Most efforts by Saudi Arabia to diversify the economy were focused on leveraging cheap gas. However, now this strategy is beginning to fall through. The rapid growth of the economy and population in recent years has led the government to divert greater quantities of ethane to power plants to use as fuel for generating electricity, leading to a reduction in the availability of the gas for petrochemical manufacturers. Ethane avails are tight in Saudi Arabia because of OPEC quotas, and also because as associated gas (a by-product of oil production) supply matures in the Kingdom, it is becoming drier (less ethane content). OPEC has reduced Saudi Arabia's oil-production quota, resulting in the country's output being pegged at around 8.4 mln bpd. However, it needs to be producing 10 mln bpd to provide enough ethane for crackers to run at 100%. The kingdom has ruled out import of gas. The percentage of natural gas in oil fields in Saudi Arabia has been declining steadily. Though efforts are underway to boost natural gas production, a near-term ethane shortage is estimated in the kingdom. Higher development costs point to overestimation of the amount of cheap gas in the kingdom. 50% of all Saudi off-shore platforms are now devoted to gas exploration compared with 20-40% in the past. This can be attributed mainly to the rise in demand for gas from non-petrochemical applications - most significantly electricity. Although the region has 40% of the world's known gas reserves, only Qatar has managed to become a net exporter through judicious use. In Saudi Arabia, the price of ethane is set far below international prices at 75 cents/mln BTUs, which helped fuel cheap expansion for petrochemical firms. Most Saudi Arabian petrochem producers use ethane because of government subsidies that mark it below market prices, and also at values cheaper than other feedstock such as propane and naphtha. Ethane comprised around 73% of all feedstock used in the kingdom until 2007. Ethane's share is likely to decrease to 65% by 2014 as producers consume more of the widely available but higher priced propane. Since it is a net exporter of naphtha, naphtha crackers should be an alternative for Saudi Arabia to cope with limited gas supplies. However, cracking liquid hydrocarbons, especially naphtha, is not nearly as cost competitive as cracking ethane. Saudi Arabia is expected to spend US$31.4 bln through 2015 on improving gas supplies. Of that amount, US$24 bln will go toward downstream projects and gas based petrochemicals and fertilizers. Saudi annual petrochemical output is to reach 80 mln tons in 2015 from 60 mln tons in 2009, and government-controlled SABIC alone plans to boost production to 130 mln tons by 2020. World number one petrochemical maker- Saudi Basic Industries Corp, is switching feedstock to propane and naphtha. This switch will enable the petrochem major to recompense for reduced supply of natural gas in Saudi Arabia. Investments to the tune of US$40 bln are underway by state run Saudi Aramco in three refining and petrochemical projects that will add more than 8 mln tons of production capacity. The outlays include about US$20 bln for a joint venture plant with Dow Chemical Co, US$8 bln to expand Rabigh Refining and Petrochemicals Co with Sumitomo Chemical Co, and US$12 bln in a JV between Saudi Aramco and Total SA in a refinery at Jubail on the Arabian Gulf coast. Saudi Aramco plans to use natural gas liquids and refined products for expansion of Rabigh II joint venture with Sumitomo Chemical, partly because of uncertainty over the supply of natural gas over the plant's lifetime. Unless supply increases are concurrent with the growth in gas demand over the next two decades, more than 60% of total Saudi energy production would have to be diverted to meet local needs, says HSBC. This would result in a big revenue loss for the country through a reduction in oil exports and global crude prices would rise. So the race is on to meet ambitious growth targets for natural-gas extraction as the scale and nature of these investments places upward pressure on pricing.