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New beginnings... W
hat a month, it has been...With summer and Ramadan, we were expecting the industry to be rather sombre. But between protests in Egypt bolstering oil prices to new surprise CEO announcements in the industry, it was a packed month. The Egypt political tension seeped through to the global oil market causing a price rally with worry over the possible closure of the Suez Canal. We have an indepth coverage on the Egypt situation in the issue. Our big feature this month is on Saudi Arabias push for gas. While the Kingdom has been rallying around gas for a while now, shale gas research and exploration is finally gaining traction in the rough Saudi terrain. The countrys Oil Minister, Ali Al Niami, has acknowledged the pressure on natural gas, from rapid industrialisation and growing young population, and said the Kingdom will actively look for shale to free up the precious crude for shipment. Technology majors like Schlumberger and Halliburton have set up research centres in the Kingdom to develop methods of extraction with minimal water

WHY IS THE OIL RICH SAUDI ARABIAN ENERGY INDUSTRY PUSHING FOR SHALE? usage. OGME also met the engineers behind Saudi Aramcos Karan Gas Field, who gave us an exclusive insight into the planning that went in Aramcos first unassociated gas field. This months issue also looks at the sudden spike in demand for offshore jack-up rigs in the region. The offshore industry in the Middle East is the most active it has been in a decade and that is pure music to the ears of the jack-up rig operators. We spoke to a range of rig operators to find out who their clients are and what they are doing to stay ahead of the competition, especially from the Asian rig operators and manufacturers. Do read our feature on wireless instrumentation developments for the oil and gas industry too. Lastly, the entire energy team joins me in saying bye to Daniel Canty, the former editor, who steered the energy titles over the last seven years and wish him the best in all his future endeavours. We also wish all the readers - Eid Mubarak! Jyotsna Ravishankar Editor

Upcoming stories in next months issue of Oil&Gas Middle East magazine


NEXT ISSUE >>>

[1]

Saudi Arabia in Prole Saudi Arabia continues to dominate the world energy map with consistent oil production. What is next for one of the fastest growing GCC economies...

[2]

Offshore As the offshore exploration and production market grows alongside the increasing volume of sea-based hydrocarbon transportation, OGME covers different facets including communication, vessel building and accommodation for the offshore workers.

[3]
Oil&Gas Middle East met the Karan Gas eld engineers this month to learn about the challenges faced by Aramco.

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Yards and Rigs Which are the Middle Easts biggest yards and how much are they building? Who are the chief suppliers in the Yards and Rigs business, 0(.&lOETPVU

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Saudi Arabia burned 766,000 bpd of crude oil to generate electricity in the period between June and August 2012.

766,000bpd

Sauid Arabia is now pushed to keep looking for tight and sour gas in remote and difcult terrains to feed its gas-hungry industries and population. The Kingdom of Saudi Arabia in early 2000 announced it had begun a search for gas to replace oil as the burning fuel to generate power in the country. This would also potentially free up the precious oil for shipment. Saudi Arabia is the largest consumer of petroleum in the Middle East, particularly in the area of transportation fuels and direct burn for power generation. According to the US Energy Information Administration (EIA), Saudi Arabia was the worlds 13th largest consumer of total primary energy in 2009; 60 per cent was petroleum-based, with natural gas accounting for most of the rest. Saudi Arabia has set a goal of producing almost half of its power from renewable fuels by 2020 in order to meet domestic power needs and to free up oil and natural gas for export. Saudi Aramcos CEO, Khalid Al-Falih warned that rising domestic energy consumption could result in the loss of 3 million barrels per day (bpd) of crude oil exports by the end of the decade, if no changes were made to current trends. The Kingdom (including the Neutral Zone) had proven natural gas reserves of 288 trillion cubic feet (tcf) at the end of 2012, fifth largest in the world behind Russia, Iran, Qatar, and the United States, according to EIA estimates. About 5 tcf was added in 2012, and over the last decade, Saudi Arabia added over 60 tcf of natural gas reserves. To meet growing domestic needs for additional production, the Petroleum Ministry and Saudi Aramco announced a $9 billion strategic push to add 50 tcf of nonassociated reserves by 2016 through new discoveries (and potentially another 50 tcf of associated reserves). The national oil company has focused heavily on major offshore gas developments in the Arabian Gulf. The most successful project has so far been the Karan gas project. Saudi Aramco began flowing natural gas from Karan field in the Arabian Gulf via subsea pipeline to the Khursaniyah gas treatment plant onshore in Saudi Arabia in 2011. The project was ahead of schedule and is today bringing two billion cubic feet (bcf) of gas to stream. (See page 45 for an indepth analysis of Karan gas field)

SAUDI ARABIA IN FOCUS


Are you a contractor working on oil and gas projects in Saudi Arabia? If yes, we would like to hear from you for our next issue of Oil&Gas Middle East (September) - which would be focused on the Saudi Arabian oil and gas landscape.

