And what about Russia? 'Relations have greatly improved since Crown Prince Abdullah's visit in September,' the official said. 'He got on well with Putin and we have agreed to co-operate in energy.'

Did that mean that Saudi Arabia would invest in the Russian oil industry? 'Perhaps,' came the answer. 'More likely, however, is for a Russian company to invest in Saudi Arabia in the gas initiative.'

Just over a month later, the kingdom's Petroleum & Mineral Resources Ministry announced the winners of a competition for three upstream gas exploration and development licences: China Petroleum & Chemical Corporation (Sinopec), a partner with Saudi Aramco in a proposed ethylene cracker in China; Italy's Eni with Repsol of Spain; and Lukoil, the most internationally active of Russia's energy firms.

The news is a boost for Moscow's Middle East oil diplomacy. On 22 December, Iraqi governing council member Abdulaziz al-Hakim, a leader of the Supreme Council for the Islamic Revolution in Iraq (SCIRI), Iraq's most powerful political movement, met President Putin and announced that Iraq and Russia would co-operate over debts and reconstruction. A Lukoil team subsequently visited Iraq and chief executive Vagit Alekperov said he expected his company's oil development contract, signed with the regime of president Saddam Hussein, to be implemented.

Saudi links with Baghdad are developing. The oil ministries of Iraq and Saudi Arabia have established a joint standing committee to exchange views and information. These initiatives have established a triangular partnership among countries accounting for more than a quarter of world oil production and about a third of world exports that could have a decisive long-term effect on prices and production.

Lukoil's Saudi contract is modest but significant. Companies participating in the gas licence tender credibly assert that the bidding process was transparent and fair. It was nevertheless striking that the scoring of the Lukoil bid was twice that of the nearest competitive offer for the concession area in question. It left analysts wondering how the Russian company will make a profit. Most conclude that Lukoil, with Moscow's support, was determined to win regardless of short-term financial considerations.

The bidding round launched in London last July is a legacy of the Saudi gas initiative unveiled by Crown Prince Abdullah in September 1998. It offered big oil access to upstream Saudi gas assets in return for investment in full value-chain power, water and petrochemical projects. At the time, oil prices were low and Riyadh needed money to finance oil industry expansion and investment in the kingdom's overtaxed infrastructure.

By the time the gas initiative was signed by eight companies in June 2001, the deal made less obvious sense. The oil price had recovered and the kingdom's need for finance was lower. Clinton was gone and his replacement in the White House was showing little interest in the Arab-Israel conflict. The incentive to charm big American oil was still valid, but less pressing.

After 11 September, relations between the US and Saudi Arabia became strained. The gas initiative negotiations were handed over to Saudi Aramco, the state oil company deeply protective of its position as the kingdom's sole upstream concession holder. The initiative became deadlocked over the terms offered to three groups of oil companies for gas development concessions. At the end of April 2003, Ali Naimi, seen by some international oil companies as the principal obstacle to the initiative, was re-appointed as Saudi Arabia's Petroleum & Mineral Resources Minister. On 5 June, he notified ExxonMobil, leader of the biggest of the three gas initiative groups, that the deal was dead, signalling the end of the entire programme

Disappointed oil companies say that the initiative foundered on the poor prospects of the areas on offer and, to a lesser extent, on the low returns forecast from the downstream projects they were being obliged to invest in. Naimi, for his part, says the initiative as a whole was simply too complex.

From its corpse emerged two programmes for gas exploration and development that together constitute the largest offering of new exploration territories the world has seen since the original Saudi concession was signed in May 1933. The largest, agreed in principle last July, commits the Royal Dutch/Shell Group in partnership with France's Total to drill in the area covered in the initiative's core venture 3 (CV 3), in which the two companies were originally engaged. ConocoPhillips, the third partner in CV 3, was originally slated to join the deal, but pulled out at the last moment to focus on Qatar. Saudi Aramco stepped in to take up its equity stake.

