Saudis make 2011 the year of natural gas

For Saudi Aramco 2011 may be remembered as one of its most unusual years: the one in which the biggest milestone achieved by the world’s largest oil company was a natural gas field startup.

If anything comes to symbolize the dawn of a “golden age of gas,” it may be the July production start from the Karan field, Saudi Arabia’s first offshore non-associated gas development.

Although Karan is not a mammoth field by global standards, state-owned Saudi Aramco has hailed the summer 2011 output of about 400,000 Mcf/d of gas as a new chapter in the company’s history.

“The first-phase startup of Karan marks a significant milestone in the company’s gas expansion program, underlining its role as a reliable supplier of energy and its ability to bring giant projects online, both critical to meeting the energy needs of the Kingdom,” it said in an August article on its aramcoexpats.com website.

Located 160 km (100 miles) north of Dhahran and just 100 km north of the Saudi supergiant Ghawar oil field, Karan is the first non-associated gas field discovered in Saudi territorial waters in the Persian Gulf. As there is no oil column below the gas accumulation to be considered, the gas can be produced quickly, with no impact from OPEC oil quotas.

The field was discovered in April 2006, when the Karan-6 well struck a large gas reservoir in the Khuff carbonate rock formation, which ranges in depth from 10,500 to 13,700 feet. “With Khuff’s gross thickness of up to 1,000 feet, Karan’s is the thickest Khuff reservoir section ever encountered in Saudi Arabia,” Saudi Aramco said. Industry sources have estimated the field’s reserves at more than 9 Tcf.

Karan’s development progressed quickly since the start of detailed engineering work in March 2009, after Saudi Aramco had held up contract awards to negotiate price reductions that eventually cut $2 billion from the project’s cost.

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Bringing the field onstream so soon after the 2009 economic downturn demonstrates the importance that Khalid al-Falih, who became Saudi Aramco’s CEO in January of that year, attaches to the project, argues Hakim Darbouche of the Oxford Institute of Energy Studies. “The $10 billion Karan project has received strong attention from [Falih],” Darbouche wrote in a September report for the Belfer Center for Science and International Affairs at Harvard University. “First gas by 2011 suggests a strong headwind for the project.”

As of July, five Karan gas wells on the first of five planned offshore platforms had been commissioned with production of 120,000 Mcf/d each. Drilling of 14 more wells on three additional platforms was underway, Saudi Aramco reported. “The wells will be completed, tied in and put on stream by June 2012 at 1.5 Bcf/d,” the company said. “The remaining two wells and platform will be ready in April 2013, bringing the field to its full production capacity of 1.8 Bcf/d.”

The targeted capacity is 80% higher than the 1 Bcf/d proposed in 2007. Aramco revised that to 1.5 Bcf/d in early 2008 and to 1.8 Bcf/d in July 2009.

The project is slated to yield 1 Bcf/d of fuel gas, an indication Karan’s gas is rich in natural gas liquids and is also very sour. The shrinkage will result from removal of gas liquids and acid gases–hydrogen sulfide and carbon dioxide–from the raw gas before the rest is supplied to Saudi power plants and industry.

By opting to rely on in-house expertise for its first deep sour gas project, instead of forming a joint venture with an experienced international gas producer, Aramco is taking a big risk. Hydrogen sulfide is intensely corrosive, presenting severe technical challenges. It is also extremely toxic.

Hydrocarbon liquids in the raw gas stream, however, are good news: they are important petrochemical feedstocks. The Karan development will increase domestic supplies of such valuable liquids just as Saudi Arabia ramps up a push to elevate its chemicals sector to a dominant position in the Middle East.

Darbouche notes that some Saudi petrochemical plants have struggled recently to obtain promised feedstock supplies. He also projects that Saudi power plants will burn 1.2 million b/d of crude in 2011, roughly double the amount they consumed in 2009. “The message is clear: the kingdom needs to produce more gas–and fast,” he says.

Aramco plans to ensure that happens. Drilling has started at two other non-associated offshore sour gas fields, Arabiyah and Hasbah, which are slated to add another 2.5 Bcf/d of Saudi gas production by 2014. The Midyan onshore gas field development was completed in 2010. And the company has also started drilling to test “tight gas” resources in northwestern Saudi Arabia and plans to study the kingdom’s shale gas potential.

But Saudi Arabia may have no more than 15 years to find and develop substantial new gas resources. After that, the known reserves of Karan, Arabiyah and Hasbah will start to run dry.

Platts