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The gas that was ared off previously is today the most precious resource in the Kingdom. tially participated in Saudi gas fields were Shell, Lukoil, Chinas Sinopec, Italys Eni and Spains Repsol. But international enthusiasm has begun to wane with majors, like Shell negotiating for better prices at the Empty Quarter. So, with budgets allocated and states resolve in finding gas for its own growing power generation, why was there no rush in exploration? The Saudis need to raise prices to encourage new developments, Kamel alHarami, an independent oil analyst based in Kuwait told Bloomberg in a recent interview. But they need at first to find enough non-associated gas, or fields where the fuel exists separately from oil. The price of gas in Saudi Arabia is regulated and set at $0.75 per million btu. Industry estimates suggest companies would need to receive around $5/mmbtu in order to produce technically challenging non-associated gas economically viable. Arsalan Iqbal, senior consultant, Contax partner says the reason Saudi Arabia are pushed to looking for unassociated gas fields is because of the OPEC quotas. If you have to extract associated gas, then you need to recover the oil, as well which maybe in excess of the OPEC quota, so that is the reason for Saudis push for un-

Gas is the fuel of choice in the kingdom, and combined with gas liquids, supplies 50 per cent of the companys demand for energy and chemicals
Khalid Al-Falih, CEO, Saudi Aramco. But Aramco has announced in its annual report that exploration and development for more gas fields was also due to commence in non-producing areas such as the Red Sea, northern and western Saudi Arabia, and the Nafud basin, north of Riyadh.

Everybody is talking unconventional


Saudi Aramco also launched its Upstream Unconventional Gas programme in 2011. According to Aramcos 2011 report, the intention is to increase production of raw gas unprocessed natural gas to reach 15.5 bcf a day by 2015 from 10.2 bcf in 2010. The international oil companies that ini-

associated gas and even unconventional reserves, he explains. The problem with Saudi gas is that it is very sour and in hard to extract reservoirs, so international companies have little motivation to continue looking for them, especially with the current price points. The solution to the gas conundrum in Saudi Arabia now may very well lie in its Shale reserves. Roaa Ibrahim, an analysts with Manaar Energy says the Kingdom has already began its efforts to search for unconventional hydrocarbons in the country. Shale gas exploration progammes have begun in the north-west targeted at the Silurian (Qusaiba) shale; tight gas is being searched in southern Saudi Arabia in the Rub Al Khali (Empty Quarter) and south Ghawar field with tight sand and carbonate potential. Hydraulic fracturing has greatly improved gas production rates and recovery rates from moderate to tight reservoirs, she adds. American oilfield services company, Baker Hughes puts Saudi reserves of potentially recoverable shale gas at 645 trillion cubic feet, which would make them the worlds fifth largest deposits. Ibrahim says in the north-west, Saudi Aramco has already begun drilling shale gas wells; however, to date, only one of the shale gas wells has been fracked, she adds. Aramco is planning on adding 30 more rigs in 2013 to be deployed in the Tabuk basin and the Midyan basin in the Red Sea. Tight gas is the targeted resource play in Rub Al Khali, notes Ibrahim. The difficult terrain and little-known geology in the Rub Al Khali area prompted 3 joint Arsalan Iqbal says ventures between Saudi Arabia has IOCs and Aramco: to keep looking for South Rub Al unassociated Khali (Shell and gas elds . Aramco), SinoSaudi Gas

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and has made it clear that heavy oil will run the refineries and gas will used for power generation. Saudi Arabia will aggressively go on looking for gas. If its shale gas, they will be looking for international partnerships. Shale gas will be Saudi Aramcos outlook for gas, is my take, notes Iqbal.

will focus in shale this year. Reports suggest that Saudi Aramco has asked Halliburton and Schlumberger to begin carrying out feasibility studies for the production of shale gas. Seismic surveys are currently being carried out in the northern desert area close to borders of Iraq and Jordan.

