The project covers 200,000 sq km in Rube al-Khali in the south of the vast oil-rich kingdom, Oil Minister Ali al-Nuaimi said.

 

The announcement came after a meeting in Riyadh between Nuaimi and senior representatives of the two international oil companies.

  

"This project is an important step and a powerful launch of international investments in the gas exploration and production operations in the kingdom," Nuaimi said.

  

He added that a large number of oil companies from the United States, Europe, Japan, India, Russia and China had been invited to a meeting in London on July 22 and 23 to discuss new gas projects to be offered by his ministry.

  

According to industry sources close to the talks, the Saudi deal with Shell and Total is limited only to exploration of natural gas needed as fuel for the kingdom's domestic power and petrochemical production.

  

The sources said that investments required for the project in its present form will be less than five billion dollars, but that the ultimate amount will depend on the results of the exploration and size of production.

  

Risks

 

Saudi Arabia and the companies involved repeatedly missed deadlines to sign final deals, because they failed to agree on commercial terms and gas reserves.

  

The quantity of gas on offer remained the principal unresolved issue as foreign companies demanded larger acreage to ensure more gas in order to offset the risks involved in the investments.

  

International energy experts said oil companies were not interested in running utilities but were prepared to do so if they could obtain a risk-free return on their capital equivalent to returns from their projects elsewhere.

  

Saudi Arabia, which sits atop the world's biggest oil reserves, has proven natural gas reserves of 224 trillion cubic feet.

  

Current gas production in the kingdom is around six billion cubic feet daily. It is expected to go up to 10 billion cubic feet  per day by 2010.