Negotiations between Saudi Arabia and international oil firms to launch one of the biggest gas contracts in history have entered their final stages and a successful conclusion would be in the interest of the Gulf kingdom, negotiators said yesterday.

Economists are optimistic the two sides could finally strike a deal following nearly two years of negotiations on what is known as the Gas Initiative launched by Saudi Crown Prince Abdullah during a visit to the U.S. in 1998.

"If the negotiations are successful, the contract will involve Shell and other International Oil Companies (IOCs) in the development of the kingdom's gas resources," said Floris Ansingh, president of Shell companies in Saudi Arabia.

"The gas will fuel power, water and petrochemical plants as well as to fee into the domestic gas network for eventual use by industrial users....we are almost at the end of the negotiating process and we are sure that the decision, whichever way it goes, will be in the best interests of the Kingdom of Saudi Arabia," he told Shell in the Middle East Magazine.

The RoyalDutch/Shell is heading one of the consortia involved in tough negotiations with Saudi Arabia to pump at least $25 billion over a period of around seven years into the kingdom's gas sector to tap its nearly six trillion cubic metres of natural gas.

Royal Dutch Shell's consortium is tasked with the development of the remote desert Shaybah field with an estimated investment of $5 billion. BP Amoco and Phillips Petroleum were chosen in the South Ghawar Group, TotalFina Elf and Conoco in the Shaybah consortium and Occidental and Marathon in the Red Sea Group.

Exxon Mobil, which is leading two of the three consortia, won the lion's share in the initial signing last year as it was assigned to develop the South Ghawar field, requiring an investment of around $15 billion, and the Red Sea Field, which needs $5 billion.

Subsequent negotiations on a final deal, shrouded with secrecy, have been bogged down by differences on the expected return from those ventures and other issues, including the real size of the gas reserves in those fields and legal guarantees sought by the firms.

Industry sources said the companies were also asking for bigger concession areas to ensure there will be enough gas to cover their massive investments and make high profits. Differences also covered the extent of influence by the state-owned Aramco in such investments as those companies are demanding almost full autonomy.

"The Gas Initiative is vital for Saudi Arabia but will also benefit the oil you see, it is a mutual interest and both sides should reach a compromise to serve their mutual interests," Said Al Shaikh, chief economist at the Saudi National Commercial Bank, said.

"When the Kingdom announced that initiative, it was a rational decision because it recognised the strong need for such investments...securing its water and power needs as well as expanding its petrochemical sector has become a top priority...let us hope that the negotiations will reach a successful conclusion."

Official Saudi figures showed the kingdom's present developed associated gas resources could meet its needs until 2007, after which new investments are required.

Without such investments, the world's dominant oil power could suffer from a severe shortage in natural gas and it would not be able to cater for its power and water needs. Gas is also needed to fuel new petrochemical ventures, in which an estimated $15 billion are expected to be pumped until 2010.

"They have to get moving now...a water and power shortage is not a joke and those investments will attract other investments," Shaikh said.

Economists said the Gas Initiative would contribute to a 1.5-2 per cent growth in the flagging domestic economy and help tackle the festering unemployment problem as it will create jobs in those direct projects and other indirect ventures expected to materialise afterwards.

"It is time to take a decisive decision and put that deal into action whether with the existing consortia or a new group," Saudi economist Ihsan Bu Hlaika said.