Drilling for gas


A Barclays report on drilling reaffirms the push for gas in the Kingdom. It said the number of rigs active in the Kingdom, climbed to 150 at the start of June, from 134 at the start of the year. Further a report on Financial Times said Gulf industry officials expect the Saudi rig count to top 200 this year or in early 2014. While the escalation could be owing to the large Manifa fields, it also means that many wells are being drilled for gas. Ali Al Niami, the Saudi oil minister and the most vocal spokesperson from the gulf countries, has also reiterated that Saudi Arabia

2012 Year in focus


The Aramco 2012 annual report says the year was marked by three major finds. Discoveries included one oil field Aslaf and two gas fields Shaur and Umm Ramil bringing Aramcos total oil and gas field discoveries throughout history to 116. Shaur was the companys first discovery in the marine portion of the Red Sea. Aramcos gas plants now have a gas processing capacity of 13.23 billion scfd. In 2012, as the company continued to pursue new energy sources - The Unconventional Gas Initiative will contribute to the companys strategic intent in many ways. Saudi

Khalid Al-Falih, CEO, Saudi Aramco pushing for gas (Sinopec and Aramco), Luksar (Lukoil and Aramco). For Saudi Arabia, gas is a big priority as they have to keep exporting oil. The country is very strategic in its thinking,

MANPOWER CHALLENGES IN GAS PROJECTS


OGME asked Petrofacs Christo Viljoen, Director, Engineering Solutions, Petrofac - Engineering, Construction, Operations & Maintenance Division the chief challenge in gas projects
With multiple projects being developed concurrently in the region, it invariably places a strain on resources, particularly in the local labour market, says Christo Vijoen, Petrofac. With a strong emphasis on local content everywhere we work, the net result is that accessing the required levels of expertise and experience can be challenging. Fortunately, he says, Petrofac has been able to work early and with success in this space with its Training Services business. For example, in The Petrofac Training Centre in Hassi Messaoud, Algeria, the company has the capacity to deliver training to 400 Algerian nationals annually. In January, last year, Petrofac signed a ve- year contract to operate and manage a new Construction, HSE and Drilling Training Centre in Dammam, Saudi Arabia. The centre offers young Saudi Nationals the opportunity to complete internationally recognised vocational qualication programmes and short up-skilling courses. Given the rapid advancement of large facilities, the interconnecting gas pipeline infrastructure is still quite immature by comparison so getting gas from A to B can throw up a number of challenges: for example, multiple regulatory frameworks, cost to develop etc. Following the shale revolution in the United States, Middle East countries also want to nd and explore shale gas reserves. Implementing this extractive technology will not be without its challenges. It is a highly water intensive process using fracking and access to a skilled labour market may present challenges, he adds. In 2009, the regions top contractor was awarded the engineering procurement and construction (EPC) contract for Saudi Aramcos Karan utilities and cogeneration package. The project formed part of the Karan gas development programme which expanded the Khursaniyah gas plant, located about 50 kms northwest of Jubail in the Eastern Province of Saudi Arabia, to accom-

Christo Viljoen, director, engineering solution, Petrofac

modate around 1.8 billion standard cubic feet per day of high pressure sour gas from the offshore Karan eld. In addition to building the utilities and cogeneration package, Petrofac also upgraded the plants process controls, electrical systems and support facilities. Notably this was the companys rst project with Saudi Aramco.

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by 2022, business monitor international reports the Kingdom could reach this figure in gas prodn.

152bcm

Roaa Ibrahim is an analysts with Manaar Energy. higher than most conventional gas, it is an important strategic and economic choice for the company. Saudi Aramco is investing in innovative technologies to reduce the higher cost of producing unconventional gas, which offers opportunities to more efficiently manage domestic demand, the report clearly outlines. So, while the unassociated gas exploration may not have yielded favourable results, the company is making a determined push with is shale gas exploration. Will hydraulic fracking be possible in Saudi Arabia is the next logical question, with the need for huge volumes of water in the procedure. But as a country that remains on the global energy map as one of the most important oil exporters, it will not be long before Saudi Aramco finds a way around this problem. As a senior executive from Schlumberger, recently told delegates at a Bahrain conference, Its here in Saudi Arabia where we are developing our best technology. We are trying to find solutions to produce shale gas in Saudi Arabia with the least amount of water, Aaron Gatt, characterization group president at Schlumberger told the audience at a Manama conference, earlier this year. The growth of its petrochemical industries and sustainable power generation hinges on the discovery of more gas and it must be found at any cost, is the industry consensus.

Karan gas led is Saudi Arabias rst unassociated gas eld commercialised successfully.

MOUNTING FUEL BILLS


According to the Saudi Electricity Regulatory Authority (ECRA), demand for power has risen by 7 per cent to 10 per cent annually during the past ve years, one of the highest growth rates in the world. To meet the growing demands, Saudi has been importing diesel. But this year these imports have reached a record high of up to 8.9 million barrels of diesel in June. At roughly $120 per barrel, this is costing the government more than $1 billion per month in diesel imports alone. According to a London-based international report by Chatham House Saudi Arabias place in the world oil market is threatened by unrestrained domestic fuel consumption. In an economy dominated by fossil fuels and dependent on the export of oil, current patterns of energy demand are not only wasting valuable resources and causing excessive pollution, but also rendering the country vulnerable to economic and social crises.

