'Unless the world's top oil producer tackles inefficiencies in its energy system, the Kingdom's stockpile of crude for export is in danger of falling by as much as 3m barrels per day by 2028' said Khaled al-Falih, Head of Saudi Aramco.

Mr. Falih's comments are significant given that Gulf States (excluding Qatar) face a shortage of gas at a time when domestic demand for energy is soaring and governments are seeking to diversify their economies. In Saudi alone, domestic demand is expected to rise from 3.4m b/d of oil equivalent in 2009 to approximately 8.3m b/d in 2028 – this translates into an increase of almost 250 per cent.

There is a glimmer of hope as Mr. Falih suggested demand could be halved by efficiency improvements provided hard decisions are taken. Such steps would include tackling subsidies that cost billions of dollars each year and foster a culture of waste.

Governments across the region continue to invest heavily to expand crude production capacity. But if solutions are not found, increased capacity will be consumed domestically rather than increase export potential. The irony is that the Middle East sits on 40 per cent of the World's proven gas reserves, a relatively clean source of energy but largely ignored by successive governments.

Oil officials in Saudi Arabia have privately raised concerns about efforts to lure energy-intensive industries such as steel factories and aluminum smelters to the Kingdom. They fear that foreign companies will benefit from cheap power and export a basic material with little advantage for the state. Mr. Falih said growth in energy requirements was not matched by a rise in gross domestic product; something he said was "receiving government's urgent attention".

How quickly will governments across the region mobilize to leverage gas resources? Only last month ConocoPhillips withdrew from a joint venture to develop Abu Dhabi's Shah sour gas field. It seems the road to increasing domestic energy supply will be long and bumpy.

Source: Financial Times