Feasibility of KSA’s shale gas project

Shale gas exploration in Saudi Arabia is heralding a new era in the country’s energy sector. But, beneath this enormous reserve lie big challenges. Compared to the conventional natural gas, it does not seem feasible for the Kingdom to take initiatives in this area as the project involves huge production costs.
Pre-emptive measures for the gradual shift on unconventional energy sources are anyway considered to be a prudent idea in case of future crisis.
And possibly for the first time, the shale gas will be used for the production of 1000MW power plant in Jazan by 2016.
In Saudi Arabia, natural gas and ethane are currently priced significantly lower than international prices at $0.75/a million BTU (British thermal units). This cheap natural gas mainly used as feedstock for the manufacture of basic petrochemicals in the twin industrial cities of Jubail and Yanbu aims to support local industries to have a competitive edge in the international markets.
Shale gas will not be a cheap resource to aid national industries. Production of this unconventional energy seems to be prohibitively expensive as a million BTU is expected to cost the country at least between $6 and $8 and in some remote areas it may exceed $10 a million BTU. The Kingdom has already discovered plenty of shale gas estimated at over 600 trillion cubic feet, more than double of the current proven conventional reserves of 285 tcf. The country will search for more finds and has subsequently planned to conduct a 3-year study for more possible exploration of shale gas in far flung areas including Empty Quarter, Jalamid in the northern desert region and South Ghawar in the Eastern Province.
Only in the South Ghawar area, Saudi Aramco has developed infrastructure which can be used for the exploration of shale gas. But in other two deep desert regions, it needs to build new infrastructure requiring huge investments. Digging shale gas wells is also expensive and several hundreds of wells are required for every discovery zone and each well will cost about $8 million. Furthermore, each well has to be replaced within one and a half year. Many wells are to be dug deep to about 6,000-7,000 feet, with some wells in the Empty Quarter expected to be drilled to the depths of over 12,000 feet. All these activities demand enormous capital investments.
There is not only huge capital expenditure required for the exploration and production of shale gas, extracting this unconventional energy source will have large scale environmental effects as it is trapped between impermeable rock formations, usually deep underground.
Drilling for shale gas also requires huge quantity of water which is in short supply in the Kingdom. Sea water may be used but it will be more expensive as all the shale gas exploration areas are located deep into the deserts. The only feasible option is the use of underground water sources. The Kingdom can’t afford to squander non-renewable underground water which is being depleted fast so much so that the government is phasing out wheat farming by 2016, although the country had reached self-sufficiency in the production of this crop in the past.
The Kingdom would do well to emphasize on conventional and renewable energy sources particularly nuclear and solar energy which is available in plenty throughout the year.
Rather, the Kingdom is rightly moving toward that direction. According to a recent report, Saudi Aramco’s continuous efforts have enabled it to add 20 percent or 160 billion barrels to the Kingdom's total oil reserves. The Kingdom currently has more than 742 billion barrels of discovered oil resources, including proved, probable and possible reserves.
In the renewable energy sector, the Kingdom has made significant progress to increase its ability to reduce consumption of hydrocarbon fuels in electricity generation and established the King Abdullah City for Atomic and Renewable Energy (KACARE) which has unveiled a roadmap to produce 23,900MW of renewable energy by 2020 and 54,000 MW by 2032. KACARE has set out plans to build at least 16 nuclear reactors with a combined capacity of 22GW with first two reactors to be ready within the next 10 years.
Since Saudi Arabia has enormous amount of less-expensive conventional energy under its soil and hence huge potential for the development of renewable energy, it looks feasible to go slow for the exploration of unconventional energy sources unless new technology is developed to shrink production cost to at least near the break-even level.