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 that the JV 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 2 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, 80% owned by Sinopec and 20% by Aramco was evaluating it.

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

Saudi Arabia, which keeps its oil reserves off-limits to foreign companies invited investors in 2003 to 2004 to find and produce gas in the Empty Quarter. But the gas price terms agreed were so low that companies needed to find condensate a form of light oil that can be sold at international market prices to cover the costs of development.

Mr Khalid al Falih CEO of Aramco 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, a fraction of the price paid for gas in most countries.

Industry source said that there is little likelyhood 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.

Source - Reuters

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