Shale Revolution Poses Threat to Saudi Economy, Power and Influence?

The rise of the West was driven by the Industrial Revolution beginning in the 18th century. It has since been fueled by fossil fuels--initially coal and later with oil and gas. Coal was indigenous in Britain and America but it is highly polluting and left much of London and New York with a thick coat of soot on everything in sight. Oil burns relatively cleaner but much of it is in the Middle East, particularly in the Persian Gulf region. First Britain and then United States saw the significance of the region and sought to control its energy resource through dictatorial puppet regimes, many of which still survive with active support of the Western powers.

Recent US EIA report on vast shale oil and gas reserves (over a trillion barrels) in many countries, including Pakistan (9.1 billion barrels of oil and 105 trillion cubic feet of gas), has prompted a warning to Saudi government from Saudi Prince Alwaleed Bin Talal. While the Prince's warning is about economic impact, I see much broader long term implications of it for the US-Saudi alliance and the power and influence of the Saudi royalty in much of the region and the rest of the world.

The top ten countries together have 345 billion barrels of shale oil reserves These include Russia (75 billion barrels), United States (58 billion barrels), China (32 billion barrels), Argentina (27 billion barrels), Libya (26 billion barrels), Venezuela (13 billion barrels), Mexico (13 billion barrels), Pakistan (9.1 billion barrels), Canada (8.8 billion barrels) and Indonesia (7.9 billion barrels). Notable on this list are US and China, the top 2 consumers of  oil in the world, both having vast shale oil reserves of their own.

In an open letter to Saudi Oil Minister Ali al-Naimi and other Saudi ministers, published on Sunday via his Twitter account, Prince Alwaleed said demand for oil from OPEC member states was "in continuous decline". He said Saudi Arabia's heavy dependence on oil was "a truth that has really become a source of worry for many", and that the world's biggest crude oil exporter should implement "swift measures" to diversify its economy, according to news media reports.

Shortly after the Prince issued his warning, a report from OPEC published this week showed the group's oil export revenue hit a record high of $1.26 trillion in 2012. However, forecasts from the group raise doubts over whether that level of earnings can be sustained in the face of competition from shale oil. Saudi Arabia, the world's biggest oil exporter, is now pumping at less than its production capacity because of declining consumer demand, Prince Alwaleed said in the letter.

Saudi dependence on oil stems from the fact that nearly 92% of the Saudi government budget this year comes from oil , according to Wall Street Journal. The growing shale oil production in the United States means Saudi Arabia will not be able to raise its production volume to 15 million barrels of oil per day, Prince Alwaleed said. Current capacity is about 12.5 million bpd; a few years ago the country planned to increase capacity to 15 million bpd, but then put the plan on hold after the global financial crisis in 2008.

Oil-rich Gulf nations like Saudi Arabia, Qatar, UAE and Iran have used their petrodollars to influence events in the Middle East and West Asia. They have funded their favorite sectarian groups to fight bloody proxy conflicts in Lebanon,  Iraq, Pakistan and Syria.  Saudis have bankrolled radical Sunni groups in Pakistan while Iran has financially backed Shia Hezbollah in Lebanon and other radical Shia groups in Iraq and Pakistan.  Qatar, Saudi Arabia and UAE have supported pro-West elements to roll back democracy in Egypt.

Even if Saudis do heed Prince Alwaleed's warning and succeed in diversifying their economy, it is highly unlikely that the desert Kingdom would be able sustain its current power and influence over the long haul. This is going to be bad news for the rulers who will respond with violence to resist change. But it is potentially good news for the Saudi people and the Arab and Muslim world at large. It'll open up opportunities for reforms leading to positive changes in the Middle East and the surrounding region.

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Pakistan Starts Tight Gas Production

Tight Gas Production Begins in Pakistan

First tight gas well  producing 15 million cubic feet per day of natural gas is on line at Sajawal gas field in Kirthar block in Sindh province, according to a report in Express Tribune. This marks a major milestone in development of unconventional hydrocarbon energy sources in Pakistan. Sajawal gas field is located 110 km south east of Karachi, Pakistan. It puts Pakistan in an exclusive club of just a few nations producing unconventional natural gas.

The tight gas well in Kirthar belt is being operated jointly by Poland's Polskie Gornictwo Naftowe i Gazownictwo (PGNiG) and Pakistan Petroleum Limited (PPL).

The state-owned Sui Southern Gas Company (SSGC) is buying gas from the joint venture at $6 per million BTUs (half the price agreed for Iranian gas) for distribution through its network in southern Pakistan. SSGC is laying a 52-kilometre-long pipeline at an estimated cost of Rs 325 million, carrying gas from the Suleman Range to the Nooriabad industrial estate.

First tight gas production launch in Sajawal is a very significant milestone for Pakistan. It augurs well for the future of both tight and gas production in the country because there are similarities in how both are extracted. Pakistan is endowed with huge deposits of both---105 trillion cubic feet (TCF) of shale gas and at least 33 trillion cubic feet of tight gas. In addition, Pakistan is also blessed with 9.1 billion barrels of shale oil which is also extracted in a similar way.

Pakistan's current demand for natural gas is about 1.6 trillion cubic feet per year. Even if consumption triples to 5 trillion cubic feet per year, the current known reserves of over 150 trillion cubic feet of conventional and unconventional gas are sufficient for over 30 years.

Wells for both of these unconventional resources (tight and shale) must be "hydraulically fractured" (fracked)  in order to produce commercial amounts of gas. Operator challenges and objectives to be accomplished during each phase of the Asset Life Cycle (Exploration, Appraisal, Development, Production, and Rejuvenation) of both shale gas and tight gas are similar, according to a paper on this subject.  Drilling, well design, completion methods and hydraulic fracturing are somewhat similar; but formation evaluation, reservoir analysis, and some of the production techniques are quite different.

The current technology known as hydraulic fracturing or fracking was developed in the United States and it has spawned shale oil and gas revolution increasing supplies and reducing gas prices. The Chinese are now working on further cutting costs to make the equipment and technology more affordable.

Like the shale gas revolution in the United States, tight gas is transforming China's gas production - accounting for a third of total output in 2012 -- and will form the backbone of the country's push to expand so-called "unconventional" gas production nearly seven-fold by 2030, according to Reuters. The speed and size of the boom has exceeded forecasts and has been led by local firms developing low-cost technology and techniques, already being rolled out by Chinese companies in similar gas fields outside of China. Pakistan can benefit from the Chinese in its efforts to increase tight and shale gas and oil production.

Related Links:

Haq's Musings

Why Blackouts and Bailouts in Energy-Rich Pakistan?

Pakistani Guar in Demand for American Shale Fracking

US EIA Estimates 9.1 Billion Barrels of  Shale Oil in Pakistan

Pakistan's Vast Shale Gas Reserves

Abundant, Cheap Coal Electricity

Twin Energy Shortages of Gas and Electricity in Pakistan

Pakistan Energy Security Via Shale Revolution