State-owned Saudi Aramco is widely known to be the world’s largest corporate producer of crude oil. Less well appreciated is that Aramco is also one of the world’s largest producers of gas, with ambitions to grow its domestic output by “more than half” by the end of this decade and to become “a leading global LNG player”.
Aramco produced 110bcm of gas in 2022, a 4.7% increase on 2021’s 104bcm, making Saudi Arabia the world’s ninth-largest producer after the US, Russia, Iran, China, Canada, Qatar, Australia and Norway.
So in many respects the surprise revelation in late January that Aramco will shelve plans around boosting its oil production capacity to 13m b/d by 2027 from the current 12m b/d may not be so surprising at second glance. Diversity of supply, the cost of maintaining surplus capacity and the imperative of reducing the carbon intensity of output all point to a shifting strategic focus in the Kingdom, allowing Aramco to allocate more cash to other energy projects.
Despite output on this scale, Saudi Arabia is a gas island—neither exporting nor importing the fuel, making it unique among its peers. Moreover, because it consumes 99% of the gas it produces, Saudi Arabia is the world’s sixth-largest gas market.
The government has long had a policy of not exporting gas in favour of reserving it to meet domestic needs—for energy, especially electricity, for petrochemical feedstock and to boost oil production by reinjection. But this could be about to change.
Aramco is working on massive expansion of gas production capacity and transportation infrastructure, aiming to boost output to more than 165bcm/yr by 2030.
Ziad al-Murshed, the company’s chief financial officer, said the priorities for the incremental gas will be, firstly, to meet growing domestic demand, secondly, to replace crude oil and other liquids in electricity generation to make more oil available for export, thirdly, to produce blue hydrogen and ammonia and, fourthly, to develop LNG export facilities within the country—if volumes are sufficient.
“The natural gas system expansion that we are executing is designed to all but eliminate liquids burning,” said Murshed.
“We are expecting that to avail about 1m b/d of liquids for export as we grow our gas production by more than 50% over 2021 levels, and expand the Master Gas System (MGS)—the grid that gets gas across the country—to the power plants currently burning liquids.”
Putting out the flares
Aramco is Saudi Arabia’s exclusive supplier of gas and owns and operates the MGS, an extensive network of pipelines connecting gas production and processing facilities with consumers across the Kingdom.
The country recognised during the 1970s that the huge amounts of associated gas it was flaring as it grew its oil production could be harnessed to meet burgeoning energy demand if the right infrastructure was put in place—not just pipelines but also vast gas processing plants.
Construction of the MGS, one of the world’s largest hydrocarbons delivery networks, has meant that Saudi Arabia flares less than 1% of the gas it produces and is aiming to reduce routine flaring to zero by 2030.
Under a state concession, Aramco’s gas reserves amount to 202tcf (5.72tcm), giving it plenty of scope to boost production to the levels envisaged by 2030, with new production projects in progress, recent discoveries still being appraised and further exploration under way.
Much of the expansion of gas production will come from unconventional resources. Development of these has accelerated considerably since Aramco’s first such project started up in 2018 – North Arabia currently supplies more than 200mcf/d of gas to power plants and industrial facilities.
Last November, Aramco began producing tight gas from the South Ghawar project two months ahead of schedule. Commissioned facilities at the field—which lies south and west of the giant Ghawar oilfield—have the capacity to process 300mcf/d of raw gas, and work is under way to boost this to 750mcf/d in the “near future”.
Work is also underway to develop the giant Jafurah project at Saudi Arabia’s largest unconventional gas field, which Aramco says will require investment of more than $100b.
When fully developed, Jafurah is expected to deliver 2.0bcf/d of gas by around 2030. The project will also produce 420mcf/d of ethane and around 630,000b/d of gas liquids and condensates for use as feedstock in the country’s growing petrochemicals industry.
Saudi Arabia has long harboured a desire to break into the LNG business. There was previously speculation of possible involvement in Arctic LNG 2, one of Russian developer Novatek’s projects, but talks concluded in 2019 without agreement.
In the same year, there was talk of Aramco taking a stake in and offtaking LNG from Sempra’s Port Arthur project in the US, but this also fell by the wayside.
Aramco’s LNG breakthrough finally happened last September, when it announced it had reached a “definitive agreement” to invest $500m in acquiring a minority interest in MidOcean Energy—a US LNG company formed and managed by EIG, an institutional energy and infrastructure investor based in Washington, DC.
The agreement built on a relationship established between Aramco and EIG in 2021, when EIG was part of a consortium that acquired a 49% stake in Aramco subsidiary Aramco Oil Pipelines Company.
MidOcean is involved in a number of significant LNG transactions as part of a growth strategy to “to create a diversified global LNG business”. These include the acquisition of interests owned by Japan’s Tokyo Gas in four integrated LNG export projects in Australia—Gorgon, Ichthys, Pluto and Queensland Curtis—for $2.15b in cash.
MidOcean was also part of a consortium that tried to acquire Origin Energy, an Australian utility, in a transaction that would have given it ownership of Origin’s integrated gas business, which includes a stake in Australia Pacific LNG. However, Origin’s shareholders have rejected that proposal.
“Our international gas strategy is to focus on LNG and our strategic partnership in MidOcean, which hopefully will close in the first quarter of 2024,” said Murshed.
“Once that closes, it will give us a foothold into the LNG business as well as offtake. MidOcean is in the process of acquiring interests in four Australian LNG projects, and we have the option to increase our shareholding from the announced 25%. The intent is to develop a more diversified LNG business.”
Aramco continues to look for other international LNG opportunities, which it intends to tie into its energy trading businesses.
Murshed stressed that, within Saudi Arabia, however, the preferred allocation for any gas beyond that needed to satisfy domestic demand would be for the production of blue hydrogen rather than LNG—subject to Aramco securing long-term offtake contracts.
“On LNG, domestically, if additional gas is found beyond the blue hydrogen targets, then that is a possible route that we would evaluate,” he added.
“International gas should be looked at as a separate business—whether we end up exporting LNG from domestic sources or not.”