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Major natural gas find by Saudis. A shift ahead?

Saudi Arabia has every incentive to develop its new natural gas discovery in the Red Sea. If it doesn't, it could become an oil importer in the decades ahead.

By Andrew HollandContributor / October 27, 2012

Cars travel along King Fahad main road in Riyadh, as banners are hung to welcome Saudi Arabia's King Abdullah bin Abdul-Aziz in this 2011 photo. The Saudis announced a major new gas find recently, which could help offset soaring domestic demand for oil.

Fahad Shadeed/Reuters/File

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Saudi Arabia has announced that they made a major new find in natural gas in the Red Sea.
 
The Saudis are already ranked 5th in the world for their reserves of natural gas, but they are only ranked 9th in terms of production of the commodity. They account for about 3 percent of world natural gas production. Compared with their oil production (13 percent of world production), there is clear room for growth.
A couple of weeks ago, a Citigroup report said that Saudi Arabia could become a net importer of oil, if current trends continued. That was because of the booming use of oil for electricity production in the kingdom.

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The Saudis aren't expected to allow their main source of about 80 percent of their export revenue to be eaten away by domestic electricity production; they will eventually substitute other sources of energy for the oil they currently use to produce electricity.
If this natural gas find is a sign that Saudi Aramco has begun efforts to explore and exploit its gas reserves, this could mark a signal that the country is accelerating its efforts to switch its electricity fuel from valuable oil to the more economically friendly natural gas. Given Saudi Arabia's vast reserves of oil, the geological fact that oil and gas often exist in close proximity, and their close proximity to Qatar's giant North Dome field, we could quickly see Saudi Arabia move up world rankings in terms of proved reserves and production.

This would be a big switch for Saudi Arabia. Gas in that country has been seen as solely a byproduct of oil production: it was flared as waste for decades, though Aramco claims to have reduced this practice over the past 10 years. If Saudi Arabia ramps up its production of natural gas, it would add to the "Golden Age of Gas" as predicted by the International Energy Agency. With significant production growth and a move to export, it could even undercut the potential export market that American firms have been eyeing over the past year.
Although it is early for speculation of such a scale, further developments like these in Saudi Arabia bear watching.

– This article is adapted from a story in Energy Trends Insider, a free subscriber-only newsletter that identifies and analyzes financial trends in the energy sector. It's published by Consumer Energy Report

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