The second project comprises three concessions covering the area previously allocated to core venture 1 (CV 1), which was originally to have been developed by ExxonMobil, BP, ConocoPhillips and Shell. Bids were invited from any qualified company, and not just from a select handful as occurred in the original gas initiative. Data rooms were opened to allow wider access to geological information than was made available in the failed scheme. Bidders were told that the final decision would be made based on a strict quantitative comparison. In the first gas initiative, selection was heavily influenced by the quality of the proposed supporting downstream investments.

ExxonMobil made it clear it would not bid. It was deeply upset by the collapse of the original initiative, and, perhaps, the shifting state of US-Saudi relations. The giant now appears to be concentrating on Qatar, which has displaced Saudi Arabia as the principal base for the US military in the Gulf.

BP also declined to participate. As a member of CV 1, it already had a good idea of the geological character of the three concessions on offer. It concluded, following a detailed assessment of the offerings in August, that the likely returns would not justify putting in a bid by the September deadline.

BP was not the only UK company to pass. BG formed a partnership with Petronas to compete for a licence but decided late in the day not to go ahead with its bid. Chief executive Frank Chapman called Naimi to explain why the company was dropping out, but there is still disappointment in the Oil Ministry's Riyadh headquarters about the company's failure to participate in the tender.

These circumstances combined to produce one of the strangest outcomes in the history of oil. The country with the greatest proven energy reserves in the world had thrown open the door to upstream assets for the first time in living memory. And yet, two of the world's biggest oil companies declined to join the contest. The prizes have gone principally to second-tier firms, most with practically no record of large-scale work in the Middle East, let alone in Saudi Arabia.

The consequences of this perverse result depend on how much gas will be found in the kingdom and the cost of getting it to buyers. The conventional wisdom, repeated with conviction by those who refused to join the Saudi gas party, is that the kingdom has no great hidden reserves. They say geological data indicates that the only bright spot is the Khuff gas accumulation found at great depths under many eastern parts of the Arabian peninsula. It is very hot and contains impurities that are expensive to remove. The sceptics argue that Khuff gas has little value, a conclusion they say is validated by the fact that Abu Dhabi has decided to import natural gas from Qatar instead of developing its substantial Khuff reservoir.

The credentials of the licence winners provide the doubters with further comfort. Lukoil is an outsider, hungry to book international acreage. To date, Sinopec's main activities have been downstream in the refining sector and it is likely to be paid for any gas found with high-sulphur crude oil for which China's ageing and polluting power stations are the sole large-scale customers. Agip did some unsuccessful drilling for Aramco in the 1970s but its mother company Eni has been recently inactive in the Gulf. Repsol has rarely worked outside the Mediterranean.

From a sceptical perspective, the kingdom's sole consolation is the nationality of the licence winners which include representatives of two of the five permanent security council members. Says one Saudi businessman: 'For the political spread of the winners if nothing else, the Oil Ministry deserves praise.' The oil industry consensus, therefore, is that Saudi non-associated gas is an illusion that serious players will only pursue, if at all, when the terms are generous. Shell and Total will have to spend a fortune for very little and Eni, Lukoil and Sinopec have embarked on the gas equivalent of a wild goose chase.

And yet there is an alternative interpretation. 'I am a geologist and geologists are optimists,' Naimi is reported as telling a business delegation who recently visited his office in Riyadh. 'I believe there is a lot of gas in the Empty Quarter.'

Finding oil is an imprecise science. But did Saudi Arabia put the world's biggest oil companies through the hoop for five long years at a cost of tens of millions of dollars based on a gut feeling?

Ali Naimi is not a sentimental man. After a lifetime working for Saudi Aramco and more than two decades at the very pinnacle of Saudi oil industry, no one can claim to understand better the structure of the kingdom's oil and gas reservoirs. Naimi may know more than he is letting on to.

