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Saudi Arabia – why the domestic numbers are more important

05 Nov

It is a well documented fact that Saudi Arabia has the world’s largest crude oil reserves

It’s also a well and frequently documented analysis that the giant Ghawar oil field is now in a rapid state of declining yield and that Saudi’s vast reserves could quite well be beyond the peak cheap oil mark

Population growth in the kingdom is actually quite dramatic and significant. The country’s population has grown nearly 18% since the turn of the 21st century, and the trend does not bode well: Its up 333% in the period of 1975-2009 alone

Along with its vast oil wealth, oil demand is sure to follow:

The total Saudi domestic energy demand is expected to rise from about 3.4 million barrels per day of oil equivalent in 2009 to approximately 8.3 million barrels per day of oil equivalent by 2028 — a growth of almost 250 percent, making the Kingdom the second-biggest source of global oil demand growth after China.

This growing Saudi consumption is a cause for concern, conceded, highlighted and acknowledged by none other than Khalid Al-Falih, the czar of Saudi oil. This is a real challenge to planners here in Riyadh. Inefficiency cannot continue. Al-Falih too acknowledges that unless Saudi Arabia tackles inefficiencies in the way it uses energy, the Kingdom’s availability of crude to export risks falling by as much as three million barrels by 2028 to seven million barrels a day.

Sounds like a drop in the bucket when you consider the fact that their Ghawar oil field produces twice that amount…

As is usually the case, the devil is in the details.

The country’s oil demand has jumped 50% over the last seven years. During that time, population grew less than 8%.

Truth is the Saudis are becoming just as addicted to crude as we Americans. The governments subsidies of domestic fuel pricing has not helped either. Saudi drivers pay $0.61 per gallon at the pump

And at this rate, they will need three million barrels per day to satisfy local demand.

In order to make up this demand, the Saudis will be forced to cut into their exports.

The Saudi Arabia has lost the title of the world’s largest oil producer. Russia’s production was in excess of 10 million barrels per day last year. The Saudis only averaged 9.7 million bbls/d during the same period.

Another wildcard has entered the equation – the ever increasing reliance on high oil prices to balance the Saudi budget

Brad Bourland and Paul Gamble at Jadwa forecast the kingdom’s breakeven oil price to be over $320 per barrel by 2030. The breakeven price is defined as the rate at which actual government revenue will equal actual government expenditure. That compares to around $84 a barrel this year.

In conclusion – we have a situation of:

  1. Rapidly increasing population
  2. Exponential growth of domestic energy per capita consumption
  3. Declining yields of existing oil reserves
  4. Declining rate of new discoveries
  5. Limited investment in production and transport infrastructure
  6. Significant increase in reliance on high oil prices to balance the Saudi budget
  7. Significant increase in spending required to keep balance of power, political and social status quo in tact

Next, I will report on Saudi Arabia’s drinking problem (dire need for water investments) and eating habits (food security)

Read our recent piece – 21st century food wars… its an eye opener

Maybe the time has come for investments in water, agriculture and other scarce resources ??? We do have the solution … click here

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