Sinopec drills 7th Saudi gas well after others disappoint
By Chen Aizhu
BEIJING, June 17 (Reuters) - China's Sinopec Group is sinking a seventh exploration well in Saudi Arabia to hunt for natural gas, after the previous six found no flows of commercial value, partly due to low gas prices, a company executive told Reuters.
China's second-largest energy group will complete drilling of the last well by about October, but with costs far exceeding an original projection of $300 million, the executive said.
Under a pact sealed in early 2004 with state-run Saudi Aramco, Sinopec agreed to drill seven wells over a contract period of 10 years.
"We are drilling the last well now...One of the previous ones barely struck any gas. The rest found a small amount of flow but with no commercial value, as the agreed gas prices were too low," said the official, who is close to Sinopec's overseas operations.
The official did not specify the agreed gas price.
"All the foreign firms accepted that price. But you need to strike a high-yield discovery to make it economically viable," he said.
Firms including Royal Dutch/Shell (RDSa.L), French Total ToTF.PA, Spain's Repsol (REP.MC), Italy's Eni and Russia's LUKOIL were drawn to hunt for natural gas in the vast Empty Quarter in 2003 and 2004 in the world's largest oil producer, where domestic gas demand is surging.
Sinopec Group, parent of Asia's largest refiner Sinopec Corp (0386.HK), formed a joint venture with Aramco -- Sino Saudi Gas -- in early 2004 to explore a 38,000-square-km block in the South Ghawar region in the eastern part of the kingdom.
Sinopec owns 80 percent of the venture and Aramco 20 percent.
"The geological conditions were very tough. Each well is about 5,000-6,000 metres deep and can take up to one year to drill," said the Sinopec executive.
Saudi Arabia, which has kept its vast oil reserve off-limits to foreigners, invited investors to find and produce gas. It has reserves of 244 trillion cubic feet, the world's fourth largest.
The kingdom's gas use is set to double to 14.5 billion cubic feet per day by 2030 from 7 billion in 2006, its state firm has said, due to a growing population and rapidly expanding industrial and petrochemical sectors.
(Editing by Ken Wills)
