KHOBAR, Saudi Arabia, Aug 9 (Reuters) - Sino Saudi Gas Ltd,
a joint venture between China's Sinopec and Saudi
Aramco, will delay drilling in the kingdom's Empty Quarter as
the evaluation of the well is still ongoing, an industry source
familiar with the matter said.
The joint venture has been hunting for natural gas for
years, but what little they have found has not been exploited
due largely to industrial gas prices fixed far below
international market prices.
Nevertheless, the two partners will press on with a second
phase of exploration, planning to drill one well.
The well was scheduled to be drilled in September but the
venture, 80-percent owned by Sinopec and 20 percent by Aramco,
was evaluating it, the source said but he did not say how long
the delay would be.
A Sinopec executive said no decision has been made on the
exploration well yet as the company was still evaluating "the
economic and technical aspects" of the well.
Aramco did not respond immediately to e-mail requests sent
by Reuters.
Saudi Arabia, which keeps its oil reserves off-limits to
foreign companies, invited investors in 2003-2004 to find and
produce gas in the Empty Quarter.
But the gas price terms agreed were so low that companies
needed to find condensate - a form of light oil that can be sold
at international market prices - to cover the costs of
development.
The joint ventures included Italy's Eni and Spain's
Repsol which have abandoned the Empty Quarter, industry
sources told Reuters in January. [ID: nL6E8CJ1JT]
Aramco's Chief Executive Officer Khalid al-Falih in January
acknowledged the challenge of low gas prices in Saudi Arabia,
saying they do not make unconventional gas or tight gas in the
Empty Quarter economic.
The government-set transfer price of natural gas in the
kingdom is 75 cents per million British Thermal Units (btu), a
fraction of the price paid for gas in most countries.
"There is little likelyhood for a major change in domestic
gas prices. In any case, they are unlikely to be raised
sufficiently to match the steep production costs of the source
rocks that have been found in the empty quarter which are too
costly to fracture and too deep to produce," said another
industry source.
Saudi Aramco, the world's largest oil exporter, is looking
for gas all over the kingdom to boost gas production to help
meet rapidly rising Saudi fuel demand.
It is developing Arabiyah and Hasbah and considers
developing new gas fields Midyan and Sidr, in the Northwest
area.
South Rub Al Khali Co (Srak), the joint venture between
Aramco and Royal Dutch Shell, is the only JV
to report finding substantial quantities of gas in the region so
far and the sulphur-rich gas there could prove too costly to be
commercially viable.
(Additional reporting by Chen Aizhu in BEIJING, Editing by
Humeyra Pamuk and William Hardy)