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Saudi Arabia’s recent moves into the liquefied natural gas (LNG) market may be a sign the giant oil exporter is looking to expand into a rapidly growing and politically influential market it had long ignored. A major policy shift by Saudi Arabia on the role of natural gas is gaining momentum after decades of false starts, and it appears to be as much a political as a commercial decision. Saudi interest in global gas and LNG seems to be only marginally related to eventually importing LNG on a need-to-buy basis and a lot to do with establishing a foothold in a growth industry. Global LNG production capacity is expected to increase by 50% over the next five years, particularly for use as a balancing agent for renewables in power generation and as a direct competitor with battery storage during the next period of the energy transition. Saudi involvement as a producer and consumer would help level its portfolio away from oil, allow easier access to imported LNG, and challenge the geopolitical and commercial dominance of Qatar.
The Saudi acquisition of 49% of the LNG company MidOcean Energy in September 2024 was followed this month by the kingdom entering the market as a buyer of contracted LNG: 1.2 million tons per year (MTPA) from US Next Decade. The free-on-board contract[1] for 1.4 cargos per month gives the Saudis the option to sell the LNG anywhere in the world while reserving the right to bring it to the kingdom. One day after the contract was signed, the Saudis, via MidOcean, also signed a non-binding, heads of agreement (HOA) for a 30% stake in Lake Charles LNG in Louisiana from Energy Transfer. And the Saudis had signed an enormous HOA with Sempra in June 2024 to purchase 5 MTPA of LNG from the second phase of the Port Arthur LNG project in Texas. That HOA further contemplates Aramco’s 25% equity participation in Phase 2 of the project, if it emerges.
Import Constraints
Saudi Arabia is the sixth largest gas market in the world and produces all its gas domestically. Because the kingdom is expanding domestic production, the idea that it will import any of the LNG it contracts seems unlikely at any point soon, although creating the ability to import LNG fits well with a broader strategy of having a large presence in the global LNG market. Also, a fixed import terminal or a floating storage and regasification unit would need to be built, bought, or leased to make it possible to import the LNG.
And with domestic gas prices fixed at $1.25/million British thermal units (MMBtu), importing LNG at a price that will be at least four times as high seems unrealistic on a sustained basis. Raising the domestic price has proven difficult, as current users in the power or petrochemical sector premise their own operating margins on a low gas price. The low price in residential/commercial use is also a central part of the country’s social welfare policy. Studies by Saudi research center KAPSARC indicate that in the absence of LNG imports, the projected long-run marginal value of domestic gas in Saudi Arabia is potentially $9/MMBtu.
Domestic Constraints
Domestic gas development is filled with caveats as well. While Saudi Arabia is the world’s sixth largest holder of proven gas reserves, a large portion of these reserves is non-associated dry gas, which adds costs for handling due to the large amount of hydrogen sulfide in such gas, that ranges in type from shale gas in the Jafurah Basin to sour gas fields like Karan and Wasit. These additional costs suggest that importing LNG could be an alternative or at least a supplement to further Saudi Arabia’s ambitions to grow its domestic market for gas use in everything from cooling to power generation. Even a potential import price parity of $9/MMBtu compares favorably to Saudi’s longstanding policy of burning crude oil to meet power needs, which costs about $10–$12/MMBtu equivalent for power use.
Additional Considerations
If price and accessibility to incremental gas supply were the only issues, purchasing LNG (or even pipeline gas) from its neighbor in Qatar or Abu Dhabi would have occurred long ago. As a broader energy policy, Saudi Arabia is moving toward establishing a more vertically integrated role in LNG. MidOcean provides the kingdom with equity in LNG production in Peru and Australia, while the Next Decade contract suggests a larger portfolio of LNG supply. Based on previous attempts to execute a downstream outlet, what could come next is establishing outlets for the LNG beyond its potential use in Saudi Arabia, likely in Asia, which accounts for most of the growth in the LNG outlook. The Saudis were unsuccessful in trying to buy Pavilion’s LNG import and distribution assets in Singapore in 2024, losing to Shell. Future investments could possibly include portions of import terminals in Europe or Asia as well as a downstream network to sell regasified LNG to industry or power.
Buying LNG from a US project rather than from one of its Gulf neighbors also suggests that Saudi interests in LNG extend beyond importing it. The Trump administration’s focus on LNG exports as a centerpiece for its energy abundance agenda is now a major factor influencing US trade and could have been a factor in some of the investments that Saudi Arabia has made thus far. Building a larger supply portfolio to rival Shell or China’s CNOOC also seems like a logical step for a country that may or may not need to import gas in the future: many of the world’s largest buyers have set up robust trading operations to add import flexibility, if needed.
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[1] In a free-on-board contract, the buyer takes ownership at the loading terminal.
