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Saudi oil exports under threat from within

Saudi oil exports under threat from within

Huge fuel subsidies, which have helped sedate Saudi social unrest throughout the Arab Spring, are exacerbating a demand boom that is lapping up the world's largest oil reserves.

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October 15, 2011 10:00 by



But Jadwa expects exports to fall far more dramatically, with less than 5 million bpd escaping onto the global market by 2020, thanks to a 60-percent surge in internal demand to nearly 4 million bpd and barely enough new production to offset declines from older fields.

A simultaneous subsidy-driven fuel demand boom and natural gas shortage could see oil consumption hit 6.5 million barrels per day (bpd) by 2030, or over half Saudi’s current production capacity, according to a report by Jadwa published in July.

“The kingdom is likely to experience only a very gradual increase in production of crude oil… Based on current plans we do not expect an increase in overall production capacity for at least five years,” analysts at an investment company set up by Saudi royalty said.

“The country’s domestic consumption of energy, especially oil, at very cheap prices, is also likely to rise rapidly, sharply reducing the amount of oil available for export.”

POWER PROBLEM

The IEA estimates Saudi Arabia will burn an average of 582,000 bpd of oil this year — three times as many barrels as in 2007 — to meet rising electricity demand as its modest gas supplies are channelled to other industries.

Some analysts say Saudi power sector oil use already far exceeds a million barrels on hot days and that it will keep rising unless the kingdom finds much more gas or lifts a gas import ban.

New gas fields due onstream over the next few years should help temper oil burning in the power sector a little. But gas prices fixed at a fraction of international levels are both driving up industrial use rapidly while discouraging new gas finds needed to meet future demand.

Instead, Riyadh hopes one of the world’s most ambitious nuclear power programmes, which could see 16 reactors built by 2030 and the first online around 2020, will slash oil burning and maintain oil export revenues.

“Saudi Arabia will be able to fuel the growth of its burgeoning economy without significantly reducing its oil exporting capability,” Saudi Prince Turki al-Faisal said in a speech in Madrid in late September.

“Solar energy will fill the gap in the short term … and within a decade, plans call for nuclear power to play the leading role.”

But Saudi solar power progress has been glacial, amounting to less than 100 megawatts (MW) installed since 2009, compared to more than 13,000 MW built inGermany, despite an abundance of space, sun and funds.

And while the high cost of building nuclear plants should be no issue for a country burning several billion dollars worth of potential oil exports each summer in power plants, the lack of any deals to build a single reactor means there is little chance of the notoriously slow projects replacing oil much before 2020.

“I think solar energy will not make a big difference in the region’s energy balance,” Aissaooui said.

“As for nuclear … it will be slow to start. In any case, it’s a complex process, with long lead times.”

FUEL FOR GROWTH

Shrinking Saudi spare capacity may be the single biggest concern for oil supplies but it is only part of a wider boom in Middle East energy demand.

“The Middle East is not only the largest regional exporter of crude oil but also an increasingly significant consumer of oil and oil products,” Riyadh-based HSBC bank analyst John Tottie said in a report.

“Demand has increased 4.1 percent each year since 1990, ahead of even the 3.5 percent growth rate in Asian demand, which includes the well-publicised Chinastory.”

HSBC notes that while average global energy use per unit of gross domestic product fell by around 5.6 percent from 1995 to 2010 it has surged by about a third in Saudi Arabia, where industrial users get oil and gas from Saudi Aramco at much less than a tenth of current international prices.

In a region where it is not unusual for people to leave their gas-guzzling engines running to keep cars cool while they shop because fuel is so cheap, per capita fuel use is understandably high and rising.



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