According to the Oil and Gas Journal, Saudi Arabia has the fourth largest proven natural gas reserves in the world, estimated at 253 trillion cubic feet (Tcf). Over the last decade and a half, Saudi Aramco has added around 75 Tcf of non-associated reserves, including the fields: Mazalij, Manjura, Shaden, Niban, Tinat, Al-Waar, and Fazran in the deep Khuff, Unaizah and Jauf reservoirs. However, around 57 percent of Saudi Arabia's proven natural gas reserves consist of associated gas at the giant onshore Ghawar field and the offshore Safaniya and Zuluf fields. The Ghawar oil field alone accounts for approximately one-third of the country's proven natural gas reserves. Both associated and non-associated natural gas has also been discovered in the country’s extreme northwest, at Midyan, and in the Empty Quarter (Rub al Khali) in the country's southeastern desert. The Rub al Khali is believed to contain natural gas reserves potentially as high as 300 Tcf, although these are not proven. The area remains under exploration.

Despite sizable reserves and increasing demand, dry marketed natural gas production and consumption in Saudi Arabia remains limited (estimated 2.59 Tcf in 2006). Highly subsidized prices and soaring costs of production, exploration, processing and distribution of gas have squeezed supply, while limiting investment in the sector and constraining other areas of economic and industrial growth. According to OPEC and other sources, an estimated 13 to 14 percent of total production is lost to venting, flaring, reinjection and natural processes. Saudi Arabia has no net imports or exports of natural gas.

According to Saudi Aramco forecasts, natural gas demand in the kingdom is expected nearly to double to 14.5 billion cubic feet per day (Bcf/d) by 2030, up from an estimated 7.1 Bcf/d in 2007 The situation is exacerbated by the fact that the majority of gas fields in Saudi Arabia are “associated” with petroleum deposits, or found in the same wells as the crude oil, and plans to increase production of this type of gas remain linked to an increase in oil production. The majority of new natural gas discovered in the 1990s has been associated in light crude oil, especially in the Najd region south of Riyadh. For this reason, Saudi Arabia has concentrated efforts to locate non-associated gas pockets onshore and in offshore formations. According to Saudi Aramco, only 15 percent of Saudi Arabia has been "adequately explored for gas." Traditionally, the power and desalination sectors, followed by petrochemicals and steel manufacturing, have made up the majority of demand for natural gas in Saudi Arabia. Consumer demand for power generation is also growing, particularly in the summer months.

To meet growing domestic needs, in November 2006, the Petroleum Ministry and Saudi Aramco announced a $9-billion strategy to add 50 Tcf of non-associated reserves between 2006 and 2016 through new discoveries (and potentially another 50 Tcf of associated reserves). In order to free up petroleum for export, all current and future gas supplies (except natural gas liquids) reportedly remain earmarked for use in domestic industrial consumption and desalination. According to the 2007 Saudi Aramco Annual Review, the company has increased the rate of exploration, drilling 73 development and exploratory wells in that year, as compared to 35 in 2006 and 20 in 2005. Some 300 development and 70 exploratory wells are reportedly planned by 2010. According to Aramco, exploration and development will also commence in non-producing areas such as the Red Sea, northern and western Saudi Arabia, and the Nafud basin, north of Riyadh.

The Saudi domestic natural gas market, traditionally the sole domain of Saudi Aramco, is slowly being opened to private investment both in exploration and distribution, and increasing competition in the market. The backbone of the non-associated gas exploration strategy relies on foreign consortiums exploring for onshore gas and condensate (natural gas liquids) in the Rub al-Khali, which officials hope will produce some 2 Bcf/d by 2011, although success has been limited. No commercial discoveries of natural gas have been reported in the dozen or more wells drilled by the consortia. Although limited gas discoveries have been made, the artificially low set price for domestic sales may render exploitation uneconomical.

The South Rub al-Khali Company (SRAK), a consortium of Saudi Aramco and Royal Dutch/Shell, is investing an estimated $2 billion in exploring more than 81,000 sq-miles in two separate concession blocks (Blocks 5-9 and 82-85). The concessions surround the Shaybah and Kidan oil fields, abutting Oman and the UAE, and the Saudi-Yemeni border respectively. The consortium originally aimed to sell 500 MMcf/d gas and condensate to the Ministry starting in 2009. SRAK drilled its first exploration well of three in July 2006, (Isharat-1, a wildcat), and is now drilling its first in the Kidan North Fields, although any finds are expected to have high sulfur levels. In the SRAK consortium, Shell and Saudi Aramco are equal shareholders, following the withdrawal of Total in February 2008, due to rising costs.

In January 2004, Russia's Lukoil won a tender to explore for and produce non-associated natural gas and natural gas liquids in the Saudi Empty Quarter in Block A (11,000 sq miles), near Ghawar, as part of an 80/20 joint venture with Saudi Aramco, known as Luksar. In 2007, Luksar reported a “speculative” find of around 620 million bbl of unidentified hydrocarbon reserves (reported to include oil equivalent and condensate) in the Tukhman-3 area, although any oil finds would fall outside the consortium’s development rights.

At the same time, China's Sinopec won a tender for gas exploration and production in Block B (15,000 sq miles). Sino Saudi Gas, a venture of Sinopec and Aramco, has drilled at least three wells and in December 2007, reported the first natural gas find in the area (Sheeh-2) although the quantity is unconfirmed and geology reported to be complex. It has been reported that GAIL, a state-owned oil and gas company from India, is in talks with Lukoil to buy a stake in the joint venture. Finally, the Eni-Repsol YPF-Aramco consortium, EniRepSa Gas, was granted a license to operate in Block C (52,000 sq km), and drilled its first well in September 2006. The consortia have reported trace finds of natural gas.

