The Importance of Gas Production in Saudi Arabia

Published March 9th, 2019 - 07:53 GMT
Saudi Arabia sold gas to domestic consumers below cost of production, to encourage this new desire for fuel diversity. (Shutterstock)
Saudi Arabia sold gas to domestic consumers below cost of production, to encourage this new desire for fuel diversity. (Shutterstock)

In 2014, the World Energy Council reported that Saudi Arabia was the world’s fifth largest consumer of natural gas, making up over 40 percent of its energy sources.

The number has only gone up. Currently, it is around 50 percent, and is expected to reach 70 percent by 2030.

There are multiple reasons for this. As the Kingdom has grown, so have its demands, and gas now supplies electric power plants, desalination plants and other industries that didn’t exist in the same way a decade ago. Oil, meanwhile, is a commodity more valuable if sold abroad, whilst the Saudi government has sought to move away from it as the nation’s primary source of power and wealth, in line with Vision 2030.

For decades Saudi Arabia sold gas to domestic consumers below cost of production, to encourage this new desire for fuel diversity. It could afford to, with known reserves of 325 trillion cubic feet as of 2017, giving it the sixth largest reserves in the world. But the rapid increase in local demand presented a problem. Price caps of $1.25 per million British thermal units (Btu), only raised in 2015 from $0.75, were at best half of what was needed for offshore production to break even (between $2.5 to $5 per million Btu).

Moreover, in oil-producing nations, natural gas prices are often linked, and affected, by movements in oil prices. In 2016, though, when oil markets were at their lowest levels in a decade and most major oil and gas producers significantly reduced their upstream investments, the Kingdom continued funding natural gas projects, launching huge infrastructure builds in its push to move away from oil.

The reason for this was that natural gas is a central long-term industry, regardless of fluctuations in other fossil fuel markets. 

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The Wasit gas plant, one of the largest in the world and one of Saudi Arabia’s flagship gas investments, massively increased processing capacity. Located in the north of Jubail, it is now at the center of a vast national distribution network that puts the country at the forefront of global production. By investing when others cut costs, Riyadh stole a march on its rivals.

Demand will almost double over the next couple of decades, driven by Asian growth. The industry, therefore, represents a vital investment opportunity for the Kingdom, and continued financing of global upstream projects will be required to meet these demands.

It should prove a useful foil to oil production in terms of diversifying the economy. Natural gas is both abundant and an increasingly clean source, and will play its part in reducing global carbon emissions. It is little wonder Saudi Aramco announced recently it expected to export around 3 billion cubic feet of gas per day even before 2030.

By Faisal Mrza

The views and opinions expressed in this article are those of the author and do not necessarily reflect the views and opinions of Al Bawaba Business or its affiliates.


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