Saudi Arabia forges ahead on ambitious LNG expansion plans
Riyadh is taking steps in its pledge to become a global natural gas player, even though the gas in question is not from Saudi Arabia and the kingdom will face intense competition in major markets from the likes of the United States, Russia, Australia and Qatar.
State oil and gas giant Saudi Aramco and US utility and energy infrastructure firm Sempra Energy signed a preliminary agreement involving a long-term liquefied natural gas (LNG) supply deal and a Saudi stake in a US LNG export plant.
Saudi Arabia is intent on moving from an economy driven by oil revenues and part of that involves developing the kingdom’s gas potential and buying into foreign assets to become a gas exporter. The Gulf country has reportedly been looking at opportunities in LNG operations in the United States, Russia, Australia and Africa.
Economic and political considerations probably tipped the scales in favour of Sempra for Riyadh’s first major gas investment. Saudi Aramco in May walked away from serious negotiations to participate in Russian gas producer Novatek’s Arctic LNG-2 project, with the Saudi firm said to be unhappy with financial terms of the deal and concerned about potential US sanctions risk.
As Riyadh tries to weather political blowback from the October killing of Saudi journalist Jamal Khashoggi, further entrenching itself into the US energy landscape through a long-term LNG investment is a geopolitically strategic move. Two years ago, Saudi Aramco became the sole owner of the largest US refinery in Port Arthur, Texas, and it has been planning on building a petrochemicals complex at that site.
Riyadh cannot ignore the potential of the American LNG industry. The rapid growth of US shale gas catapulted the United States into the position as the world’s fifth largest LNG exporter in 2018, with the possibility of the Western nation breaking into the top three tier alongside Australia and Qatar soon, if it can tackle infrastructure bottlenecking issues.
An independent audit of Saudi Arabia’s energy reserves put the kingdom’s conventional gas reserves at 325.1 trillion cubic feet, though the Gulf country only produces around 14 billion cubic feet per day (Bcf/d) — all of which is consumed domestically.
The Saudi government is keen to develop domestic conventional and shale gas, which would free up as much as 400,000 barrels per day of crude for exports that has been dedicated to fuelling Saudi power plants.
Saudi Aramco CEO Amin Nasser said the state energy firm would invest $150 billion over the next decade to boost the kingdom’s natural gas production to 23 Bcf/d and to become a natural gas exporter. At the World Economic Forum in January, Nasser emphasised the role that US gas assets could play in reaching that exporter status, saying: “Aramco’s international gas team has been given an open platform to look at [US] gas acquisitions along the whole supply chain. They have been given significant financial firepower — in the billions of dollars.”
Nasser announced in February that Saudi Arabia would shoot to export as much as 3 Bcf/d of gas by 2030, supported by development of domestic conventional and unconventional gas resources, with exports available as both piped gas and LNG.
In April, he noted: “We are currently in discussion with a lot of partners around the world for growing our international gas position.” Nasser also disclosed that Saudi Aramco’s trading arm had made its first LNG sale from Singapore in March to an Indian buyer.
The preliminary agreement signed between Saudi Aramco and Sempra would cover a supply deal in which the Saudi firm would receive 5 million tonnes per annum (MTPA) of LNG for 20 years. That supply would be produced from the first phase of an LNG export facility in Port Arthur that Sempra is developing. As part of the agreement, Saudi Aramco will take a 25% equity stake in the Port Arthur plant, which is to be operational in 2023.
Dipping its toe into the LNG market, Saudi Aramco is expected to target South American and European customers for its Sempra-owned gas, although it wouldn’t be surprising if spare cargo headed to the kingdom during peak summer power demand.
Saudi Aramco still has the agreement with Sempra to finalise with the volumes not available for at least four years. To put things in perspective, the 5 MTPA of supplies that the Saudis will be selling from that arrangement is small potatoes compared to the world’s two largest LNG exporters, Australia and Qatar, which each typically export more than 6 million tonnes of LNG a month.
Saudi Arabia will likely start out as a supplier of incremental gas in Latin America and Europe because it will face stiff competition from larger LNG suppliers that have staked claims in key markets.