(Updates with analyst comment in sixth paragraph, Naimi in last.)
March 18 (Bloomberg) -- Saudi Arabia, the world’s biggest oil exporter, will drill about seven test wells for shale gas this year, according to Oil Minister Ali Al-Naimi.
“We know where the areas are,” Al-Naimi said at a conference in Hong Kong today. “We have rough estimates of over 600 trillion cubic feet of unconventional and shale gas, so the potential is very huge and we plan to exploit it.”
Saudi Arabia is seeking to develop its natural gas resources to meet rising domestic energy demand. Saudi Arabian Oil Co., or Saudi Aramco, is searching for shale gas in the northwest of the country and exploring for unconventional resources such as sour gas in the oil-rich eastern region and in the Empty Quarter deserts, Senior Vice President of Upstream Amin Nasser told a conference March 10 in Manama.
The nation may hold as much as 645 trillion cubic feet of technically recoverable shale gas, the world’s fifth-largest deposits behind China, the U.S., Argentina and Mexico, according to estimates by Baker Hughes Inc. The kingdom also has about 282.6 trillion cubic feet of proven conventional gas reserves, according to Aramco’s 2011 annual report.
Finding the necessary amount of water in the regions where Aramco is exploring will be difficult, Nasser said at the Manama conference. Shale gas is produced by a technique known as hydraulic fracturing, or fracking, in which massive amounts of water, chemicals and sand are blasted underground to free trapped hydrocarbons.
A lack of infrastructure in these areas presents a related challenge, said Sadad al-Husseini, founder of consultants Husseini Energy and a former executive vice president for production at Aramco.
“It would take at least five to six years to start seeing the development of shale gas on a commercial scale,” he said by phone from Dhahran in eastern Saudi Arabia. “The deposits are in remote areas far from contractor centers, and mobilizing the required manpower and equipment will take time.”
Domestic gas prices are also too low to make developing the deposits economically feasible, Khalid al-Falih, Aramco’s chief executive, said Jan. 14 in Dhahran, Saudi Arabia. The country sells the fuel locally at a subsidized price of 75 cents per million British thermal units. Gas traded on the New York Mercantile Exchange rose to $3.943 per million Btu today, the highest level in 17 months.
Shale gas production in the U.S., which has about 862 trillion cubic feet of recoverable reserves, is forecast to grow to 16.7 trillion cubic feet in 2040 from 7.8 trillion cubic feet in 2011, according to the U.S. Energy Information Administration.
A steep decrease in crude prices to less than $40 a barrel would have a negative impact on development of unconventional oil and gas, Al-Naimi said in his speech. North Sea Brent crude futures, a benchmark for half the world’s oil, were trading today in London at about $108 a barrel and have declined 14 percent in the past 12 months.
--Editors: Bruce Stanley, John Buckley