be found in the Empty Quarter.  Two companies–Lukoil and Shell–have requested the extension of their exploration periods in order to conduct further drilling and appraisal work.  Shell has reported the presence of a hydrocarbon structure in its area, and Lukoil has reportedly found gas in its block, which contains a structure known as Tukhman, which Lukoil estimates contains 3.3 trillion cf of gas.  As yet, though, no commercial find has been confirmed there.

The problem for the international oil companies is that the contracts they signed with Saudi Aramco oblige them to sell their gas to the Saudis at just 75 cents per mn BTU, whereas full production costs in Rub al-Khali could turn out to be several times higher than this.  The companies are expected to recover their costs through the sale of liquids extracted from the gas.  Thus, discoveries of dry gas might prove uncommercial for Saudi Aramco’s foreign partners.

All this presents the Saudis with a problem.  The kingdom’s extensive industrialization programme requires the production of another 4-5 bn cfd of gas within a few years.  On present evidence, it appears unlikely it will come from Rub al-Khali.  Saudi Aramco appears to recognize this and is examining other ways of meeting the forecast new demand.

Persian Gulf

Its efforts are likely to be focused increasingly on fields in the Persian Gulf.  Three of the most promising ones are Karan, Arabiyah and Hasbah.  There are already plans to develop Karan, where production of about 2 bn cfd is forecast by about 2012.  Similar volumes are expected from Arabiyah and Hasbah combined.

All three fields are likely to prove expensive to develop.  Full-cost production is estimated by industry sources somewhere between $3 and $6 per mn BTU.  Part of this cost includes the desulphurization of the gas.  Like many Persian Gulf fields, the Saudi ones are likely to contain sour gas.

As with the Rub al-Khali fields, the gas will have to be sold at 75 cents per mn BTU.  Whilst this price might work for gas produced in association with oil, it is not economic in fields where there is no possibility of selling oil and other liquids to offset the low transfer price of the gas.  The Persian Gulf fields described above are gasfields rather than oilfields.

Domestic pricing

It has been suggested that the Saudis raise their internal gas price in order to encourage more exploration and production–especially in the Empty Quarter.  The government’s view, however, is that low feedstock prices are a key attraction for the new industries that Riyadh believes are vital to provide employment for the kingdom’s rapidly rising population.

At the same time, the government wants to encourage the development of non-associated gas fields in order to obviate the necessity to cut supplies of gas to industry whenever the production of oil goes down.  Saudi production in March 2009 fell below the 8 mn bpd level at which supplies of associated gas have to be cut to levels below those required for the normal operation of domestic industries.

Outlook to 2015

The Saudis have ambitious plans to increase the production of natural gas, mainly for industrial use, including power generation and desalination.  Output is supposed “to exceed 13 bn cfd” by 2020, according to the Ministry of Petroleum and Mineral Resources.  The achievement of this target will depend largely, however, on the development of the fields and areas described above.

The first major new development is likely to be at Kazan, where output of 1.8-2.0 bn cfd is predicted by about 2015.  It is not clear whether any other large new developments will be in production by then.  Arabiyah and Hasbah may well not be developed until after 2015.

The only other important candidate for development as a large new field by that date appears to be a field now being explored by the South Rub al-Khali Company (SRAK) near the Shaybah oilfield in an area close to the border with the UAE.  SRAK is a 50-50 joint-venture between Saudi Aramco and Shell.  It has two concessions: Contract Area I near Shaybah, and Contract Area II, which lies along the Yemeni border.

SRAK plans to complete the drilling of seven wells in its two Contract Areas by the end of July 2010.  A find of sour gas has already been reported in Contract Area I.  Any gas found in the Contract Areas is earmarked for domestic use.

Table 10
Saudi Arabia: Gas Production to 2015
Year Production
(bn cfd)
2010 8.5
2015 10.5-11.0

Source: GER estimate

It is nevertheless difficult to see how Saudi production might go much above 10.5-11.0 bn cfd by 2015 (see Table 10).  This could leave the kingdom short of gas for its industrialization programme by that date.  The government is seeking to slow down the rate of increase in the demand for gas by encouraging the use of solar power to generate electricity, but little impact is likely from this source before 2015.  This may oblige Saudi Arabia to consider importing natural gas, even if only on a temporary basis, making use perhaps of a floating LNG import terminal, as Kuwait has recently done.  Despite the kingdom’s apparently huge reserves (see Table 9) Saudi Arabia is unlikely to have any gas for export in the foreseeable future.

OET ARCHIVE LINK: ‘Gas market set to tighten on GCC demand’, Gas & Power, Sep 09

HYPER-LINKS:

Latest Developments

Previous

Oil Imports

A dispute between Russia and Belarus over the price paid by Belarus for Russian oil threatened to interrupt deliveries to Germany, Poland and the Czech Republic via pipelines passing through Belarus. Russia proposed to impose an export duty on some 300,000 bpd of crude that is refined to make products that are then exported by Belarus. In an echo of recent disagreements between Russia and Ukraine over gas deliveries, Belarus proposed to raise transit charges for Russian crude crossing its territory to compensate for the new export duty. A crisis was averted when the two sides agreed on both the export duty and higher transit fees.

OET ARCHIVE LINK: ‘Algeria’s gas plans fall behind schedule’, Gas & Power, Dec 09

EU Energy Security

OET ARCHIVE LINK: ‘Azerbaijan plans production increase’, Looking Ahead, Oct 09

Back to top