There are other clues that suggest that Saudi Arabia is negotiating with world oil from a position of undisclosed strength. Naimi and Saudi Aramco chief executive Abdullah Juma'ah regularly respond to questions about the kingdom's intentions towards LNG with the following answer: 'We will consider it if we find a North dome.' The reference to the world's largest non-associated gas field in Qatar has been repeated so often that it is raising suspicions that the pair are relying on more than a vague feeling that the kingdom has abundant gas.

Qatar's North field contains gas that has leaked into shallower strata under the Gulf. The dome's rock formation is similar to that found deep under the Rub al-Khali. Naimi seems to believe that the source of this gas may be a massive gas reservoir deep in the earth's crust under eastern Saudi Arabia.

Both Naimi and Juma'ah have declared that building a gas-to-liquids (GTL) plant, though not part of the strategy for 2010-25, could also be possible if enough gas is found. This promise has, perhaps, decisively influenced Shell's decision to press on in the kingdom.

The company aims to be the world leader in a business forecast to be massive within 20 years. Shell, a partner in Oman's LNG programme, is committed to a $5,000 million GTL plant in Qatar. Offering the possibility of low-cost feedstock for a similar project in Saudi Arabia may have helped sweeten the prospect of low returns from expensive gas exploration. Some industry experts believe that Shell's seismic work in Oman close to the Saudi border may have supplied evidence others do not have of massive new energy treasures.

In contrast, BP has decisively rejected the Saudi option. It has invested little in Saudi Arabia. Unlike ExxonMobil, ChevronTexaco and Shell, BP has no petrochemical joint venture in the kingdom, to the irritation of a generation of Saudi officials. At the end of August 2003, at the time it was deciding against bidding for the new gas concessions, BP finalised its joint venture with Tyumen Oil Joint-Stock Company (TNK). It was an emphatic affirmation of chief executive John Browne's view that Russia was a better prospect than the Gulf.

The context for these critical developments was significant. The summer of 2003 was a particularly fraught moment in Britain's relations with Saudi Arabia. UK Prime Minister Tony Blair had rejected Saudi Arabia's call for a UN approach to the Iraq crisis. The UK's Foreign & Commonwealth Office, directed by Labour ministers with little sympathy for Saudi Arabia, had been putting pressure on Riyadh for the release of UK businessmen that London firmly believed had been wrongly jailed for bombings in the Saudi capital in 2001 and who claimed they had been tortured while in jail. Saudi ministers visiting the UK in May were refused meetings with their counterparts as diplomatic sparring between London and Riyadh degenerated into a public row. In the strained atmosphere, BP received no official call for the company to bid for Saudi gas concessions.

The decisions made in Britain's summer of discontent with Saudi Arabia may have profound consequences for BP. Following the arrest of Yukos chairman Mikhail Khodorkovsky in October, staking so much on Russia now looks considerably more of a gamble. But a deeper worry is niggling at BP's executive psyche. As the Anglo-Persian Oil Company, it struck oil in Iran in 1908. In 1933, it was beaten in a race to sign an oil concession with the newly-minted kingdom of Saudi Arabia.

BP's geologists doubted the kingdom had commercial oil deposits and the company jibbed at Riyadh's financial demands. Instead, Standard Oil of California (Socal), the firm that eventually became Chevron, secured the deal, but at what seemed an extortionate price. Wallace Stenger describes the agreement succinctly: 'The terms were. well above what Socal considered justifiable for a mere look at a wildcat prospect.'

The Californians drilled six wells with no results. In a final gamble, a seventh well was sunk on the Dhahran dome near Al-Khobar. On 3 March 1938, oil flowed. Socal had stumbled on the first traces of the greatest mineral discovery in history.

No one believes that history has repeated itself. Geologists are cleverer and more knowledgeable. And yet, it is perhaps premature to rule out the possibility, remote as it is, that five years from now or even sooner, a gas discovery of equal significance will be made deep in Saudi Arabia's Empty Quarter by another unlikely group of explorers defying the elements and the predictions of apparently wiser men. n