Wants to double natural gas production but no plans to export

After Saudi Arabia’s Oil Minister, Ali Al-Naimi, made his first public speech since September 11 of this year, a great deal of emphasis was placed on the minister’s comments about OPEC pricing policy. While undoubtedly important, discussion about whether or not OPEC is intentionally keeping prices low has overshadowed other important details from Al-Naimi’s speech.

In his speech at the International Energy Forum (IEF) meeting held in Mexico earlier this month, Al-Naimi focused on the future of the country’s natural gas industry. Al-Naimi said, “in addition to gas facilities already built, we are developing several more major gas facilities, both onshore and offshore,” in order to access the 600 trillion cubic feet of unconventional gas reserves Al-Naimi estimates the country possesses, according to Reuters.

Saudi Arabia is currently the world’s No. 2 oil producer, but the country has recently stated its intentions to expand its natural gas capabilities. This is a sentiment which Al-Naimi reinforced in his recent speech. With the kingdom’s energy demand expected to grow from the 3.4 MMBOEPD in 2010 to more than double that amount at 8.3 MMBOEPD by 2028, according to the International Energy Agency (IEA), Saudi Arabia has been looking to use its natural gas resources to support growing demand.

Electricity use has been increasing at 7.5% annually, adding to the already large demand in the kingdom. In 2011, Saudi electricity demand was at about 7,420 kWh per capita, more than three times as high as in Mexico, where the IEF conference was held, despite having similar total levels of consumption.

Despite Saudi Arabia’s intentions to double its gas production in the next decade, the kingdom does not plan to export any of its natural gas. Al-Naimi said, “Saudi Arabia currently has no plans to export its gas or get into the LNG business.”

Al-Naimi said this does not signal Saudi Arabia’s disinterest in the international market, however. “It is clear that different forms of energy are becoming more closely integrated than ever before. Integrated in terms of prices and in terms of the movement of resources around the world.”

During his speech, Al-Naimi gave critical insight into a rapidly expanding sector of Saudi Arabia’s already large energy industry. Even though the kingdom has said it does not plan to export any of this new natural gas production, the increased use at home could have major effects on Saudi Arabia’s energy industry.

With demand for electricity increasing rapidly inside the kingdom, some estimate that by 2028 the kingdom could be burning 8.3 million barrels of oil equivalent per day to make its domestic electricity.

“As a number of prominent Saudi officials have pointed out, … an average of 3 million barrels per day of crude oil might have to be diverted to the power sector, potentially cutting export revenue significantly and taxing world markets that the kingdom sees as its responsibility to keep well-supplied,” according to the IEA.

With natural gas currently providing around 43% of the country’s electricity, the bulk of domestic demand is met through a combination of fuel oil and diesel, according to the IEA. By increasing its natural gas production to meet its growing domestic energy demands could have important ramifications to the global energy market.

Important disclosures: The information provided herein is believed to be reliable; however, EnerCom, Inc. makes no representation or warranty as to its completeness or accuracy. EnerCom’s conclusions are based upon information gathered from sources deemed to be reliable. This note is not intended as an offer or solicitation for the purchase or sale of any security or financial instrument of any company mentioned in this note. This note was prepared for general circulation and does not provide investment recommendations specific to individual investors. All readers of the note must make their own investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Investors should consider a company’s entire financial and operational structure in making any investment decisions. Past performance of any company discussed in this note should not be taken as an indication or guarantee of future results. EnerCom is a multi-disciplined management consulting services firm that regularly intends to seek business, or currently may be undertaking business, with companies covered on Oil & Gas 360®, and thereby seeks to receive compensation from these companies for its services. In addition, EnerCom, or its principals or employees, may have an economic interest in any of these companies. As a result, readers of EnerCom’s Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this note. The company or companies covered in this note did not review the note prior to publication. EnerCom, or its principals or employees, may have an economic interest in any of the companies covered in this report or on Oil & Gas 360®. As a result, readers of EnerCom’s reports or Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.


Legal Notice