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Saudi Arabia's Oil Minister Ali al-Naimi (R) attend a ministerial conference in Riyadh November 4, 2015. (FAISAL AL NASSER/REUTERS)
Saudi Arabia's Oil Minister Ali al-Naimi (R) attend a ministerial conference in Riyadh November 4, 2015. (FAISAL AL NASSER/REUTERS)

YETIV and FRETZ

A Saudi fracking boom could be a tectonic shift Add to ...

Steve Yetiv is professor of international relations and Alexander Fretz is a PhD student at Virginia’s Old Dominion University.

Great attention has focused on the North American energy boom, driven by fracking and horizontal drilling, and for good reason: It has yielded far more energy than most people expected and has altered energy security by adding more than four million barrels of oil a day to global markets since 2008.

But what about Saudi Arabia? We rarely think of the Saudis as in need of new energy technologies, or as pursuing unconventional shale energy. After all, their country holds enormous conventional energy sources. But the House of Saud has launched its own fracking boom, and it could well be the next big thing in global energy.

Saudi efforts are more advanced in shale gas than in oil, but both are in motion. In 2011, several years after the U.S. boom was in full swing, Saudi Aramco launched its own unconventional gas program in the northern region (or Empty Quarter, as it is also known). Two years later, Saudi Aramco was ready to commit new shale gas production to a 1,000-megawatt power plant. Ali al-Naimi, Saudi Minister of Petroleum and Mineral Resources, estimated that the kingdom possesses about 600 trillion cubic feet of shale gas reserves, which would place Saudi Arabia fifth in the world in total unconventional reserves. That would be amazing.

Saudi Aramco, in its 2014 annual report, spoke of its unconventional gas program as “continuing to gain momentum,” and Mr. al-Naimi added that “the kingdom has made promising shale gas discoveries and acquired the technologies to produce it at a reasonable price.” Notably, in early 2015, Saudi Aramco raised the amount earmarked for its own boom from an original $3-billion (U.S.) to $10-billion.

The Saudis have also established a global research network of 11 total technology offices and research centres housed in North America, Europe, China and at home. Saudi Aramco’s vice-president of upstream technologies said that “R&D and innovation underpin our intent to emerge as truly global, integrated energy and chemicals company by the end of the decade.”

In September, 2014, the company inaugurated the Aramco Research Center in Houston, a major hub for the American oil-and-gas industry. The centre is operated by the Saudi Aramco U.S.-based subsidiary Aramco Services Co. According to ASC, the facility’s objective is to conduct unconventional upstream energy research in exploration, drilling, field development and project management. The Saudis, who want to exploit unconventional sources, have been seeking U.S. drilling expertise through direct and indirect recruiting efforts aimed at American shale workers.

What does the Saudi fracking adventure really mean? If it succeeds, it would represent a tectonic shift in global energy, although its effects on natural gas and oil markets would differ. (Natural gas is not really a global market.) In general, it would enhance energy security by increasing energy supply and helping to pressure energy prices. But at the same time, it could hurt shale producers around the world by adding to global supply and, if it succeeds significantly, could also decrease interest in addressing climate change.

But can the Saudi boom really take off? That depends on many things, such as the success of the drilling, the ability to find the water needed in the desert to make it work, Saudi co-operation with the global energy companies who have the expertise, the Saudi cost per barrel to produce shale energy and the global price of oil.

One reason the Saudis may have decided not to cut back oil production in late 2014 in the face of the North American boom may be that they are hopeful of their own potential boom. Whatever the case, Saudi Arabia’s fracking venture is already adding more spice to the fascinating story of global energy.

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