Figures released by senior Saudi officials are drawing a very serious picture as far as domestic oil consumption is concerned. Minister of Petroleum and Mineral Resources Ali Al-Naimi pointed out that the Kingdom is using 2.5 million barrels of oil equivalent every day (bpd), at a time when the world average is in the range of 1.3 million of oil equivalent daily. At this rate energy consumption is expected to double in less than two decades, or by 2030 to be exact.
A Saudi Aramco official went a step further and stated that the Kingdom is consuming daily 4 million barrels of oil which is equivalent to double the world average.
Addressing a conference on rationalization of electricity use in the Kingdom, Assistant Petroleum Minister Prince Abdul Aziz bin Salman spelled out more details saying that the bulk of the Kingdom’s electricity consumption, which is fueled by crude oil, actually takes place in the real estate sector, which devours 80 percent of the power consumption and that 70 percent of that is consumed in cooling. In addition there is the transport sector, where some nine million cars are running in the Kingdom’s streets and that volume increases by 4-5 percent annually.
In the words of former Minister Hashim Yamani unsustainable situations could pose a serious challenge warranting quick action.
There are two main challenges, in fact — one domestic and the other external. The domestic one involves the issue of how to continue keeping on meeting the increasing needs to provide electricity and petroleum products. And the external concern stems from the domestic one since every barrel of oil consumed locally comes at the expense of oil exports.
Handling the domestic challenge requires tackling two major issues — reviewing the cost for the domestic use and looking for alternatives be it in replacing the use of crude oil or making some remarkable changes in the transport sector to reduce the ever growing reliance on private vehicles.
In tackling the cost issue the first option that jumps to mind is the relatively low cost of fuel for the domestic consumers compared even to other oil producing countries in the region. That low level is in itself a problem as it attracts smuggling mostly in indirect way as many of the traveling cars, trucks and other types of vehicles simply fill their tanks and probably carry more with them on their return journey back home.
But the more controversial issue is whether to raise the price of fuel for the domestic user. Two reasons are usually mentioned objecting to such a move — the inflationary impact of this step, and more important is that one of the biggest consumers, if not the biggest consumer is the government itself. And that where the issue lands on rationalization of power and fuel consumption in general and how to get better results out of it.
Another option is to look for a shift in the energy mix consumed by the Kingdom. The obvious candidate is to resort to nuclear power. Already some studies have suggested that up to 50 percent of the Kingdom’s needs could be met from nuclear sources in two decades time if plans are drawn and implemented.
But when it comes to oil, Saudi Arabia is not concerned with its own welfare. Given its central position for the oil market, such domestic concerns have an international dimension. The Kingdom has taken on itself not only to help meet the world’s growing oil needs, but also to ensure that there is enough spare capacity to enable it step in and fill any shortfall that takes place anywhere and for whatever reason. That ability has been tested successfully over times and has acted as policy insurance for a tumultuous, volatile market. That ability comes with a cost as it involves huge financial burden to maintain that capacity and use it whenever needed.
Keeping the market well supplied is in itself a good contribution to economic stability. Besides with its continuous role as a leading crude exporter, the Kingdom generates a sizable income that enabled it to help contribute to world financial stability as well as has been stipulated by the International Monetary Fund. In addition, its public spending drive has attracted expatriates from all over the world, who were able to make savings and send back home remittances that in itself became a contributor to their domestic economies.
And all that depends to a large extent on the ability to continue as a significant oil exporter. In other words any increase on the domestic consumption at the expense of exports will have geopolitical implications that exceed the Kingdom’s borders. And that brings to discussion the long cherished issue of diversification of the economy.
On energy mix and diversification
On energy mix and diversification
