Oil is a story of excess but gas is a matter of need for Saudi Arabia, but both share a common denominator: The Saudi Economy. How have recent developments in those sectors impacted Saudi's outlook?
State oil company Saudi Aramco has discovered two new oil and gas fields in the northern regions, the kingdom’s energy minister said on Sunday, as reported by Saudi Press Agency (SPA).
Oil is a story of excess but gas is a matter of need for Saudi Arabia, but both share a common denominator: The Saudi Economy.
New oil and gas fields
Saudi energy minister Prince Abdulaziz bin Salman Al-Saud said the new Abraq al-Toloul oil field, which lies to the southeast of the northern city of Arar, flows with a daily rate of 3,189 barrels per day (bpd) of Arab light crude oil, along with 3.5 million cubic feet of natural gas.
Hadabat al Hajara gas field in the Al-Jof region has a daily production rate of 16 million cubic feet of natural gas, along with 1944 bpd of oil condensate.
Aramco said it will drill more wells to evaluate how much energy the fields hold.
Current Saudi production is at around 8.5 million barrels per day (bpd), by design and not capacity, which could reach 12 million bpd.
Robin Mills, founder of Dubai-based consulting firm Qamar Energy said on Twitter: “If volumes and costs are suitable, it will be useful for meeting Saudi Arabia’s gas targets and supplying the west coast, which currently lacks a gas grid.”
Saudi is the 7th-largest natural gas market in the world, according to Aramco.
Saudi Arabia had some 303 trillion cu ft in natural gas reserves as of 2017, which accounts for 4% of the global total.
The two new finds could contribute to its non-oil hydrocarbons production as part of the kingdom’s diversification efforts. This includes using gas instead of oil for local power generation.
Also, switching to gas would free more oil for exports.
Reasons behind diversification efforts
Saudi has been trying to diversify its economy for decades, as emphasized in Vision 2030, launched by Saudi Crown Prince Mohammad Bin Salman.
But the Coronavirus and lower oil prices have stalled these efforts particularly in the non-oil sector, which is forecast to contract by 14% this year.
Oil revenues account for around two-thirds of the kingdom’s exports and the country now delivers only 12% of global oil exports instead of 30% during a price war last March.
Demand for crude has also fallen by 8.1 million barrels a day because of COVID-19, according to the International Energy Agency (IEA).
These developments led to massive borrowing this year of $26.6 billion to bolster a stimulus package of $32bn.
Saudi has $450 bn in foreign monetary reserves and the second-largest oil reserves in the world at 268 bn barrels, but diversification is still necessary to avoid growing debt deficits.
Oil price updates
According to the International Energy Association (IEA), global oil supply rose by 2.5 million bpd to 90 m bpd in July after Saudi Arabia ended its voluntary 1m bpd cut.
OPEC+ members started on Aug. 1 relaxing their output cuts down to 7.7 million bpd from the historic 9.6 million b/d that was implemented May through July.
Global supply looks set to fall by 7.1m bpd in 2020 and rise by 1.6 m bpd in 2021.
Global oil demand is expected to be 91.9 m bpd in 2020, down 8.1 m bpd year on year.
EIA expects monthly Brent spot prices will average $43 during the second half of 2020 and rise to an average of $50 in 2021.
Oil prices have edged-up as UAE’s Abu Dhabi National Oil Company (ADNOC) announced a 30% cut to October supplies.
Brent crude oil futures rose by 46 cents on Tuesday, or 1% to $46.38 a barrel while US West Texas Intermediate (WTI) crude futures increased by 28 cents or 0.7% to $43.25 a barrel, Reuters reported.
It follows the 5% cut that ADNOC made for September, August, and July.
The UAE, OPEC's third-biggest oil producer, has a quota of 2.590 m bpd as of Aug. 1, compared to 2.446 m bpd in May through July, according to the OPEC+ agreement.