The Emirates have an energy problem. It is not obvious to outsiders, who see in the Gulf a bottomless lake of hydrocarbons. Nevertheless, the tiny kingdoms that make up the United Arab Emirates are struggling with energy.

It is not only Dubai, the ambitious city-statelet that is reinventing itself as the Singapore of the region, pumping the wallets of tourists and financiers as its oil wells run dry. The whole region needs more power and, above all, it needs more natural gas to generate the electricity that keeps the lights on, the water desalinated and the air chilled in the hothouse petrodollar economy. Like tigers chasing their tails, the Emirates are in a frantic dash for gas.

Natural gas is the fuel that keeps the Emirates’ economic motor running. Gulf states once burnt barrels of crude to generate electricity, but that wasteful and polluting practice is being phased out rapidly. Priced at $93, oil is the export cash crop that must be harvested daily, but gas is the fuel of choice for domestic power stations.

Gas used to be cheap in the Gulf. A decade ago, the methane that bubbled up with the oil was flared – a massive and extravagant bonfire. Now, it is piped into power stations and gas is becoming the new political and economic currency in the Gulf’s great energy game.

It is also more expensive. A decade ago you could not give away gas, but today a power station in Dubai has to compete for resources. It can no longer simply suck in surplus fuel from neighbouring Abu Dhabi. Dubai’s stately rival in the race for nonoil income has the fifth-largest reserves in the world, of about 200 trillion cubic feet of gas under its feet, but, unlike the oil that made it rich, Abu Dhabi is struggling to turn its second natural legacy from wasted molecule into useful electrons. Much of Abu Dhabi’s gas is being pumped back into oil wells to keep the pressure up, but the vast untapped resource is waiting for development: sour gas, high in sulphur and an expensive technical problem. Instead, the gas-rich state is piping in supplies from Qatar, another Gulf rival, and the price is rising.

Bizarrely, the Emirates are competing for Qatari gas with buyers from as far away as Massachusetts and South Korea. The seaborne trade in liquefied natural gas has changed the energy equation for ever. Suddenly, the oil-rich states of the Middle East are experiencing bottlenecks, logistical problems and energy price inflation. The Gulf is on the cusp of a phenomenon that the West knows well: the beginnings of an energy shortage.

Economic growth at double-digit percentage rates has a cost. In 2005 Dubai suffered a blackout, and a series of price increases in diesel fuel caused shock and uproar last summer, although the cost per litre for people in the UAE remains a tiny fraction of what consumers pay in Europe and North America.

The rulers in the UAE know that there is a problem, but there is no sign that they wish to curb the breakneck rate of economic expansion. Abu Dhabi’s response to the challenge of fossil-fuel scarcity is to emulate Dubai’s pursuit of tourist and service dollars, although Abu Dhabi says that it will add planning, a discipline lacking in Dubai’s rush to pave the desert with concrete.

Within this plan is Masdar, a 6 sq km (2.3 sq mile) city in the desert, which will be powered entirely by renewable energy. Sultan al-Jaber, the man behind the project, wants Masdar to be a beacon for an alternative energy future with a research institute developed jointly by MIT, the manufacture of renewable energy products, backing from major energy companies and a humming community that will lead Abu Dhabi’s transformation from an oil economy to a knowledge economy. Oil is not the long-term future: it is a brave idea for a tiny Gulf petrostate. If anywhere has the money to build such a vision, it is certainly Abu Dhabi, but it will need a lot more than cash to bring it to fruition. Along the way, the UAE needs to address a different problem: human energy.

The headlong expansion of the Gulf states has been fuelled not only by oil but also by the importation of skills, to the extent that Emirates citizens represent a cultural and ethnic minority within their own countries. Nearly four of every five people in the UAE are foreign citizens. A roaring economy provides space for everyone, but Dubai will not always be a boom city. These states are floating in uncharted waters. As their economies mature, questions will be asked about the social contract between the 3.5 million resident aliens and the one million hosts. Are sunshine, a job, a beach and zero tax enough to make a satisfactory deal, or do the UAE citizens need to ask more difficult questions: who are we and what makes one of us?

Where everything is done on a grand scale, except taxation

1 Forty real estate projects each worth $1 billion or more are under way in Dubai and Abu Dhabi, out of the $500 billion up for grabs over the next decade in the UAE

2 Nakheel, one of Dubai’s state-run developers, has plans for a 1,050m (3,444ft) “stratroscraper”, named al-Burj but dubbed “the 1km building”, rising to 228 storeys and topped by a 200m spire

3 Nakheel is constructing four islands for luxury housing, shopping and hotels: Palm Jumeirah, Palm Jebel Ali and Palm Deira, and the World. On Palm Jumeirah alone there will be 30 five-star hotels

4 Dubai, where temperatures regularly exceed 40C (105F), boasts an indoor ski slope at the Mall of the Emirates, but plans are afoot for a much larger Olympic-sized indoor ski slope in what is now desert

5 Dubai office rents have reached the equivalent of £65 a sq ft in the Jumeirah Emirates Towers, which equals top rents for new office space in the City of London

6 Residential landlords in Dubai must cap their annual rent inflation on tenants at 7 per cent after legislation came into force at the start of the year

7 In Dubai, businesses pay no corporation tax and individuals pay no income tax, while stamp duty is kept to 1 per cent of the value of a property

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