The consortia have some 27 wells planned in total by 2009, when the five-year exploration contracts expire. The consortia have reportedly requested concession exploration extensions, and in May 2008, SRAK received an 18-month extension 2010. The development contracts cover a 40-year period, except SRAK, which holds a 25 year contract. Constraints on obtaining rigs have also slowed the pace of exploration over the past two years.

Saudi Arabia has prioritized gas development outside the Empty Quarter and recent non-associated gas finds are promising. The Karan gas field, discovered in April 2006, is the largest gas deposit yet discovered in the offshore Khuff formation, some 100 miles north of Dhahran. Initial data shows at least eight gas-bearing structures in the Khuff region around the Karan reservoir containing an estimated 9 Tcf of reserves. Of those, Karan alone is expected to produce some 1.5 Bcf/d when it comes online in 2012.

According to Saudi Aramco, the offshore Jana-6 and an extension of Karan (Karan-7) were the only major gas finds in 2007. Discoveries in 2006 included an earlier extension of the Karan field (Karan-6), with the potential to add 80 Mcf/d to gas flows, and onshore, the Kassab-1 and the Zamalah wells in the Jauf Reservoir, which could add a combined 20 Mcf/d and more than 600 bbl/d of condensate. Finally, Najimaan-1 (Nujayman) reportedly has the potential production capacity in excess of 60 Mcf/d of gas and 2000 bb/d of condensate, according to Aramco sources.

Another large non-associated offshore natural gas field, Dorra (Durra), is located offshore near Khafji oil field in the Saudi-Kuwaiti Neutral Zone. Dorra development has been controversial since the late 1960s, however, because 70 percent is also claimed by Iran (called Arash). In addition, the maritime border between Kuwait and Iran remains un-demarcated. Saudi Arabia reached an agreement with Kuwait in July 2000 to share Dorra output equally, although the Kuwaitis are reportedly trying to purchase the Saudi share. According to Saudi Aramco, the field is estimated to contain non-associated gas reserves of between 35 and 60 Tcf of natural gas, and is under seismic study. The Kuwaiti Ministry of Oil has reported that the goal is to produce initially 600 MMcf/d from Dorra. Kuwait and Iran have intermittently discussed jointly developing the field, although production plans remain undisclosed.

In addition to facing domestic supply shortages, Saudi has also come under pressure internationally for its subsidized natural gas prices. Trade partners have protested supplying highly subsided gas supplies to Saudi industries and utilities, arguing against alleged unfair and uncompetitive trade practices, while domestically, businessmen support low prices to encourage industrial growth and economic diversification. Generally, the price for natural gas for industrial and petrochemical use is set by the ministry at $0.75 MMBtu, some of the lowest in the Gulf (Global LNG exports are averaging around $8.00 MMBtu, in comparison). The low natural gas price is also a challenge to the foreign operators in the Kingdom looking to discover and exploit resources in the Empty Quarter.

In mid-2006, the local Eastern Gas Company (EGS) was awarded a two-year contract to become Aramco’s gas distributor to consumers in the Dhahran industrial area. According to industry reports, EGC has rights to market 45 MMcf/d of gas a year to 35 industrial consumers. According to press statements, the purchase price from Aramco will be US$1.12 per MMBtu and a sale price of US$1.34/MMBtu. In Riyadh, the Natural Gas Distribution Company was granted a license to supply several small-scale manufacturing plants, with a similar pricing structure. For the time being, the price for foreign investors and other consumers remains steady.

Saudi Arabia currently has seven gas processing plants with a total gas production capacity of approximately 9.3 Bcf/d, including 1.1 million bbl/d of natural gas liquids (NGLs) and approximately 2,700 tons of sulfur at facilities Berri, Shedgum, Uthmaniyah and Hawiyah. According to statements made by Saudi Aramco, the country aims to process an estimated 13 Bcf/d by 2009 through additional facilities and capacity expansion. Mega-project plans are currently underway at Khursaniya, Hawiya, Ju'aymah,Yanbu’ and Khurais.

Domestic demand, particularly the delivery feedstock to petrochemical plants, has driven consistent expansion of the nearly 8.0 bcf/d Master Gas System (MGS), the domestic gas distribution network in Saudi Arabia first built in 1975. Prior to the MGS, all of Saudi Arabia's natural gas output was flared. The MGS feeds gas to the industrial cities including Yanbu’ on the Red Sea and Jubail. A key pipeline project was completed in June 2000 to extend the MGS from the Eastern Province (which contains large potential gas and condensate reserves) to the capital in the Central Province. This is part of a broader expansion of the existing gas transmission system in Saudi Arabia, reportedly to include the construction of around 1,200 miles of additional natural gas pipeline capacity (on top of 10,500 miles of oil, gas, and condensate, products, and natural gas liquid pipelines currently in operation). Since 2001, the MGS has been fed entirely by non-associated gas.

In order to feed the expanded gas processing facilities, several additions to the MGS are in the planning or construction phases. The largest pipeline to be built is the 132-mile conduit to the Rabigh complex and the existing Yanbu’ NGL processing facility. Installation of four pipelines, totaling some 62-miles will connect Manifa to KGP and Ras az-Zour for gas processing and raw power production.

Reportedly the Riyadh Chamber of Commerce and Industry is planning a feasibility study with Russia’s Stroytransgaz for the construction of another 7-Bcf/d domestic delivery system that will deliver gas from the Empty Quarter to customers in the east, central and western areas, and will include the construction of some 2000 miles of new pipeline. Construction hinges on a significant non-associated gas discovery in the Empty Quarter.