Burning Oil to Keep Cool: The Hidden Energy
Crisis in Saudi Arabia
Paul Stevens
Senior Research Fellow, Energy, Chatham House
Emeritus Professor, University of Dundee
Visiting Professor, UCL Australia
Glada Lahn
Research Fellow, Chatham House
London 28th June 2012
Outline
• Saudi Arabia’s role in
global oil markets
• Current domestic oil
consumption in Saudi
Arabia
• Why might this be a
problem?
• Solutions?
http://www.chathamhouse.org/publications/papers/view/180825
Saudi Arabia’s role in global oil markets
• Maintain spare capacity
(2–2.5 mn b/d)
• Use this to try and
balance the market
Year-on-Year change Million b/d
World oil Demand and Non-OPEC supply 2000-2012
3000
2500
2000
1500
1000
Non-OPEC
500
0
-500 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
-1000
-1500
2000-10 BP Statistical Review of World Energy
2011-12 Consensus Forecast
Spare capacity in OPEC-11
Estimates of OPEC-11 Spare Capacity to Produce Crude Oil
6
Million b/d
5
4
Rest of OPEC
3
Saudi Arabia
2
1
Percentage of sustainble capacity
7
20
18
16
14
12
10
8
6
4
2
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
0
Dec 2009 Dec 2010 Dec 2011
Based on IEA Estimates
3
Current domestic oil consumption in Saudi Arabia
Energy consumption in the GCC (ktoe)
• Has been rising rapidly
• This might be viewed
as a good thing
– Energy as a factor input
– Energy as a key input
into standards of life
Current domestic oil consumption in Saudi Arabia
G D P in U S $ p e r k g o f o il e q u iv a le n t e n e r g y u s e
• Energy use is extremely
inefficient – Brzeen Hotel
Case Study
12
Japan
Euro area
United States
Saudi*
China
Saudi non-oil
GCC average
GCC average excluding Qatar
UAE
10
8
6
4
2
0
5
19
75
19
77
19
79
19
81
19
83
19
85
19
87
19
89
19
91
19
93
19
95
19
97
19
99
20
01
20
03
20
05
20
07
20
09
• BUT energy intensity is
rising while elsewhere it
is falling
Why might this be a problem?
•
It is a waste
•
Environmental impact including air
pollution and high transactions
costs from congestion
•
Low prices benefit the rich and
lead to smuggling
6
Why might this be a problem?
•
It is a waste
•
Environmental impact including air
pollution and high transactions
costs from congestion
•
Low prices benefit the rich and
lead to smuggling
•
It might eat into Saudi Arabia’s
role in the world oil market
•
It shortens the period of transition
for Saudi when the non-oil
economy must be developed
7
Transition issues
• Simply re-shuffling
the country’s asset
portfolio
• The key is to
remove the nonhydrocarbon fiscal
(and current
account) deficit
Million barrels of oil equivalent a day
• Oil revenue is not
income
Depletion-led
development
Transition
phase
Dependence
7
6
5
4
3
2
1
0
2006
2011
2016
2021
2026
2031
2036
Hydrocarbon Consumption
Hydrocarbon Production
Hydrocarbon Exports
John V Mitchell and Paul Stevens Ending Dependence: Hard Choices for Oil-Exporting States. July 2008
http://www.chathamhouse.org/publications/papers/view/108858
Solutions?
• Need to realize there is a problem
• Identify causes
– Industrial strategy
– Increasing living standards in a harsh
climate
Solutions?
• Need to realize there is a problem
• Identify causes
– Industrial strategy
– Increasing living standards in a harsh
climate
Oil demand = derived demand
1. To buy or not to buy
the appliance?
2. If yes – what type
of appliance?
Fuel type?
Efficient or
inefficient?
– Low fuel prices
3. Capacity utilization?
OIL CONSUMPTION
Solutions?
• Need to realize there is a problem
• Identify causes
– Industrial strategy
– Increasing living standards in a harsh
climate
– Low fuel prices
• Inefficient appliances
• Culture of waste
Oil demand = derived demand
1. To buy or not to buy
the appliance?
2. If yes – what type
of appliance?
Fuel type?
Efficient or
inefficient?
3. Capacity utilization?
OIL CONSUMPTION
Solutions
• Low prices
– Problem of the social contract
– Lifeline rates – electricity – smart cards for gasoline
– Possibilities for price discrimination against expatriates
• Inefficient appliances
– Appliance standards
– Imposing maintenance requirements –e.g. Abu Dhabi and aircon.
• Culture of waste
– Islamic dimension
12