Will Saudi Arabia become an oil importer by 2030?
While such speculation may be mathematically possible, under extreme conditions, it is rather laughable to imagine Saudi Arabia in 2030 consuming all of its oil production, let alone importing oil, because that would be fiscal suicide and economic collapse all in one. After all, in 2011 oil revenue accounted for 93 percent of the government budget. Without revenue from exported oil, the economy would simply grind to a halt. As no country would allow such a fate, one would expect Saudi Arabia to find alternative solutions long before that date.
The facts are fairly well known. As I wrote in two articles in Arab News last March, oil consumption per capita in Saudi Arabia is the highest in the world. In total, we consume some three million barrels a day, which translates into over a billion barrels a year, or about (40) barrels per person each year. Saudi per capita consumption is in fact the highest per capita rate in the world, four times more than the United States, five times that of South Korea, and eight times the rate of consumption in Japan.
More to the point, consumption of oil in Saudi Arabia is growing fast; it has jumped from around (30) per capita to over (40) barrels a year, during the past decade, or 33 percent increase. Some estimates for the growth rate have put it as high as 5 percent annually.
Depending on the rate you project for the growth in oil consumption in the future, you could calculate when Saudi consumption would theoretically outstrip production. Citigroup researcher seems to have used a rather high expected rate of growth to reach the conclusion that Saudi Arabia could be a net oil importer by 2030.
In my column last March, I cited some research that concluded that Saudi domestic consumption could top seven million barrels a year by 2030.
Most economic forecasting is based on a general rule of ceteris paribus, which is Latin for assuming everything else would remain the same. This assumption, which is mostly unrealistic, enables economists to zero in on one variable to project its behavior, while everything else constant. While regrettable from a forecaster’s perspective, it is rather fortunate for us that other things rarely stay constant. We can do something about it.
To avert those doomsday scenarios, we should work on both energy supply and demand, to increase and diversify the former and reduce the latter.
First of all, the main mode of transportation in Saudi Arabia is passenger cars, not public transportation. Cheap fuel makes it attractive and convenient to continue that way, but we need to reverse this situation, as in the rest of the world, in order to reduce consumption. Efficient, state-of-the-art, train and bus systems are needed to wean Saudi drivers from their much cherished cars and thus make it possible to reduce oil consumption.
Second, we need to improve efficiency in power production. Our electricity production could use more efficient technologies that use less oil. I know that such upgrade is in the works, but we need to speed it up to reap the benefits sooner.
Third, most Saudis are only marginally aware of the need for oil conservation. They take cheap oil for granted, unaware that its cheap price does not cover real economic cost. The fact that oil consumption is rising at 5 percent annually, or more than double population growth, is evidence that public conservation campaigns have not made a dent in popular perceptions. What is needed is a well-sustained campaign that enlists influential opinion makers, including officials, religious figures, teachers, writers, and artists.
Fourth, on the supply side, Saudi Arabia needs to aggressively develop new energy sources. Renewable energy sources could reduce oil consumption and pollution at the same time. Saudi Arabia has a clear comparative advantage in solar energy, but to make any renewable energy competitive, oil price structure should be revised.
Finally, there is a price mechanism. One reason why people use so much oil is its extremely low price. Conservation campaigns would have very little effect if prices remain low. On other hand, raising the price would force industry and individuals to reduce their fuel consumption. Other countries’ experience shows that to be the case. A case in point is the US, which like Saudi Arabia had an entrenched car-oriented culture for decades.
Before 1973, US energy consumption was growing at a rate of over 3 percent annually with no signs of slowing down. However, following the price shocks of the 1970s, consumer behavior changed drastically. Between 1973 and 2002, total energy consumption grew at an average annual rate of 0.9 percent. Industrial use did not grow at all since 1973. Oil consumption, in particular, has steadily declined, as I pointed out earlier.
In sum, while the story that made the rounds last week seemed rather alarmist in its exaggeration, it is essential that we start thinking of reasonable solutions to reduce our runaway consumption of oil. And while the outlook is indeed grim, for now, fortunately for Saudi Arabia there are many ways to avert such disastrous scenarios.
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