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Gas development projects still a priority for Saudi Aramco

Hydrocarbon Engineering,


According to Business Monitor International (BMI), national oil company Saudi Aramco has pre-qualified nine bidders to compete for an engineering, procurement and construction (EPC) contract for the Fadhili gas plant. The bidders include Saipem, Hyundai Engineering & Construction, GS Engineering & Construction, Tecnicas Reunidas, Tecnimont, JGC Corporation, Daelim Industrial and CTCI. The companies have until 15 April to submit their bids.

Foster Wheeler, which conducted the front end engineering and design (FEED) study for the plant, will also provide project management services during the EPC phase. Foster Wheeler designed the plant with a 15.5 billion m3 capacity, at an estimated cost of US$3 billion, with targeted start date of 2018. Reports emerged in the last quarter of 2014 that the design capacity had been expanded to 25.8 billion m3, at a revised cost of US$5 billion. However, Aramco has declined to comment on these reports. BMI’s gas production forecast includes 15.5 billion m3 additional output from Fadhili from 2019, allowing for minor project delays.

The decision to push forward with the project in the face of sharply declining oil export revenues is further proof that the Kingdom’s ongoing strategic refocusing towards the development of its domestic gas resources. Lower oil revenues have led to the cancellation or delay of other major projects, including upgrade work at the Ras Tanura refinery, which was suspended in early January 2015. However, gas development projects appear to have been ring-fenced from the cuts.

The Fadhili project is relatively high cost, and BMI believe it is at risk of further cost inflation. The plant was initially conceived with a capacity of 10.3 billion m3, at a cost of US$1.6 billion, to process associated gas from the Fadhili oilfield. The subsequent increase in capacity and higher estimated project costs are due to its expansion to include sour gas production from the Khursaniyah and Hasbah fields.

Sour gas, which accounts for the bulk of non-associated gas resource base in Saudi Arabia, is highly corrosive and significantly more expensive to produce. The Wasit plant, slated to come online in the first quarter of 2015 to process gas from the Hasbah and Arabiya fields, has suffered both project delays and cost overruns as high sulphur density led to freezing in the pipelines and other technical difficulties.

High development and production costs are particularly prohibitive, when put in context of the low domestic gas prices, set at US$0.75/million Btu. Negotiations to increase the price to US$1.5 million Btu have made little progress, and even at the revised price of US$1.50, the Fadhili project would make little sense on commercial grounds alone.

Despite the poor economic returns, the Fadhili project (alongside gas development projects generally) has major strategic value. The availability of low cost domestic gas is critical to the functioning of both the petrochemical and water desalination industries. In the petrochemicals sector, access to cheap ethane feeds has given Saudi Arabian producers a strong competitive advantage over its global peers. Increased gas supply will also be key to lowering the reliance on direct crude burn in the domestic power sector, releasing oil for export or for use as refinery feedstock.

In context of a sustained lower oil price environment, the need to diversify the economy away from crude exports has gained importance, according to BMI. Downstream expansion is one of the main pillars of this diversification, and is heavily contingent on increasing the domestic gas supply. As such, and in the face of their limited commercial attractiveness, BMI sees continued high level investment in gas development projects.


Adapted from a report by Emma McAleavey.

Read the article online at: https://www.hydrocarbonengineering.com/gas-processing/30012015/saudi-aramco-gas-development-projects-147/


 

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