Future of Saudi petroleum sector | Arab News — Saudi Arabia News, Middle East News, Opinion, Economy and more.

Future of Saudi petroleum sector



Published — Tuesday 19 August 2014

Last update 19 August 2014 12:55 am

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Concerns are being raised about Saudi Arabia’s leadership in the petroleum sector in the context of reports of shale gas and oil resources coming from certain countries.

It was mentioned in some quarters that the recent discovery of North American shale gas and oil, especially in the United States, would likely have an impact on the Saudi petrochemical sector.

But the impact of global developments, most notably the North American unconventional hydrocarbons story, is still to be determined, albeit the technology needed to extract it efficiently and profitably, which is still in preliminary stages.

There are no two opinions that the Saudi petrochemical sector remains well positioned regionally and is driven globally by a positive demand outlook. After all, the petrochemical theme is an important and highly necessary element of Saudi Arabia’s economic diversification.

It represents a strategic approach to extracting more value from the Kingdom’s hydrocarbons endowments and building a multi-tiered support network around through activities ranging from production to design, R&D and education.

The importance and necessity of this approach is independent of developments elsewhere in the world, but obviously its economic rationale is supported significantly by the low cost of extraction in Saudi Arabia.

In the medium-term, Saudi producers are expected to perform better than global peers on the back of feedstock cost advantages, continued strong fundamentals and a diversified portfolio mix.

Saudi Arabia too boasts of considerable shale resources. Minister of Petroleum and Mineral Resources Ali Al-Naimi says Saudi shale gas potential is estimated to be over 600 trillion cft, double the conventionally available gas resource.

While they are driving new investments in North America, the extraction of unconventional oil and gas is expensive, technologically challenging, and potentially subject to risks that are not necessarily fully understood yet.

The costs of extraction are in some instances amplified by significant additional infrastructure investments. Also, the lifetime of unconventional fields tends to be very limited, which means that the overall shale output will probably begin to decline again in a matter of years.

As an economic strategy, the petrochemical development is likely to increase the resilience of the Saudi economy under any scenario. It represents a rational utilization of a comparative advantage.

Even a Credit FAQ report by Standard & Poor’s Ratings Services says the effects on oil and gas producers in Gulf Cooperation Council (GCC) countries of surging shale oil and gas production in North America are minimal at present.

According to the US Energy Information Administration (EIA), technically recoverable shale gas resources globally are estimated at 6,240 trillion standard cubic feet, of which around 8 percent are in the United States, 10 percent in Europe and 20 percent in China.

Such developments would surely not disturb Saudi Arabia’s position in the petrochemical sector or in the field of oil and gas.

However, Riyadh will have to adopt a wait and watch approach, as only the time will tell whether the Kingdom can retain its leading position worldwide through technology differentiation while leveraging its natural resource abundance.

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