EMPHASIS has changed – and in Saudi Arabia too. A crude paradigm shift is taking place. Under evolution is a new global energy order. And Riyadh is not oblivious to the monumental changes taking place. In a sense, the world's top most crude exporter is faced with headwinds, forcing it to change its strategic direction. Riyadh needed to adapt itself - to fit into the new, emerging global mold. And it is doing so. Economic planners of the Kingdom are apparently having a close look at its priorities and are endeavoring to adjust to the changing circumstances. Gas, and not oil, is the new icon of growth and development of the otherwise oil-rich Saudi Arabia. And reasons for this monumental shift in Saudi tactics and strategy are more than apparent. Saudi Aramco is stepping up efforts to explore and develop more gas wells, all around the Kingdom. In its search for additional oil and gas resources, Aramco “for the first time in its 80-year history has started using an advanced drilling ship designed to carry out operations in deep waters in order to find oil and gas in the Red Sea,” Minister Ali Al-Naimi said last week. Aramco CEO Khaled Al-Falih indicated that the company was planning to work on seven fields in the first phase, both in deep and shallow waters in the Red Sea, off the coast of the northwestern city of Tabuk. The province appears to be full of hydrocarbon wealth, he underlined. Saudi Aramco is already one of the largest oil and gas companies in the world. Its gas production averaged 9.9 billion cubic feet per day in 2011, up from 9.4 billion cubic feet per day in 2010, while gas reserves rose to 282.6 trillion standard cubic feet. Its Madyan field in Tabuk region is now forecasted to produce 75 million cubic feet a day of gas and 4,500 barrels a day of condensate for a 20-year period. BMI's “Saudi Arabia Oil and Gas Report Q1 2013” report released recently forecast that Saudi Arabia would remain self-sufficient in natural gas, with production rising from an estimated 98.1bn cubic meters (bcm) in 2011 to 152.8bcm by 2021. In a separate report earlier, Citi Research Equities said Saudi Arabia produces 9.6bn cubic ft/day of natural gas. This is entirely consumed domestically. It is now endeavouring to raise gas production to 15.5bn cubic ft/day by 2015, implying a CAGR of 12.7 percent. Yet, availability of gas is an issue in the Kingdom. It's not just the petrochemical industry that is forced with a changing feedstock regimen, depriving it of most of its edge over the competitors, but the shortage is being felt in other sectors too. Riyadh obviously wants to shift over its power plants on gas too. It definitely wants to see crude being exported rather than being consumed inside the Kingdom. Already the galloping domestic Saudi crude consumption is a cause of concern – both here and abroad. If more gas is made available, it would conserve crude for exports and indeed posterity. With Saudi peak power demand growing at almost 8 percent per annum, Citi believes Saudi Arabia will need to find new sources to meet residential and industrial demand. Gas needs to be made available to meet this. In fact gas demand throughout the region has been growing faster than oil demand in the past 10 years, touching 3.34 million barrels of oil equivalent per day in 2005, according to a study by the Organization of Arab Petroleum Exporting Countries (OAPEC). The demand is now projected to rise to 5.1 million barrels of oil equivalent per day (BOED) in in 2015 before it climbing to a record 6.4 million, an annual growth of 4.4 percent between 2005 and 2020. The growth is expected to expand the share of gas in the Arab energy market from 41.5 percent in 2005 to 46.2 percent in 2020. Saudi gas demand too is galloping and so is the need to find out new resources. And the Aramco move to shift its energies towards finding new gas resources hence makes sense. But what is making this shift strategic? A number of other factors too stand behind the move to find new gas resources. There is more to the gas rush than just the demand–supply equation. There has been growing messages in the meantime – literally from the top – to save the vital energy resource for posterity too. “We need to keep our oil resources for future generations,” Minister Naimi too hinted last week, while in Tabuk. So the push from the top to save crude was already there. And in the meantime, the crude world seems headed toward a glut like scenario too. From virtually a seller's market, the crude oil business is increasingly turning into a buyer's market – at least in the shorter run. And with Saudi economy still relying on its crude exports to keep the wheels of its economy moving, in the wake of the emerging situation, there could be major pitfalls ahead, most feel here. Saudi Arabia thus needed to have a strategy to meet this rising challenge. It needed to have alternate plans, to keep propelling its economic wheel. And the emerging Saudi strategy, to counter this scenario, is now beginning to unravel, in more ways than one. Replacing crude consumption with new gas finds is one major component of the entire strategy. Yet there are others too. In order to balance its budgetary requirements, in the shorter run, China and rest of the Asia are now the target market. Riyadh needs markets to sell crude and the emerging markets of China and rest of Asia are ready to absorb it – indeed with glee. A perfect fit – in more than one sense. The direction of most vessels carrying Saudi crude is witnessing a major change too. And then in the near to mid–term, Riyadh very rightly seems striving to add value to this God-given resource. Aramco is leading the Kingdom into a completely new direction. Entrusted to extract the best out of the Kingdom's hydrocarbon resources, it is now endeavoring to add value to the resource by turning it into chemicals. And the strategy makes sense - in more ways than one. In sharp contrast to the existing structure of the Saudi and the regional petrochemical industry, which owes its emergence and profitability to the availability of economical gas feedstock, Aramco – the gas provider - is to use liquids, and not gas, as the feedstock for its upcoming chemical plants. The available gas is to be used in other, more important sectors. This strategy would not only make Aramco bypass the current shortage of gas feedstock in the Kingdom, it would also unleash a new era of specialty chemicals in Saudi Arabia and hopefully the region too. The current gas initiative is killing more than one bird with a single bullet. Isn't it?
