BMI raises Saudi gas supply forecast on expansion projects

London-based BMI Research has revised upwards its mid-term forecast on Saudi Arabia’s gas production to reflect contract awards for expansion at Hawiyah and Haradh fields, the agency said in a recent report.

The consultancy said it now expects the Kingdom’s gas production to average 161.1 billion cubic meters (bcm) in 2022, compared to its earlier estimates of 156.5 bcm.

The Hawiyah and Haradh project is expected to add around 13.5 bcm of production annually and is slated for completion by mid-2021. “Allowing for commissioning times, we have factored in commercial volumes from 2022,” BMI Research, a unit of Fitch Group, said in the report.

The investment fits with the Kingdom’s broader strategy to shift domestic demand away from oil and towards gas. Saudi Arabia is increasingly opting for gas-fired power generation in order to reduce the use of direct crude burn in the power sector, to allow additional volumes of crude for export, the report noted.

Gas production has grown significantly in recent years as production increased from the 26 bcm Wasit facility. Also, another smaller facility - Midyan - is being commissioned this year and will add a further 1 bcm.

“As a result, direct crude burn has fallen into sustained decline, posting negative YoY (year-on-year) growth every month since mid-2016,” the report said.

One of the key reasons behind the Kingdom’s decision to increase its gas production is to provide feedstock for its growing petrochemicals sector.

“The lack of available ethane feedstock threatens to bottleneck this growth. Due to tightness in the gas supply, the Kingdom has shifted towards the use of naphtha feed and is conducting feasibility studies for an integrated crude-to-chemicals complex. Nevertheless, increasing gas production will be critical, if the growth targets are to be met,” BMI Research said.

As Saudi Arabia does not currently have import capacity, all of the gas consumed in the Kingdom has to be produced domestically. There have been talks to developing capacity to import LNG, but according to BMI, the move appears “unlikely, given that it would entail the Kingdom sacrificing its energy independence.”