Last month a senior international oil executive described a problem facing the Middle East as a “puzzle”.

Malcolm Brinded, executive director of upstream international business at Royal Dutch Shell, was referring to a gas shortage facing countries across one of the world’s most hydrocarbon-rich regions.

The Middle East is home to more than 40 per cent of the world’s proven gas reserves, and with scope for discoveries, is set to play a “pivotal role” in the global liquefied natural gas (LNG) market, Mr Brinded said.

Yet many of the region’s states face the more immediate challenge of meeting rising domestic power demand and while there is a lot of gas, few countries have adequate supplies onstream.

“This is the puzzle that needs to be solved,” Mr Brinded said in a speech in Kuwait.

The bulk of the region’s gas lies in two countries – Iran, which boasts the world’s second-largest proven gas reserves, and Qatar, which has the world’s largest natural gas reservoir, the North Field.

Nearly two-thirds of the Middle East gas outside these two countries is “associated” gas, which means it is tied to oil production, according to Shell. Meanwhile, much of the remaining gas not linked to oil is either “sour,” meaning it is highly toxic, or “tight”, making it expensive and technically challenging to develop.

And for years, little attention was paid to the resource.

Abu Dhabi, the capital of the United Arab Emirates, for example, has only recently begun building a pipeline that will enable it to bring onshore gas produced at sea. Although it has world’s sixth-largest proven gas reserves, it is a net importer of gas.

The problem is exacerbated as Arab Gulf states seek to use their petrodollar wealth to develop and diversify their economies with a focus on energy-intensive industries.

This increases domestic demand. Energy subsidies are also widespread across the region, which has encouraged a culture of waste and inefficiency.

Kuwait and the UAE are already importing gas, while Saudi Arabia is burning increasing amounts of oil and oil-related fuels to meet its power needs.

Unless solutions are found, the growing requirements of domestic demand will affect the ability of Gulf states to export oil.

“Much of the world has not woken up to the issue of domestic demand in the Middle East,” says a Gulf energy official.

“It is one of those stories that is not well understood but has important ramifications for oil prices.”

Khalid al-Falih, the chief executive of Saudi Aramco, the state oil company, recently warned that unless Saudi Arabia tackles inefficiencies in the way it uses energy, the kingdom’s availability of crude to export risks falling by as much as 3m barrels by 2028 to 7m barrels a day.

He said that Saudi Arabia’s domestic demand is expected to rise from about 3.4m b/d of oil equivalent in 2009 to approximately 8.3m by 2028.

The Gulf states are investing heavily in a bid to bring more gas onstream, but many challenges lie ahead.

Saudi Arabia, which is home to the fourth-largest proven gas reserves, is exploring across the kingdom and will begin drilling in the Red Sea in 2012 for the first time.

Exploration is also continuing in the vast, remote desert of its Empty Quarter, where Saudi Arabia awarded international companies exploration blocks, but there have not yet been any commercial discoveries.

Aramco is also expanding its raw gas production capacity from 10bn cubic feet a day to 15.5bn cu ft a day in 2015.

Kuwait, meanwhile is developing its first non-associated gas field, which it hopes will produce 1.8bn cu ft a day.

Abu Dhabi has also been awarding contracts for its Shah field, a sour gas field whose development is deemed critical to the emirate’s energy strategy.

However, that project suffered a setback last month when ConocoPhillips, the Abu Dhabi National Oil Company’s joint-venture partner, announced it was withdrawing from the development, which is estimated to be costing $10bn.

Adnoc is pushing ahead with the field, and an­nounced the award of $5.6bn worth of contracts days after the US company made its decision public. But the state oil company has to decide whether to proceed alone with a project that has already been delayed and is extremely challenging technically.

It was hoped that Shah would start producing gas around 2013, with a production target for sales gas of between 500m and 700m cu ft a day.

But John Sfakianakis, chief economist at Banque Saudi Fransi, says the idea the Gulf can use cheap gas to create manufacturing capacity and diversify its economies has to be “seriously questioned.”

“Demand is out-stripping supply and the mismatch is challenging. Something has to give, either the region will tone down the demand it has on additional gas supplies, or find more gas, become more efficient energy users and …befriend Qatar,” he says.

“But all options have limitations if they don’t all become more efficient users of energy.”

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