Its here in Saudi Arabia where we are developing our best technology. We are trying to nd solutions to produce shale gas in Saudi Arabia with the least amount of water
Aaron Gatt, Schlumberger. Arabias supplies of unconventional gas will supplement its supplies of conventional gas resources and help meet the Kingdoms energy demand, the report says. The report argues that although the cost of delivered unconventional gas is

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Behind the Scenes


OGME SPEAKS TO SAUDI ARAMCO ENGINEERS TO DELVE INTO THE CHALLENGES IN DEVELOPING THE COUNTRYS FIRST NONASSOCIATED GAS FIELD KARAN

FIRST LOOK
development of the gas elds in Saudi Arabia. The gas development programme is a major contributor to the Kingdoms economy to maintain and support all domestic Saudi Arabia infrastructure, from steel and cement factories and electricity generation to desalination and petrochemical plants, said Al-Kanaan. With the continuous increase of domestic energy demand, exploration, drilling, and production activities are on the rise. Karan eld has been a major discovery added to the portfolio of our gas projects, he added. The eld was fast tracked and was put on production within ve years of discovery. . Once the formation breaks down, it was difcult to heal losses and drill ahead. Hence, all precautions were undertaken ahead of time to avoid drilling challenges, said Dr. Rahim. A 110-kilometer subsea pipeline is transporting Karan gas to onshore processing facilities at the Khursaniyah Gas Plant. The onshore facilities also include a cogeneration plant, a sulfur recovery unit with storage tank, substations and a transmission pipeline linked to the Kingdoms Master Gas System (MGS). Karan, is designed to produce 1.8 billion standard cubic feet per day (SCFD) of raw dry gas. On the challenges in this particular project, the wells were initially planned to be drilled as extended reach off multi-slot platforms. The well trajectories were changed to S-shape to minimize loss circulation, while drilling across the massive naturally fractured Khuff reservoir without impact on eld gas offtake production or well stability, said Haas. In addition, the wells were completed with pre-perforated un-cemented liners, Haas added, that saved time and cost without impacting wellbore integrity and production. Much of the equipment was fabricated inKingdom, from high-pressure vessels and injection skids to fusion epoxy pipe coating. The majority of construction work for the plant was also executed by local contractors, Aramco said. This is Saudi Aramcos rst offshore non-associated gas development. The success of this project and lessons learned have led to other discoveries and developments that have taken Karan lessons and experiences and converted them into new best practices for future developments.

A new beginning dawned in the annals of Saudi Aramcos gas history last year. The rst gas from Karan the companys rst offshore nonassociated gas eld project started owing full time and was transported by a subsea pipeline to the onshore Khursaniyah Gas Plant. Discovered in April 2006, Karan is the rst non-associated gas eld in Saudi territorial waters in the Arabian Gulf, 160 kilometers north of the companys headquarters in Dhahran. Offshore facilities at Karan consist of ve production platform complexes connected to a main tie-in platform, installed with associated electrical power, communication and state-of-the-art remote monitoring and control facilities for safe and reliable operations from onshore. Detailed design work began in 2008. The eld was discovered when the Karan-6 well drilled into Khuff formations, nding gas in carbonate reservoirs laid down from 200 to 300 million years ago in the Permian and Triassic periods. With Khuffs gross thickness of up to 1,000 feet, Karans is the thickest Khuff reservoir section ever encountered in Saudi Arabia. The Khuff formation is considered
The gas is transported by a subsea pipeline to the onshore Khursaniyah Gas Plant.

The Dream Team - (L-R) - Michael Haas, Dr.Zillur Rahim, AbdulRahman, Adnan Al-Kanaan (Manager), Mustafa Basri, Danah Alsana, Abdullah Utaibi

high pressure and temperature at a depth below 10,000, and Karan lies in medium-depth waters of 40-60 meters. OGME spoke to the Gas Reservoir Management Department (GRMD) Manager Adnan Al-Kanaan and senior consultants, Dr. Zillur Rahim and Michael Haas about the non-associated gas development in general to nd out about technology application and challenges associated with the Karan offshore eld. Al-Kanaan heads a group of 80 engineers and technologists in GRMD, who, with the support and assistance of other Engineering and Geoscience Departments, are responsible for the planning and

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