When Saudi Aramco began developing the massive Jafurah gas field in 2020, expectations were that Saudi Arabia would become a natural gas exporter for the first time. Although the kingdom dominates oil trading, it had never exported natural gas abroad, and domestic demand had exceeded supply. The $100 billion Jafurah project was set to fundamentally transform Saudi Arabia's gas industry on both fronts. But six years later, Aramco is still searching for ways to dispose of the large volumes of gas about to come onstream.

The state-owned oil company must balance multiple objectives: maximizing business value to fund its own expansion plans and Saudi Arabia's ambitious economic development agenda, while conflicts in the Middle East unsettle global energy markets.

The Jafurah field began production last year, with the second phase expected to come online before 2030. Aramco says its gas output will increase by roughly 80% from 2021 to the end of this decade.

Most of the gas already has a ready market domestically. Saudi Arabia is converting fossil fuel power plants to gas-fired ones, a move that allows the kingdom to export more crude oil and boost revenue.

Wood Mackenzie estimates that Saudi Arabia's annual gas production could reach 180 billion cubic meters, leaving up to 50 billion cubic meters per year in surplus after meeting domestic demand. Saudi Arabia's aggressive push into artificial intelligence and data centers can absorb some of the excess gas, but significant volumes of surplus gas will persist for years to come.

Nevan Boroujerdi, Wood Mackenzie's Dubai-based director of corporate research, said Aramco will likely need to find overseas buyers for this gas. "If production approaches targets, you need other sources of demand," he said. "If domestic consumption cannot absorb it, the surplus gas can be used for export."

One option is to position Saudi Arabia as an LNG exporter, potentially competing with countries like the UAE and Oman, but this would require Aramco to build liquefaction facilities. Once Aramco decides to export gas, it would have a major impact on the entire industry.

The company is looking for new ways to finance expansion and extract more value from existing assets. One idea is to restructure the gas business itself. People familiar with the matter say Aramco is preparing to spin off its gas business into a standalone company that could eventually be listed, under the code name "Project Gamma."

This differs from Saudi Arabia's recent approach of selling equity stakes in businesses to private investors. In 2021, Saudi Aramco carved out its crude oil pipeline assets and sold a 49% stake to investors including EIG Group and Mubadala Investment Company. The following year, the company completed a sale-and-leaseback deal for its gas pipelines.

People familiar with the matter say Aramco also intends to extract higher returns from other assets including real estate, power, water, and crude oil storage, unlocking more business segments beyond its core crude oil production and processing operations.

Riyadh is pursuing an ambitious economic diversification strategy, attracting capital into non-hydrocarbon sectors and announcing large investments in tourism mega-projects, aviation hubs, artificial intelligence, and other areas.

"Saudi Arabia is undergoing a strategic transformation, developing technologies beyond oil and gas," said Sadad Al-Husseini, a former Aramco executive and independent consultant. This requires Aramco to "create more value from existing resources."

Some industry observers question whether Aramco's gas business can be successfully listed. Two people familiar with the matter said the newly formed company would not include Aramco's overseas LNG assets, and without a substantive plan to build liquefaction plants, an IPO lacks sufficient rationale. People close to the company say Saudi Arabia's domestic gas business sells at government-set fixed prices with stable returns, and may be better suited to the sale-and-leaseback model previously employed.

Pursuing an IPO would be fraught with difficulties given the risk of further Iranian attacks on Saudi energy facilities. One employee said the full potential of the Jafurah field has yet to be verified. Saudi Aramco declined to comment on its gas-related plans.

But the pressure to extract value from the gas business means these considerations will not be entirely shelved. "Aramco needs to maintain oil production capacity and export resilience, accelerate gas capacity expansion, build an overseas LNG footprint, and support Saudi Arabia's overall economic and energy goals," Boroujerdi said.

"In a highly volatile market environment, achieving all these objectives while paying a continuously growing dividend is becoming increasingly difficult." A consultant who has previously served Aramco said: "The core theme is optimizing capital allocation."

Although the US-Iran conflict has pushed up crude oil prices, generating substantial profits, and Saudi Arabia itself has been severely affected by the conflict, Aramco is still pressing ahead with balance sheet optimization. "Aramco itself is not short of money—it's the Saudi state that needs funds," the consultant said.

An Aramco employee revealed that a proposal to build an LNG export terminal using gas from Jafurah's second phase was put forward last year but has at least been temporarily shelved; Riyadh wants to prioritize domestic gas demand.