Considering the robust outlook for natural gas demand, Gulf states are focusing on developing unconventional oil and gas resources
National oil companies (NOCs) in the Gulf have, from time to time, displayed interest in commercially exploiting unconventional hydrocarbons reserves accessible to them.
But while the intent has been in place for decades, the plans never quite left the boardrooms of NOCs, largely due to the relatively higher cost of production from unconventional resources and the availability of enormous conventional reserves.
With conventional oil and gas reservoirs across the region maturing steadily and, more importantly, because of the rise in importance of natural gas in the 21st century – both in terms of global demand and clean environmental credentials – NOCs have started laying significant emphasis on the appraisal and development of unconventional resources.
As a result of comprehensive interpretations of legacy geological data and new, advanced seismic surveys, regional NOCs were able to announce discoveries of considerable unconventional resources in 2020.
The year also saw state energy players present noteworthy capital expenditure budgets towards the economic recovery of resources, particularly the production of gas, from existing and new tight and shale plays.
Saudi Arabia’s unconventional programme has witnessed start-stop periods over decades, during which state energy giant Saudi Aramco had been working to determine the extent and economic potential of reserves available. The kingdom’s unconventional campaign was flagged off in 2014, with Aramco awarding UK-based Wood Group a project management services deal, which was extended for two years in January 2020.
There are three areas Aramco has earmarked for commercial development: Turaif in the Northern Borders province and the giant Jafurah basin and South Ghawar, both of which are located in the Eastern Province.
In 2017, the first unconventional gas development project took shape in the north – extracting tight gas from the Turaif deposit to feed a new power station at the nearby Waad al-Shamal industrial city, and thereby solving the problem of the latter lacking a connection to Aramco’s cross-country Master Gas System distribution network.
Aramco’s unconventional exercise took a leap forward in April 2020, when the firm formally awarded engineering, procurement and construction (EPC) deals for an estimated $2bn project to extract gas from the South Ghawar area.
In February 2020, Riyadh made a monumental announcement about its strategic aim of unconventional gas production, sanctioning a $118bn long-term capital expenditure budget for Aramco to exploit gas from the Jafurah basin, which extends from the kingdom’s onshore Empty Quarter desert belt into Gulf waters.
As part of this strategic programme, Aramco will work towards realising the full potential of the Jafurah reserve, which is estimated to contain 200 trillion cubic feet of wet gas, by hitting peak production of 2.2 billion cubic feet a day (cf/d) of gas, 130,000 barrels a day (b/d) of ethane and 500,000 b/d of condensate and natural gas liquids (NGLs) by 2036.
The first phase of the Jafurah scheme involves building a gas processing facility, a project estimated to cost $3.5bn. Aramco is currently evaluating bids received for the various EPC packages.
In November 2020, Abu Dhabi National Oil Company (Adnoc) announced the discovery of 22 billion stock tank barrels (STB) of onshore unconventional oil reserves.
This is in addition to the discovery of 160 trillion cubic feet of unconventional gas announced in November 2019.
Abu Dhabi determined
The discoveries stem from an aggressive seismic survey exercise undertaken by Adnoc since 2018, and underscore Abu Dhabi’s ambition of reaping commercial gains from the development of unconventional resources in the emirate.
By moving to partner with international oil companies (IOCs) to undertake exploration and production (E&P) activity in hydrocarbons blocks, through two upstream licensing rounds so far, Adnoc is looking to ensure it is able to tap into both foreign technical know-how and investments in its quest for unconventional reserves development.
The NOC took a firm step forward towards this goal in November 2020 by announcing the encounter of first gas from the Ruwais Diyab concession, in which France’s Total is a 40% stakeholder. Adnoc has set a target of producing 1 billion cf/d of gas from the area before 2030, as part of Abu Dhabi’s overall ambition of becoming a net exporter of gas by the turn of the decade. It is therefore expected that Adnoc would swiftly move towards EPC project development at the Ruwais Diyab concession.
Meanwhile, Kuwait has been developing the deep, tight and sour Jurassic basin in its north since the early 2000s. Kuwait Oil Company (KOC) started gas production from the basin in May 2008, with the commissioning of the ‘early production facility 50’ project.
The Jurassic basin is a large area with hydrocarbons locked in reservoirs spread across several fields. KOC has built three production facilities at the Jurassic zone (JPFs), with the third unit commissioned in January 2020. The NOC is currently engaged in an estimated $900m project to build JPFs 4 and 5, with contractors preparing bids for the EPC deals.
However, technical and budgetary constraints, coupled with the business impact of Covid-19, have meant progress on the project has been slow.
When JPFs 4 and 5 are commissioned, it will increase KOC’s production from the Jurassic zone by 50,000 b/d of treated sweet crude and 150 million cf/d of sweet and dehydrated rich gas.
Over in Oman, unconventional gas production from block 61, which encompasses the tight gas basin of the Greater Barik area, has helped the sultanate attain greater energy security.
Block operator UK-based BP, which holds a 60% interest, has been producing 1 billion cf/d of gas and 35,000 b/d of condensates from the asset as of late 2017, as part of the Khazzan gas project.
In October 2020, BP announced an ahead-of-schedule start of gas production from Ghazeer, the second phase of the Khazzan scheme, with output notching up to 1.5 billion cf/d.
State-owned OQ Exploration & Production and Malaysian state oil firm Petronas’ subsidiary PC Oman Ventures hold 30% and 10% stakes in Block 61 respectively. With the two phases combined, the Khazzan field is expected to produce 10.5 trillion cubic feet of gas and about 350 million barrels of condensates during its lifetime.
IOCs are also partaking in Oman’s unconventional resource development drive. Total and UK/Dutch Shell are working on plans to exploit unconventional resources in a zone north of block 6, as well as in blocks 10 and 11, as part of an upstream agreement signed with Omani NOCs in February 2019.
Oman is also pursuing a well-planned programme to tap into tight oil and gas plays in new hydrocarbons acreages, having awarded stakes in several blocks to foreign E&P firms in 2020.
The coronavirus pandemic has dealt severe blows to global demand for both oil and gas. Subsequently, several unconventional energy programmes in the Gulf have been delayed, particularly in Bahrain, which has struggled to progress with the appraisal of its massive Khalij al-Bahrain offshore discovery for lack of suitable international partners and investments.
However, with the outlook for gas demand remaining robust, in the wake of peak oil projections happening sooner rather than later, Gulf NOCs appear primed to capitalise on their unconventional resource finds with foreign assistance, as well as move swiftly with the development of economically viable reserves in 2021 and beyond.
This article is published by MEED, the world’s leading source of business intelligence about the Middle East. MEED provides exclusive news, data and analysis on the Middle East every day. For access to MEED’s Middle East business intelligence, subscribe here.