A long-term approach: the emirates are pursuing a policy of regional cooperation to get the best out of their natural gas reserves.

Rather than trying to compete with gas rich Qatar for regional and overseas markets, the UAE has adopted a policy of cooperation in its new gas marketing strategy, which, it is hoped, will reduce oil dependency in the longer term.

The UAE possesses the world's fifth biggest reserves of natural gas, after Russia, Iran, Saudi Arabia and Qatar. Of the 212 trillion cubic feet (tcf) of proven UAE reserves, the lion's share, some 196 tcf are located in Abu Dhabi. Associated gas on the Abu Al Bukhush and the non-associated Khuff fields are the most important known sources of gas in the emirate, although the sizeable Bab, Bu Hasa, Umm Shaif and Zakum fields all make valuable contributions.

One of the main motivations behind the government's determination to make the most of its gas reserves is the maturity of its oil fields. Many of the main fields have been in production for over 30 years and have passed their prime. However, given that production capacity is on an upward trend in the short term, the government's desire to focus on gas at this stage can be seen as a more far-sighted policy than that adopted by many other oil producers in a similar situation.

Improved oil production techniques coupled with the development of previously unexploited fields and a succession of offshore discoveries have boosted both reserves and output over the past decade. As in the gas sector, Abu Dhabi itself continues to hold the bulk of UAE oil reserves, possessing around 92bn barrels out of a national total of just under 98bn barrels.

An increasing proportion of natural gas production is to be used to boost oil production through injection. During the second half of 2002, the Abu Dhabi Marine Operating Company (Adma-Opco) and Zakum Development Company implemented the Pilot Gas Injection Project on the offshore Zakum field and other similar schemes are planned.

Reduced OPEC quotas have had a downturn on oil industry development. Unlike Dubai, which is not a member of the cartel, Abu Dhabi is unable to make the most of its production capacity of around 2.65m barrels a day (b/d) because of the total UAE quota of only 2.138m b/d.

However, there are no such restrictions in the gas sector, consequently most hydrocarbon sector growth is likely to come from gas projects over the next decade.

A string of projects

Over the past decade, the linchpin of UAE gas sector growth has been the Taweelah gas scheme, which involved the development of a huge industrial zone principally utilising natural gas as a feedstock. More recently, the Maqta pipeline from Abu Dhabi to Dubai was completed in May 2001 and once associated infrastructure is in place, capacity will reach 900m cubic feet a day (cf/d). Contracts have already been signed for 200m cf/d, for use in both power generation and new industry projects.

Within the Gulf as a whole, growth in demand for gas is likely to come from new power projects and from the development of the petrochemical sector. According to government figures, demand in Abu Dhabi is predicted to reach 4bn cf/d by the start of 2005, while Dubai is likely to offer additional scope for expansion.

The UAE's three-phase onshore natural gas development programme (OGD) has centred upon the construction of the Habshan gas processing facilities on the Bab oil and gas field. The first phase was completed in 1999 and was followed two years later by the construction of Habshan's first four trains. An initial $1bn was invested in OGD but this figure could be pushed significantly higher at a later date if more trains are constructed.

The first four trains have the capacity to handle 1bn cubic feet of natural gas a day, producing up to 55,000 tonnes of condensate, 500 tonnes of natural gas liquids and 2,100 tonnes of sulphur a day. Another two trains should be brought on stream by the end of this year. Together with the existing Bu Hasa, Das Island, Jebel Ali and Ruwais gas processing installations, the new plant gives the UAE a range of production facilities and substantial capacity.

Despite the success of such projects, there remains vast scope for new gas schemes given the current reserves life estimate of 160 years. Outside Saudi Arabia, the centrepiece of Gulf gas development is the renowned Dolphin Project to unify the natural gas grids of Abu Dhabi and the rest of the UAE with Oman, Qatar and possibly, later, other states in the region. The project is mainly aimed at satisfying demand from the power industry.

India and Pakistan have been identified as future potential markets, and a pipeline to South Asia has been mooted. However, the plan may rail foul of political difficulties between Pakistan and India over the disputed region of Kashmir, as has a similar Iranian pipeline scheme.

The Dolphin Project has been in development since the initial agreement was signed between Qatar General Petroleum Corporation (QGPC) and United Arab Emirates Offsets Group (UOG) in 1999. A pipeline with a diameter of four feet (121 centimetres) from Ras Laffan in Qatar to Abu Dhabi is under construction, with first supplies expected in 2005. Although a separate distribution network within Abu Dhabi forms part of the Dolphin scheme, the existing Abu Dhabi National Oil Company (ADNOC) network will be used in the short term.

Once the first section is in place, work will begin on the extension to Dubai and on to Oman. Initial capacity is estimated at 3bn cf/d, making it one of the world's biggest gas pipelines. TotalFinaElf is backing the project alongside UOG and QGPC, and other foreign investors are coming on board.

Hopes of increasing the amount of investment provided by foreign companies were given a boost in March, when Saeed bin Jabr Al Suweidi, President of Abu Dhabi Chamber of Commerce and Industry, announced the government's intention to introduce new legislation, aimed at relaxing restrictions on foreign investors. The UAE already has one of the most open investment environments for foreign companies in the region.

However, plans to develop the regions gas resources may well hamper the development of Abu Dhabi's gas fields since, as part of the Dolphin Project, Qatar's North Dome field will supply much of the growth in Abu Dhabi's gas requirements over the next few years. Oman Oil Company is to supply new UAE firm Dolphin Energy with 135m cf/d of gas from the end of this year, until the North Dome supplies are brought on stream.

In the longer term, the UAE and Abu Dhabi seem to be banking on a coordinated approach by Gulf gas producers, so that rather than competing with Qatar, the region as a whole will be able to target more distant markets. With even bigger gas powers, such as Russia and Iran, also seeking to secure markets in South Asia and elsewhere, Abu Dhabi may well be adopting the correct strategy. Justas the seven emirates that today make up the UAE decided in 1971 that they would be stronger as a bloc than they ever could be as individual sheikhdoms, the smaller Gulf states now seem to be following a similar path of strength in numbers.