Shell hopes for more Saudi gas, doubt over profits

Royal Dutch Shell is optimistic a second phase of exploration in Saudi Arabia's Empty Quarter will yield gas, although it is unclear how economic it will be, it said in an interview. Shell is one of the five companies state oil company Saudi Aramco teamed up with in 2003-2004 to drill in the Empty Quarter, or Rub Al Khali.
So far they have failed to find the volumes of gas needed to fuel Saudi economic growth or to guarantee returns for investors. South Rub al-Khali Co (SRAK), a joint-venture between Aramco and Shell, said last year it had entered a second phase of exploration in the Kidan field area.
"We are optimistic otherwise we wouldn't have entered the second exploration phase," said Michel Faure, chief executive officer of the Shell Companies in Saudi Arabia. But he stressed it was still only the exploration phase. "We have not reached a point where we have enough confidence about the volume in place. We know there is gas, that is for sure," Faure told Reuters in an interview. "It's difficult to talk about commercialisation of the project, that's why we are still in the exploration phase."
Finding gas alone would not be enough to guarantee profits, analysts have said. Faure said the investment in the Empty Quarter was "significant", but declined to elaborate.
Saudi Arabia has said its oil capacity of 12.5 million barrels per day is sufficient for now and that it would instead focus on increasing gas capacity. The kingdom needs gas to help cover domestic fuel demand and conserve oil for lucrative export markets.
Aramco's focus on gas, includes difficult-to-extract tight gas, which is particularly hard to justify commercially. "The development of tight gas is not commensurate with the current gas price that is in the kingdom. It requires lots of drilling wells, and there may be some alternatives which are more favourable and attractive than tight gas," Faure said.
Saudi Oil Minister Ali al-Naimi has said the kingdom might consider boosting the domestic price of gas. For now, the transfer price of gas in the kingdom is 75 cents per million BTU (British Thermal Unit), a fraction of the cost on international markets. That price has helped many companies, including Saudi Basic Industries Corp (SABIC), to become the world's largest petrochemicals company by market value. Shell also has a petrochemical joint venture with SABIC in Jubail. Faure said there was a need to strike a balance so all parties could achieve profitability.