The history of Saudi Arabian gas development is impressive, but little known outside its borders. The kingdom has not sought to penetrate the bulk gas markets - as Abu Dhabi did in the 1970s and Qatar and Oman in the 1990s. And yet the figures show Saudi Arabia has the world's fourth largest proven gas reserves after Russia, Iran and Qatar, with 4 per cent of the global total. In 2001, it was the world's 10th largest producer of gas.

According to Aramco in November 2002, the kingdom had about 224 trillion cubic feet (tcf) of proven gas reserves. About 136 tcf is in the form of associated gas. Non-associated gas reserves have been doubled to 88 tcf through exploration in the past decade and there are hopes this figure will rise further. 'There are large promising areas of Saudi Arabia that are under-explored for non-associated gas,' Aramco senior vice-president Khalid al-Falih told a conference in Riyadh last October. 'The kingdom believes that these areas carry significant potential for non-associated gas discoveries.'

Capitalising on gas reserves is complex and expensive. Natural gas is made up of low-value methane, ethane - a premium product favoured in plastics production and natural gas liquids (NGL), which mainly comprise exportable butane and propane. Natural gas can be burned unprocessed, but making the most of the commodity entails splitting it into its component parts. To do that requires heavy investment, which has only recently looked financially justifiable.

The decision to make more of the gas reserves was taken in the mid-1970s when Aramco invested in the celebrated master gas-gathering scheme (MGS), which was designed to make use of associated gas that had previously been flared. The MGS was needed principally to support the kingdom's plan to develop world-scale ethylene, iron and steel plants using natural gas as feedstock and for energy. This programme was largely completed by the start of 1980s, providing the raw material for industries set up in Jubail and Yanbu by Saudi Basic Industries Corporation (Sabic). The completion in the early 1980s of an NGL pipeline crossing the country to Yanbu on the Red Sea coast has allowed gas to be delivered to new industries in the city and to Riyadh. It also enabled the kingdom to become the world's largest exporter of NGL, at present supplying 340,000 barrels a day (b/d) to world markets.

Investment in the kingdom's energy infrastructure was squeezed due to the slump in oil export earnings after 1986 and budgetary pressures caused by the war for Kuwait. By the early 1990s, it was evident that the gas system would be insufficient to meet projected growth in demand from power and water production and the expansion of the heavy industries developed by Sabic. In addition, gas supplies depended on the flow of oil. When crude production was reduced, gas supplies also declined. Developing non-associated gas supplies moved up the energy agenda as a result.

The first step in developing a new generation of gas facilities began in 1984, with the start of production from the Shedgum and Uthmaniyah areas of the Ghawar field. This remained the only major investment in non-associated gas production until the late 1990s.

The need to develop non-associated gas provided some of the impetus behind the government's decision to approach international oil companies (IOCs) in the 1990s, for investment in the kingdom's energy industry. This eventually developed into the gas initiative, signed in April 2001. The initiative calls for seven IOCs to invest in projects ranging from exploration to the production of water and petrochemicals, in return for a stake in any gas they find in selected areas of the kingdom.

The gas initiative seized the attention of the world oil industry, but Aramco was taking its own steps to boost non-associated gas production. Faced with the prospect of losing its oil and gas industry monopoly, the company pressed ahead with the biggest investment in gas development projects in its history.

The big step forward came in 2001 when the 1,400 million-cubic-feet-a-day (cf/d) Hawiyah gas complex was completed. This comprises a gas processing plant fed by a series of wells, all drawing from non-associated gas reservoirs. Hawiyah supplies gas to power plants and industries in eastern and central Saudi Arabia. Completion is due soon on the Haradh gas plant and related facilities, the second purely non-associated gas project, with production capacity of 1,500 million cf/d of gas.

The next phase of the non-associated development plan calls for two large projects to recover ethane and NGL. The first will process the combined rich gas streams from the Hawiyah and Haradh plants. The second will process an associated gas stream from the southeastern Shaybah field. These projects will raise the kingdom's ethane production capacity to 900 million cf/d and NGL capacity to 950,000 b/d.

There is a pressing need for new gas production that does not depend on oil output - a figure constrained by OPEC quotas. Domestic demand is substantial and growing rapidly. At 246 cf/d, the kingdom has the highest per capita gas utilisation rate in the world. Gas demand from utilities has been growing at the rate of 5 per cent a year for at least a decade. Industrial fuel and feedstock demand has been expanding by almost 7 per cent a year over the same period.

For these reasons, Aramco is focusing its immediate attention on the local market. If non-associated gas discoveries continue at the rate seen in the past 10 years, it is possible that the kingdom will seriously consider the option of entering natural gas export markets.

Speaking at the October Riyadh conference, Al-Falih unveiled the latest thinking emerging from the strategy process. He announced a new approach to the regulation and structure of the gas industry that would for the first time facilitate private and foreign investment in the sector.

Anticipating developments in the gas initiative, Al-Falih said Aramco would continue to be dominant in exploration but would sometimes work in joint ventures with private investors to explore, develop and produce gas.

The national oil company was also formally nominated as the key player in midstream processes. Al-Falih said Aramco would keep its monopoly as operator of the MGS and would acquire any gas produced by gas initiative joint ventures surplus to the IOCs' requirements. In an important new development, third parties would be allowed access to pipelines and midstream facilities.

The strategy for downstream facilities envisages the possible introduction of competition. It calls for owners and operators of new gas networks outside the MGS to be able to market their future gas and gas products domestically. This approach clearly foreshadows the development of a market in which domestic consumers will be able to choose suppliers rather than having to depend on Aramco. Playing the role of regulator, the Ministry of Petroleum & Mineral Resources will approve tariffs for third-party use of the MGS.

Political developments since the autumn have brought progress in the Saudi gas initiative to a halt and serious questions have to be asked about its future. No such doubts weigh on Saudi Aramco. There are unmistakable signs that the company is determined to drive home its advantages with further ambitious projects that will make gas an increasingly important source of export earnings.

Edmund O'Sullivan