While US shale firms batten down the hatches or seek M&A solutions to their problems, Mid-East Gulf unconventionals are enjoying a revival
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The appetite to develop unconventional resources in the Mid-East Gulf remains surprisingly robust, with a quest for gas the main motivator for going after these tricky reservoirs. But, to make these plays work economically, the developers will need to show sophisticated skills and cost control.
Kuwait has for some years been developing the deep, tight and sour Jurassic oil and gas in its north. But technical, safety and budgetary challenges have meant progress has been slow.
In April 2018, Bahrain said it had found 10-20tn ft³ (280-560bn m³) of gas in the deep pre-Unayzah (Permian) onshore and 80bn bl of shale oil in place in the Khalij Al Bahrain offshore basin. It estimated this could produce 200,000bl/d, and Chevron and Total both signed to evaluate the resource. But, more than two years on, Manama is still looking for investors to commit.
In February, after drilling about ten appraisal wells, Dubai and Abu Dhabi announced the discovery of 80tn ft³ of shallow, dry biogenic gas in tight reservoirs of the Gachsaran formation, lying between the two emirates near the major port and industrial centre of Jebel Ali.
And, in August, Saudi Aramco revealed two oil and gas finds in tight Ordovician sandstones in the northwest of the kingdom. More significantly, it has been working on the Jafurah basin in the Eastern Province, which likely extends offshore into the Gulf and the Khalij Al Bahrain area. It plans to invest $110bn to develop 200tn ft³ of wet gas, yielding 2.2bn ft³/d by 2036, 130,000bl/d of ethane and 500,000bl/d of condensate and NGLs. Jafurah’s carbonate mudstone reservoirs have been compared to the better-understood Eagle Ford play of south Texas.
Most recently, EOG Resources made a now rare foreign foray for a US shale specialist in September, signing to explore Oman’s block 36, hosting an oil and gas-bearing sandstone within the Silurian ‘hot shale’, a key regional source rock. In October, Swedish producer Maha Energy was awarded block 70 in the sultanate, containing the Mafraq shallow heavy oil field, estimated to hold 185-280mn bl in place. And, in the same month, BP brought onstream Ghazeer, the 0.5bn ft³/d second phase of the giant Khazzan tight gas project.
Gas appetite
These finds have their roots in more than a decade of gas shortages in the Gulf, as supply struggled to keep up with rapid demand growth. Political and commercial barriers largely prevent access to the giant nearby reserves of Iran and Qatar.
Instead, Kuwait, the UAE and, recently, Bahrain have turned to LNG imports, which remain an option for Saudi Arabia too. Although an LNG exporter, utilisation rates at Oman’s liquefaction plant often ran well below capacity until Khazzan came along.
Now, years of exploration and appraisal promise to yield results in unlocking new resources throughout the Gulf. For Oman and Bahrain, unconventional reservoirs offer the hope of reviving their mature oil production and easing wide budget deficits. If Saudi Arabia achieves its plan for Jafurah, it could contribute to the kingdom producing c.20bn ft³/d of treated gas by 2030, replacing oil in its power plants and leaving 3bn ft³/d—enough to support a 20mn t/yr+ LNG liquefaction project—for export.
But these resources are neither technically nor, at a time of sustained low energy prices, commercially straightforward. Offshore unconventional production, as targeted by Bahrain, would be a world-first. Aramco has at least spent years honing its techniques, but the NOCs who operate most of these projects need to make further strides or bring in international partners.
After a decade of optimisation and intense competitive pressure, the US shale industry still struggles to achieve both growth and profitability. Replacing oil in Gulf power generation with unconventional gas, as the US has done with coal, is achievable, given favourable economics. But delivering cost-competitive gas to industry or for feed new export projects, which might be necessary to support scaled-up development, is likely to be significantly more challenging.
Robin M. Mills is CEO of Qamar Energy, and author of The Myth of the Oil Crisis