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Why Saudi Arabia Can't Produce Its Own Shale Gas

Missing Key Component of Fracking

Written by Swagato Chakravorty
Posted March 14, 2013 at 5:58PM

Saudi Arabia has shale ambitions, but its geographical location and conditions may well be one of its most daunting obstacles.

Saudi Arabia is, after all, a desert kingdom. And fracking, arguably the most successful shale development process, requires a lot of water.

It is estimated that Saudi Arabia may actually be quite rich in shale reserves, coming in fifth after China, the U.S., Argentina, and Mexico, with nearly 645 trillion cubic feet of technically recoverable shale gas. And the region has been proven to have at least 282.6 trillion cubic feet in conventional gas reserves, reports Bloomberg.

Bloomberg also quotes Saudi Aramco’s southern area reservoir management manager, Waleed al-Mulhim:

“We need to build our knowledge and experience and mobilize resources, and all this will take time. We can’t simply replicate what’s happening in the U.S., as we have different challenges.”

Several oil and gas majors, including Halliburton Co. (NSYE: HAL) and Schlumberger Ltd. (NYSE: SLB), are already quite invested in Saudi operations. Presently, both firms have research centers up and running in Saudi Arabia, hoping to discover how best to develop and exploit that country’s rich shale reserves.

The most pressing problem for Saudi Arabia, however, will unquestionably be that of water. That is, assuming a method of exploiting shale deposits is not devised that can be independent of, or at least nor as reliant on, expansive supplies of water. But given that fracking continues to be the most efficient method of developing shale reserves, Saudi Arabia would have to somehow secure a constant and heavy supply of water if it intends to get domestic shale production up to globally competitive levels.

At this point, it remains very unclear how that may be possible. Presumably, that’s the kind of question Halliburton and their ilk are confronting in their research in Saudi Arabia.

Meanwhile, the U.S. continues to see a shale bounty. It seems that Texas crude production has boosted overall domestic oil production to 20-year highs of late. Right now, the U.S. produces in excess of 7 million barrels of oil per day, which is the highest since 1992, according to the U.S. Energy Information Administration.

Indeed, at this rate the U.S. will overtake Saudi Arabia for the title of the world’s leading oil producer within a few years.

The Star-Telegram reports that Texas and North Dakota deserve the most credit for this development. North Dakota’s Bakken Shale has proven to be a golden goose not just for that state but for the nation at large. North Dakota has, in fact, exceeded Alaska for the country’s second-highest oil production levels.

And over in Texas, the Eagle Ford Shale has allowed the state to double its production of crude since early 2010. It now comfortably leads the nation for oil production.

Fracking, which remains controversial around the world, has been pushed ahead in these states and has allowed companies to unlock vast shale reserves. Right now, Texas exceeds North Dakota’s crude production by a factor of three and, in the past half-year, has accounted for about a third of all domestic oil output.

All of this is why the International Energy Agency has estimated that the U.S. will overtake Saudi Arabia to lead in oil production as early as 2017. By 2030, we’re expected to become a net oil exporter, which would be an unprecedented development.

However, it’s not all milk and honey. Oil prices will play a key factor in such developments; regional geographies and the long-term impact of fracking are also crucial. The natural gas production glut, which has accompanied this oil boom, is yet another major factor that is already having an impact worldwide.

Since oil prices are pegged to the world market, a boom in American oil production does not equate to falling prices of per-barrel crude. Ironically, even as the nation produces more than half of the oil it consumes, gasoline prices continue to rise driven by rampant speculation and widespread refinery closures.

And a large-scale shift toward natural gas on part of transportation companies and corporations is likely to play a major role in the near future of oil. While developed nations may be eager to shift away from oil, the increasing appetite from developing India, China, and most of South America could easily keep prices high.

For Saudi Arabia to successfully compete amidst all these forces, it would need to develop a very sound infrastructure from the bottom up.

 

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