Thread by @davidfickling

People might have missed this among the excitement about Saudi Aramco's bond prospectus, but it's potentially a big deal:

Saudi Arabia has only about a third of the natural gas we thought it did. #oott

bloomberg.com/opinion/articl…

Important preamble: Aramco's accounts are the biggest secret in the world energy industry, hence the excitement about this prospectus. Most figures out there were previously just very good guesswork.

The figure I knew of before this was the one in BP's Statistical Review, a sort of handbook/bible for the energy industry: 283 trillion cubic feet.

For comparison, Exxon Mobil has iirc the biggest gas reserves among independent oil companies, at about 51 trillion cu ft.

Well, BP was too generous.

The kingdom's own reserve estimate comes in a whole Exxon Mobil's-worth lower, at 234tr cu ft.

But wait! Aramco has a separate, lower figure: 186tr cu ft, another Exxon Mobil below the government number.

That still needs discounting.

A load of that gas will never be sold. Instead it will be flared off, or pumped back underground to drive out more crude, or burned as fuel onsite, or simply lost to leakage because it costs too much to recover.

The best figure for gas Aramco can actually sell to customers is about 101tr cu ft, not much more than a third of what we thought they had a couple of days ago.

This matters because Saudi Arabia is one of the world's biggest gas consumers, and its consumption is accelerating.

It's currently no. 7 after the EU, U.S., Russia, China, Canada, and Japan. It should overtake Japan in a year or two.

Saudi knows the oil era will end. So it's trying to sell as many barrels to foreigners first (meaning less oil-fired and more gas-fired domestic generation) and trying to diversify into downstream industries like chemicals and metal processing (using gas as fuel and feedstock).

Indeed, we have these Aramco numbers because it's issuing its first bond to fund buying 70% of state chemicals company Sabic, which is a big natural gas consumer: bloomberg.com/opinion/articl…

In theory Saudi could import gas, but (aside from the blow that would represent to the self-image of OPEC's swing producer) the trading partners aren't there.

40% of middle eastern gas reserves are held by Iran. Qatar has another third. Riyadh is on a near-war footing with both

There's probably a simple solution to this. Aramco didn't really bother looking for gas until a decade or so ago, so there's probably a lot of discoveries to be made.

It has the biggest exploration budget of oil majors after PetroChina and ONGC. Most of that is now going to gas.

Also, state-fixed gas prices were formerly $1.25/mmbtu, too low to encourage much exploration and development. From next year that resets to more than three times that level for gas fields.

So Aramco isn't facing any sort of crisis.

But exploring and developing gas -- especially the sort of offshore and unconventional pure-play gasfields that Aramco wants to develop -- is much more expensive than just sticking another derrick in its giant Ghawar oilfield.

If you're buying a 30-year bond on the basis of Aramco's ample current cashflows, that's something to think about. (ends)

Small postscript after working out the reasons for some of this discrepancy.

Most of the gap between the 283tr cu ft and 234tr cu ft figures is probably natural gas liquids.

This is produced from natural gas, and can be used for cooking, transport, and feedstock, but it's not itself natural gas, it's a third category (alongside condensate) between that and crude.

So it doesn't affect the supply-demand balance for natural gas outlined above.

That next gap down to 186tr cu ft is probably because of the disputed zone on the Saudi-Kuwait border. The kingdom counts that towards its reserves but Aramco doesn't.

One last update to this. You can get a good idea of where Aramco's gas reserves are by backing out the numbers from its reserve estimates below. Basically subtract column a from column b and multiply by 6,000 and you have cubic feet of natural gas:

What that shows is that the Ghawar oilfield alone has a third of Aramco's 186tr cu ft of gas reserves.

Add in the four other main oilfields and you're at about 46% of gas reserves as so-called associated gas, mixed in with crude.

This is much less useful because (a) it's harder to extract and more likely to be reused on site, and (b) production is at the mercy of Saudi's role as Opec's swing producer, which doesn't guarantee domestic consumers very good security of supply.