An economic analysis of the Saudi Arabian gas utilization system.

Abstract

The Saudi Arabian natural gas industry and its downstream activity, particularly petrochemicals, is characterized by its dependence on the country's crude oil production. This is because the main input into these industries is associated natural gas. Most of the Saudi gas-based petrochemical products are sold in international markets where their cost advantage over naphtha-based products is directly proportional to the crude oil price. The profits from Saudi natural gas and its dependent industries are influenced by two countervailing factors. The first is that of the level of crude oil production which determines the utilization level of the gas industry. The second is the international crude oil price on which the returns from petrochemicals, liquified petroleum gases and natural gasoline are directly proportional. This creates a tradeoff situation and necessitates finding a crude oil production level subject to optimizing the country's gas utilization system. A linear programming model is constructed to establish this level and to investigate possible ways to satisfy the country's future gas requirement. The results of the model indicate that the associated gas produced in conjunction with 6.78 million barrels of crude oil per day is needed to operate the gas utilization system at capacity. However, the model estimates that gas associated with a daily crude oil production level of 4.35 million barrels produces the highest returns from the system. Furthermore, to meet the country's gas requirements for 1990 and 2000, based on 4.35 million barrels per day of crude oil, the current daily nonassociated gas capacity should be expanded to 2.27 and 3.15 billion cubic feet, respectively.