Saudi Aramco revealed that the Kingdom has large unconventional gas reserve and will speak to its partners in brining some of their expertise in unconventional gas exploration in North America to the country.  Nevertheless, the new method and technology utilized in North America such as water injection to crack rocks and allow gas to flow, may not be suitable for the deserts of Saudi Arabia.

Although Saudi is the world’s largest oil producer, its gas reserves are minimal when compared to its giant oil reserves. Saudi need for gas is paramount in order to meet its domestic electricity demand and large petrochem industry.  FT​.com / In depth – Saudi reveals large unconventional gas reserves.

The lack of strong and clear legal framework in Saudi is putting pressure Saudi’s business credentials.  Legal cases can drag on for years and enforcement is difficult.  As one Legal analyst in quoted in Bloomberg:

“Enforcement is really, really difficult,” Pump said. “If you can get anything, 10 cents on the dollar, I really recommend taking it.”

Bloomberg.

The National Newspaper reports that illegal oil smuggling  especially from Saudi and Iraq is on the increase.  The paper cites smuggled oil via Kurdistan region in Iraq and also highlights recent investigation in Saudi Arabia related to smuggling of oil for over 11 years to Europe via an unidentified private Saudi petrochemical company.

Aramco is courting Sinopec to become its JV partner in Yanbu refinery after Conoco dropped out.  Sinopec has not yet enetered into formal talks with Aramco but already has reservations about the high cost of the refinery.

“A 400,000 bpd (barrels per day) refinery costs around 30 billion yuan ($4.4 billion) in China, but would require 50 billion yuan investment in Saudi Arabia. We are concerned about the returns on investment,” Sinopec Corp Chairman Su Shulin told reporters.  China Daily

WSJ does an excellent cover via three articles on the emergence of Saudi Arabia on the world stage.

• Saudi Arabia becomes a power player
• Saudi stock exchange wakes to international potential
• A Desert Kingdom’s Quest for Food Security

State oil firm Saudi Aramco has invited Saudi-based companies to begin the qualification process to compete for deals to build the Wasit and Shaybah gas plants, two industry sources said on Sunday. … Continue Reading

Alpen Capital published report on GCC Petrochemical sector (download report).  The massive investment in capacity has put GCC on the Global Petrochem map, accounting for 10% of Global supply.  The sector is undergoing tremendous change taking into account both cost and price volatility and future developments and challenges. The report is excellent and drives home the main issues, countries and companies in the region leading the Petrochem sector in the GCC.

Saudi is walking the talk. In previous statements, Al Naimi, Saudi’s Oil Minister, said that $70-80 oil price is ‘perfect’.  The leading OPEC producing country with the most spare capacity is also sensative to high oil prices impacting demand.  A recent survey by Reuters and Bloomberg, shows that Saudi has increased its supply between 60,000 – 100,000 bpd to 8.25-8.26 million bpd.

Surging domestic demand in Saudi Arabia from current 3.4 million bpd to about 8.3 million bpd in 2028, will affect Saudi’s ability to export oil according to Aramco’s CEO Khalid al-Falih. (Energy Bulletin)

Saudi Aramco plans to proceed on its own with the 400,000 barrel per day Yanbu export refinery after erstwhile partner ConocoPhillips announced it was withdrawing. The company told Reuters

“We ultimately decided this project was not consistent with our current strategy to reduce our downstream footprint,” Willie Chiang, senior vice president for refining, marketing and transportation, said in a statement.

“Conoco is looking to make upstream 85 percent of their business, so it certainly makes sense that they would cancel this project,” said oil analyst Phil Weiss of Argus Research.

While Saudi is the largest oil producer in the world, it suffers from water shortage. Oil is consumed (some 1.5 million barrels a day) to produce power & water desalination plants.  IBM has been working for two years on a solar powered desalination plant in a Al Khafji town that will eventually produce 7.9 million gallons of water per day.  The project aim is to produce all of Saudi’s drinking water using solar energy and reduce Saudi’s reliance on expensive desalination plants. (BNET Energy Blog)

As oil price climbs above $85, attention is turned to Saudi Arabia, OPEC‘s unofficial leader.  While other OPEC members have been busting their quota, Saudi has been committed or even producing lower than its quota.  Saudi prefers to focus on physical supply rather than what the futures market is doing (blame speculators, hedge funds). To them the physical market remain well supplied and will wait to flush out excess invesntorires. As John Kemp of Reuters note:

Riyadh remains reluctant to add oil when physical availability remains good, even if futures prices are climbing, preferring to wash its hands and blame speculators for the rise.

If the kingdom continues to sit on the sidelines while prices climb towards $90, the market will be primed for a re-run of the events of the 2006-2008. The longer it delays action, the harder it will eventually be to regain control. The more prices rise the more investors will be drawn into the market by the chance to benefit from a momentum trade.

It will remain to be seen what will Saudi do this time around ?    (FT Energy Source)

Image via Wikipedia

A research note by Credit Suisse highlight something that came out of the meeting of Oil Ministers in Cancun and that was not taken as critical information by the market.

A spokesman for Saudi in the meeting (he was not identified) said that Saudi and other GCC countries will use their 5.5 million bpd spare capacity to bring prices down if oil price breach $ 85 per barrel.  This sets a ceiling for oil price and bring prices back to Saudi’s sweet spot of $ 75 oil price. Saudi and other GCC countries remain wary of the markets. In addition, they are becoming more proactive in protecting their interests as world seeks other supply sources conventional or unconventional in an environment of high oil prices.  (read full report)

… Continue Reading

ArabianOilandGas reports that Aramco may cancel or delay up to five years its 400,000 bpd refinery project in Ras Tanura.