The second phase of the Master Gas System Expansion (MGSE2) project will boost the aging system’s capacity to 12.5 billion cubic feet (354 million cubic metres)

Saudi Aramco is moving ahead with a multibillion-dollar gas project that will help reduce wasteful crude oil burning in its power plants and increase fuel supplies to the country’s strategic downstream sector.

Aramco has so far awarded three contracts worth $1 billion for the second-phase expansion of its master gas pipeline system, which sends gas from fields in the oil-rich Eastern Province to power plants across the country and industrial clusters in Jubail in the east and Yanbu in the west, industry sources say.

The second phase of the Master Gas System Expansion project, known as MGSE2, will boost the aging system’s capacity to 12.5 billion cubic feet (354 million cubic metres) of gas per day (bcfd) from the current 8.4 bcfd when it is complete in 2018.

State-owned Aramco, the world’s biggest oil exporter, is making gas-related projects a priority as it looks to meet growing domestic and industrial demand, and provide much-needed feedstock to Saudi Arabia’s petrochemical and power producers in the coming years.

The company recently floated a proposal to spin off a section of its downstream operations via an initial public offering (IPO) – and ensuring there is enough gas feedstock for this segment is a major part of that plan, according to Saudi-based insiders.

Saudi Arabia burned some 900,000 barrels per day of crude in its power plants during the last summer’s hottest months, and Aramco has tried to increase gas production in the kingdom to keep pace with rapid domestic electricity growth.

Last year’s hike in Saudi gas prices "will also help relieve some of the budget pressures off Aramco to go ahead with projects like this," says a Mideast Gulf-based industry source. Riyadh’s fuel-price reforms in 2015 increased gas prices to $1.25 per million Btu ($42.85 per thousand cubic metres) and ethane prices to $1.75/MMBtu. Both had previously been fixed at a world low of 75¢/MMBtu since 1998.

The three pipeline construction packages were awarded to local contractor KAD Construction late last year, and are part of Aramco’s plans to increase its east-west gas transportation capacity across Saudi Arabia and save on burning liquid fuels, a KAD source says.

Aramco had prequalified eight local and international firms to bid on four pipeline packages for the $1.5 billion MGSE2 project in mid-2015. It’s unclear when the fourth package will be awarded.