Onshore Gas Stagnates As Shell Divests

BMI View : Shell's exit from the Kidan gas development JV highlights the effects of unattractive state-set gas prices on Saudi's gas sector. In the absence of adequate pricing reform, we predict slow progress towards exploration and development of onshore non-associated gas fields, and the increased diversion of crude oil towards domestic consumption, in compensation for limited gas production growth.

Royal Dutch Shell is ending its joint venture (JV) with Saudi Aramco for the Kidan gas development project in the Empty Quarter. This continues a string of disappointments following the opening of Saudi Arabia's upstream to foreign participation in a bid to boost domestic gas exploration and production. Now, with Shell's looming exit, Aramco's ambitious efforts to draw foreign players into development of the Kingdom's gas reserves seem set to fail.

Shell's exit comes at a time of intense pressure on Saudi Arabia's domestic gas sector. Saudi Aramco has accelerated development of a number of gas projects, both conventional and unconventional, to answer to both rapidly rising consumption and poorer-than-expected progress on the exploration side. Developing these resources will help the country meet rising electricity demand and provide feedstock for Aramco's ballooning downstream segment, while conserving crude oil output for the lucrative export market ( see 'Gas Drive Crucial Move For Aramco', April 25 2014).

Strong Consumption Growth Soaking Up Production
Saudi Arabia Electricity Generation By Source (TWh), 2013-2023

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Related sectors of this article: Oil & Gas, Upstream, Development
Geography: Saudi Arabia

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