Saudi Gas to delay Empty Quarter drilling

Sino-Saudi Gas, a joint venture between China’s Sinopec and Saudi Aramco, will delay drilling in the Kingdom’s Empty Quarter as the evaluation of the well is still ongoing, an industry source familiar with the matter said.

The joint venture has been hunting for natural gas for years, but what little they have found has not been exploited due largely to industrial gas prices fixed far below international market prices.

Nevertheless, the two partners will press on with a second phase of exploration, planning to drill one well.

The well was scheduled to be drilled in September but the venture, 80percent owned by Sinopec and 20 percent by Aramco, was evaluating it, the source said but he did not say how long the delay would be.

A Sinopec executive said no decision has been made on the exploration well yet as the company was still evaluating "the economic and technical aspects" of the well.

Aramco did not respond immediately to e-mail requests sent by Reuters. Saudi Arabia invited investors in 2003-2004 to find and produce gas in the Empty Quarter.

The joint ventures included Italy’s Eni and Spain’s Repsol which have abandoned the Empty Quarter, industry sources told Reuters in January.

Aramco’s Chief Executive Officer Khalid Al-Falih in January acknowledged the challenge of low gas prices in Saudi Arabia, saying they do not make unconventional gas or tight gas in the Empty Quarter economic.

The government-set transfer price of natural gas in the kingdom is 75 cents per million British Thermal Units (btu), a fraction of the price paid for gas in most countries.

"There is little likelihood for a major change in domestic gas prices. In any case, they are unlikely to be raised sufficiently to match the steep production costs of the source rocks that have been found in the Empty Quarter which are too costly to fracture and too deep to produce," said another industry source.

Saudi Aramco is looking for gas all over the kingdom to boost gas production.

It is developing Arabiyah and Hasbah and considers developing new gas fields Midyan and Sidr, in the Northwest area.

South Rub Al Khali (Srak), the joint venture between Aramco and Royal Dutch Shell, is the only JV to report finding substantial quantities of gas in the region.